Restraint of trade and capacity case

Law When considering if a restraint on trade clause will be enforceable, it is for the employer to establish that the restriction is reasonably necessary in the protection of their business. The longstanding Court of Appeal case law provided that an unreasonable clause would be held to be unenforceable in its entirety. Another provision of the restraint of trade clause that troubled the judge in this case was the prohibition on employment in any business in competition with Ryanair “in any capacity”.

A contractual undertaking not to trade is void and unenforceable against the promisor as contrary to the public policy of promoting trade , unless the restraint of trade is reasonable to protect the interest of the purchaser of a business. Restraints of trade can also appear in post-termination restrictive covenants in employment contracts. Is restraint of trade necessary?

How to maximise the protection of a restraint of trade clause? How long is a contract considered a restraint of trade? What is restraint of Trade and non-compete agreements? For instance, the buyer may wish to prevent the seller entering the same type of business in the same geographical location for a certain period of time.

The purpose of a restraint of trade clause is to protect a business interest. In the employment context, restraint of trade clauses are usually used to prevent employees or directors leaving and immediately joining a direct competitor. However, in the commercial context, restraint of trade clauses can be much wider reaching. The impact of restraint of trade undertakings on former employees of a business is accordingly potentially quite prejudicial and has been argued to prevent restrained persons from exercising their constitutional rights to choose their trade , occupation or profession.

That presumption can, however, be rebutted by proving that the restraint is ‘reasonable’, both as between the parties and in relation to the public interest. Much of the case law in this area is concerned with deciding what is ‘reasonable’ in this context. One factor that makes this case unique is that it involved a sale of shares. The courts have a greater tolerance of restraint of trade clauses in contracts for the sale of business as opposed to employment contracts.

This is because the courts consider that a purchaser of goodwill is entitled to protection of that goodwill. Under the common law doctrine of restraint of trade , any undue restriction on a person’s capacity to engage in trade will be treated as invali even if the restriction has been freely accepted. A restraint of trade clause may, therefore, be imposed to prevent an employee, director, partner, etc.

Restraint of trade clauses in the context of employers aim to protect a business’s goodwill and trade secret. The clause is invalid as drafte but the unreasonable parts can be severed to save it from being void (ie a restraint of trade). Problems with unenforceable restraint of trade clauses are usually caused by employers using template provisions in employment agreements that don’t consider the purpose, nature and extent of each restraint.

When drafting a restraint, employers need to make it as individualised and as limited as possible in the circumstances. The case was significant, as whilst Schroeder demonstrated the doctrine of restraint of trade applied to publishing contracts, this was the first case where the doctrine was considered in relation to recording agreements. Dillon LJ for the Court of Appeal determined a number of clauses stringent but three provisions were crucial. Addyston Pipe and Steel Co.

United States, 1U. TheExtended Restraint ofTrade Doctrine: Its Basis andImpact onthe Civil Conspiracy to Injure 1R. Courts interpret restraint of trade clauses depending on the facts of each case and prior determinations for similar businesses at the time.

Assessing a Restraint of Trade Clause. The courts presume a restraint of trade to be unenforceable and void unless a party can justify that it is reasonable. While there are many earlier cases dealing with restrictive covenants for the protection of confidential information, in which the court needed to ensure that the area of employment in which the restraint operates is no more extensive than is necessary for the protection of that information (ie, that it does not extend to encompass employment where the information is not relevant), the cases in the period surveyed deal with covenants designed for the protection of goodwill.