Restraint of trade clause sale of business

Restraint of trade clauses in business sale agreements. What is restraint of trade clause? Is a restraint in a sale of business contract enforceable? How to protect your business from restraint of trade? How to maximise the protection of a restraint of trade clause?

Standard contracts in New South Wales (NSW), Queensland (QLD) and Victoria (VIC).

The courts presume a restraint of trade to be unenforceable and void unless a. A restraint of trade clause is a contractual restriction imposed upon a business or an individual for a finite 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. Court finds that Freedom fails to establish that.

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. When you sell a business including its “goodwill” (your business’s commercial reputation and its customer connections ), the sale agreement will probably include a “ restraint of trade clause”. This clause will prevent you from operating in competition with your sold business for a period of time.

A ‘restraint of trade clause ’ is designed to protect the goodwill of a business sold by the vendor to the purchaser. Typically, a restraint of trade clause will prohibit the vendor from carrying on a competing business (or engaging within a competing business ) within a certain geographical area or radius over a given time period. 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. Typical restraint of trade clauses in sale agreements would seek to prevent the sellers from exercising certain functions post-completion. Without a restraint clause the goodwill in many companies could effectively be impossible to sell. The recent decision of the Supreme Court of. RESTRAINT OF TRADE CLAUSES AND ENFORCEABILITY COMMON LAW PRINCIPLES.

GOODWILL COVENANT BASIS OF DISPUTE NOT. In a business context, they offer protection to a buyer who has acquired a business and prevent the seller from directly competing against the buyer. The contact of sale included a restraint of trade clause.

The business manufacture service and repaired hydraulic cylinders. A587of the sale price was attributed to goodwill. This Agreement provides for us to invest time and money in supporting you and in assisting your progress with Aussie. This assistance may include training, support, and other benefits which you receive as an Aussie contractor. Although the transaction did not include an acquisition of the JD Group insurance business , the sale of business agreement contained a restraint of trade clause , restricting the JD Group from offering credit life insurance to customers, in competition with RCS, for a period of three years after the date of the merger.

Even more so if the seller (e.g. hairdresser) has a loyal customer base who will follow him to the new venture.

Cascading restraint of trade clauses generally provide that each variable is treated as a separate clause , severable and independently binding on the parties. So while one combination of variables may be unreasonable, the employer may still enforce a less unreasonable restraint without the entire clause being struck out. A restraint of trade is a special clause found in primarily in employment contracts but also other agreements such as between shareholders and business partnerships. This type of clause is customized according to each agreement but essentially it has two components.

An effective restraint of trade clause is the best mechanism to minimise risk of damage to the business , stipulate clear sanctions for breach and provide a clear means of enforcement if the. The High Court held that the restrictive covenant imposed on the vendor, which was expressed to last for no less than eight and a half years, was not an unreasonable restraint of trade. It was justified in this case as the vendor would be a formidable competitor and the buyer had paid very substantial consideration for the goodwill in the business.