Restraint of Trade Clauses

Restraint of trade clauses are void unless the employer has a legitimate business interest to protect and the clauses are reasonable in terms of activity prohibited, time limit and geographical extent. Clauses may be deemed enforceable if they lack uncertainty, or if they are too wide.Â

The Law

(1) The employer must have a legitimate business interest to protect.

To protect business interest employers will usually incorporate a non – compete clause into their contracts. Such a clause is usually used to protect an employer’s trade connections and terms of business. The following are examples of legitimate business interests:Â

Trade connections – would a breach of a non-compete clause result in actual or potential harm to the employers business? i.e. damage will occur if the employers customers transfer to the competitor.

Trade secrets or highly confidential information – an example would be special prices for important customers. A breach would occur if the information is disclosed and is likely to cause a ‘real and significant damage’ to the employer.

Restraint of trade clauses can only be imposed on persons who have possession of the protected information. For an example a commercial manager of a sales company would have access to protected information. On the other hand a cleaner at that same company would not.Â

(2) The clauses must be reasonable in relation to activity prohibited, time and geographical extentÂ

Non – competition clause: a clause would be deemed void if the clause covers a post which is wider than the employers business requires.

Time – One year probably acceptable unless the information and customer connections are subject to rapid change in which case one year may be too long.

Geographical extent – the area must be no wider than the area in which the employer did business.

Non – Solicitation clause: This should prevent an ex employee from contacting the employers customers. In WRN Ltd v Ayris [2008] EWHC 1080:Â

“The relevant covenants were to wide to be enforceable solely by reason of the fact that they were not limited to preventing…[him] having contact with customers with whom he personally had had dealings…There was no justification for restraining him from having contact with customers…with whom he personally had had no dealings.”

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