Restraint of Trade Clauses - The LAW
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1 October 2012
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.
(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:
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.
(2) The clauses must be reasonable in relation to activity prohibited,
time and geographical extent
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
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  EWHC 1080:
"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."
Aneela Akbar is a trainee solicitor and can be
contacted at email@example.com
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Article Published/Sorted/Amended on Scopulus 2012-11-01 09:08:05 in Legal Articles