Is Restraint of Trade Enforceable?

A restraint of trade clause is a legal agreement that is included in an employment contract to protect a business's commercially sensitive information. These clauses are designed to restrict an employee's business activities after they finish working for an employer. The two main types of restraint of trade clauses are non-competition, where a former employee is prevented from working in a similar field to their former employer's business, and non-solicitation, where a former employee is allowed to take another job in the same or similar industry, but is restricted from contacting their former employer's clients about their new business.

 

Examples of restraint of trade clauses include restricting a former employee from working with former clients for a set period of time, restricting an employee from working in the same industry for a period of time to protect trade secrets, preventing an employee from working in another job in the same industry within a reasonable distance of their former employer, and restricting an employee from working a secondary job in the same industry while still in their primary job.

 

For an employer to enforce a restraint of trade, there must be a specific restraint of trade clause in the employment agreement. However, even if there is such a clause, it may not be enforceable. The conditions of the clause must be reasonable, and it is important for both the employer and employee to seek independent legal advice. Factors that are considered when deciding whether a restraint of trade clause is enforceable include whether the former employer has a business interest that should be protected, whether it is reasonable for the stated activities to be restricted, whether the time period of the restraint is reasonable, and whether fair consideration or compensation has been given to the employee.

 

If a restraint of trade clause is found to be unreasonable, the Employment Relations Authority or Employment Court may state that the clause cannot be enforced, and the employee does not have to comply with it. The courts also have the power to modify contracts to make restraint of trade clauses reasonable.

 

Even if an employee's employment agreement did not contain a specific restraint of trade clause, an employer may be able to prevent them from using certain highly confidential information in such a way that it may affect the employer's business. Generally, there will be nothing wrong with using details that are unconsciously memorized, but employees should not write down and deliberately memorize business information for use in other jobs. The courts will look at whether the information could be reasonably considered to be the confidential property of the former employer.

 

If an employee breaches a restraint of trade clause or misuses confidential information, the employer may be able to apply to the Employment Relations Authority for an injunction restraining the employee from continuing the activities in question. It is important for both employers and employees to understand the implications of restraint of trade clauses, and to seek independent legal advice if needed.