Restraint of Trade – how it affects you
Quite often when an employee is looking at moving on their first thought is to take clients with them. This can be a minefield because of the legal restraints they have agreed on in their employment contract.
It is legitimate for a company or business to protect its intellectual property when operating. Protecting goodwill is common and is usually done by inserting a non-compete or restraint of trade clause into an agreement or contract.
Restraint of trade clauses are generally difficult to enforce; this is because the courts do not want to restrain or stop a person from carrying on a business or trade. For a restraint of trade to be acceptable it must not go any further than what is necessary to protect a legitimate business interest. For example, preventing an employee from poaching clients which they have met during the course of employment may be reasonable but preventing that person from placing a bona fide job advertisement and attracting clients that way is not.
It is ultimately up to the Court to decide whether a restraint of trade clause is valid or not and whether a worker or employee has breached that clause. When considering a clause, it is important to look at the following:
- what is the activity that is prevented or stopped;
- whom is the clause trying to prevent from the activity;
- how long must the activity be stopped; and
- where is the clause attempting to prevent the activity.
If the balance between the interests of the business/company and the worker are unreasonable then then the Court may consider the restraint of trade clause to be invalid.
The information in this document, broadcast or communication is provided for general guidance only. It is not legal advice, and should not be used as a substitute for consultation with professional legal or other advisors. No warranty is given to the correctness of the information contained in this document, broadcast or communication or its suitability for use by you. To the fullest extent permitted by law, no liability is accepted by the publisher for any statement or opinion, or for an error or omission or for any loss or damage suffered as a result of reliance on or use by any person of any material in the document, broadcast or communication.
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