The power to contract is extremely broad, but that doesn’t mean the power is limitless. You can’t contract to perform illegal activities and you certainly can’t contract away constitutional rights. Contracts won’t be enforceable if they’re unconscionable and, in making enforceability determinations, courts give significant weight to public policy.
Two examples of such public policy considerations relevant to many commercial agreements deal with (i) an author’s moral rights; and (ii) each person’s right to compete in the marketplace.
1. Moral Rights
Moral rights prohibit other people from distorting or modifying the work to the prejudice of the author. As a result, only the author may have these rights, and they cannot be assigned to anyone else. However, by waiving those rights in a contract, an author can promise not to use those moral rights against others.
If other IP rights in the work have been transferred to you, depending on how you intend to use the work, the author’s moral rights may need to be waived. For example, if you intend to conduct research, a waiver of the moral rights would allow you to use the material as a part of a bigger project. If moral rights are not waived, any integration or modification to the author’s material would be an infringement of the author’s moral rights.
To avoid liability and ensure that you have complete rights to use the work of the author, a standard moral rights clause should be included in any IP agreement. For example, most software development agreements will include a moral rights waiver clause in addition to an assignment of IP clause.
2. Right to Economic Competition: Non-Disclosure, Non-Solicit, & Non-Compete**
Our economy is based on competition in the marketplace, and the courts have been reluctant to enforce contractual provisions that place unnecessary restraints on trade. In other words, the courts have placed limits on the extent to which they will permit a person to ‘give away’ their right to compete in the marketplace.
At the same time, the courts have tried to balance ‘restraints on trade’ with legitimate efforts to protect a business’ confidential information, or efforts to protect against unfair competition.
The enforceability of the ‘restrictive covenants’ clauses: non-disclosure (of confidential information), non-solicitation (of employees or customers or business opportunities), and non-competition (with the business of the company), will depend on whether the particular clause is too restrictive.
For example, a temporary restriction on competition might be justified in order to prohibit an employee from using knowledge about the employer to unfairly take advantage of the employer and to cause injury to the employer’s business, but a restriction that goes so far as to make it impossible for the individual former employee to earn a living in their chosen profession will not likely be enforced.
To be enforceable, a non-competition clause (for example) must include limitations of time, geography, and scope of activities. For all restrictive covenants, the clauses must be unambiguous and reasonable (reasonably necessary to protect the other party) in order to be enforceable. Courts are hesitant to enforce restrictive covenants and only do so when it is necessary to prevent unfair business practices.
If you are subject to a restrictive covenant, make sure you understand the specific limitations to your activities, and seek legal advice about whether it is enforceable against you.
If you choose to include a restrictive covenant in a contract with another party, take the time to ensure that the limitations are clear, reasonable, and that you have objective evidence to show that they are only as restrictive as is required to protect your legitimate interests. Otherwise, if they are too restrictive, they might be completely unenforceable - and you will end up with no restrictions.
Clauses of this nature can be found in a variety of agreements, such as:
For agreement templates and samples of clauses discussed here, check out Clausehound’s Small Business Law Library!
