Unfair restraint of trade

What is a restraint of trade clause? Are restraints of trade legal? A restraint of trade clause may, therefore, be imposed to prevent an employee, director, partner, etc. The restraint of trade doctrine is based on the two concepts of prohibiting agreements that run counter to public policy, unless the reasonableness of an agreement could be shown.

Employers often include ‘restrictive covenants’ or ‘ trade clauses’ into employees’ contracts which means they can’t share trade secrets or confidential information outside the organisation. At the most basic level, restraint of trade is any activity that prevents another party from conducting business as they normally would without such a restraint. For instance, two businesses agreeing to fix prices in order to put another competitor out of business is an illegal restraint of trade. 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.

Where an employer seeks to enforce a restraint of trade clause , it is in essence arguing that the employee has an unfair advantage. The employer may have entrusted the employee to deal with its clients and exposed the employee to its confidential information. Such restraint tends to restrict production, affect prices, or otherwise control the market to the detriment of purchasers or consumers of goods and services. An employer may try to add a restraint of trade clause to the employment contracts of key employees to protect their interests in the event the employee resigns and joins another company, which could be a competitor.

Alcock says that, generally speaking, a restraint-of- trade agreement can be enforced even in circumstances where the termination of the employee’s employment is unfair, wrongful or unlawful,. Human resource and legal experts said the unfair terms found in some job contracts can range from illegal salary deductions when performance targets are not met and penalties for contract. The area of law which deals with restraint of trade in employment contracts is complex.

Given that a restraint of trade imposes a restriction on a person’s freedom – for example, by preventing them from getting a job with a competitor – courts will often examine the wording of such clauses in minute detail. Restraint of Trade Contents 14. A Short essay on the operation of restraint of trade in UK employment law and model advice on unfair dismissal.

The firm has been instructed on a variety of occasions to calculate the losses arising from improper restraints of trade. These situations typically arise when former employers attempt to apply unfair restrictions on the activities of former employees. Alternatively they can arise from unfair trading practices, such as the operation of cartels.

Generally speaking, a restraint of trade clause refers to an instance where one party agrees with another party to restrict a person’s right to carry on their trade or profession. The validity of a restraint of trade depends on the facts of the specific clause (s) in question. A court begins with the assumption that a restraint of trade clause is unenforceable as a matter of public policy.

The Supreme Court of United States, in the leading decision in Standard Oil Company vs. There are various restraint of trade remedies available to an employer where an employee or former employee breaches a restraint of trade clause in their employment contract. The primary remedy is to obtain an injunction from the court which will order the former employee from doing certain things. Other examples of unfair terms include penalty clauses where a party specifies an amount payable on breach of contract which is out of proportion to the loss that the party would suffer.

Employers restructuring workforces need to prepare for the termination process to avoid unfair dismissal claims, and protect their business beyond the period of employment by applying reasonable restraints of trade. Similarly, employees should be aware of their legal rights. COVID-1 the Employer bears the onus of instituting litigation of the dispute in the Labour Court to interdict the Employee from breaching the restraint of trade clause.

A typical restraint clause prevents a departing employee from working for a competitor in any capacity for a specified period. Other restrictions may also be include such as not soliciting a former employer’s clients, customers or staff, and not using a former employer’s confidential information. The current presumption is, therefore, that contracts or provisions within a contract which are in restraint of trade are unenforceable.

The most common restraint of trade clauses. 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.