This clause establishes the procedure for resolving disagreements about whether a restrictive covenant (such as a non-compete, non-solicitation, or confidentiality obligation) should be terminated, modified, or enforced. Restrictive covenants are promises that limit what a party can do—for example, an employee agreeing not to work for competitors or solicit customers for a specified period. Disputes arise when one party claims the covenant is no longer valid (perhaps because the business relationship has ended, circumstances have changed, or the restriction is unreasonably broad), while the other party insists it remains enforceable. This clause provides a mechanism—such as arbitration, mediation, or court procedures—for resolving such disagreements without either party simply ignoring the covenant and risking litigation.
The clause matters because restrictive covenants are heavily regulated and courts scrutinize them for reasonableness regarding duration, geographic scope, and scope of restricted activities. A well-drafted termination dispute clause can clarify how parties will determine enforceability, who bears the burden of proving the covenant is unreasonable, and whether either party can obtain injunctive relief (a court order stopping the other party's conduct) while the dispute is pending.
Ensure the clause specifies a clear dispute resolution process (negotiation, then mediation, then arbitration or litigation) with defined timelines at each stage to prevent indefinite delays. Clarify the burden of proof—typically, the party seeking to terminate or modify the covenant should bear the burden of proving it's unreasonable, overly broad, or no longer applicable. Include language addressing whether the covenant remains in effect during the dispute (status quo approach) or is suspended pending resolution, and whether either party can seek emergency injunctive relief. Consider adding criteria for modification (e.g., narrowing geographic scope) as an alternative to full termination.
Frequently Asked Questions
What does this clause mean in simple terms?
This clause establishes the procedure for resolving disagreements about whether a restrictive covenant (such as a non-compete, non-solicitation, or confidentiality obligation) should be terminated, modified, or enforced.
Why should I care about this clause?
Restrictive covenants are promises that limit what a party can do—for example, an employee agreeing not to work for competitors or solicit customers for a specified period.
What are my options?
Disputes arise when one party claims the covenant is no longer valid (perhaps because the business relationship has ended, circumstances have changed, or the restriction is unreasonably broad), while the other party insists it remains enforceable.
How does this affect small businesses?
This clause provides a mechanism—such as arbitration, mediation, or court procedures—for resolving such disagreements without either party simply ignoring the covenant and risking litigation.