Thursday, December 15, 2011

What's the Meaning of "Relationships" Clause in Contract?

Dear Rich: I was reading the basic NDA on your website and I'm unsure of one clause you included. "5. Relationships. Nothing contained in this Agreement shall be deemed to constitute either party a partner, joint venturer or employee of the other party for any purpose." This is a confusing statement. Would you be able to explain what this means? Any help would be appreciated. Thanks! If you were reviewing an NDA at our site, then the explanation should have been available to you by clicking on the hyperlink for "Relationships." If you were unable to access it, here's an explanation below. (Note that this clause is also sometimes referred to as a "No Joint Venture" clause, too.)
Your relationship with the receiving party is usually defined by the agreement that you are signing -- for example an employment, licensing or investment agreement. To an outsider, it may appear that you have a different relationship, such as a partnership or joint venture. It's possible that an unscrupulous business will try to capitalize on this appearance and make a third-party deal. That is, the receiving party may claim to be your partner to obtain a benefit from a distributor or sublicensee. To avoid liability for such a situation, most agreements include a provision like this one, disclaiming any relationship other than that defined in the agreement. We recommend that you include such a provision and take care to tailor it to the agreement. For example, if you are incorporating the NDA provision in an employment agreement, you would delete the reference to employees. If you are using it in a partnership agreement, take out the reference to partners, and so forth.

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