Businesses increasingly need to protect their commercial interests and preserve their competitive edge from former employees. A practical solution has been to impose a post-employment restraint clause in the employment contract. This article briefly examines the effectiveness of restraint clauses in protecting employers against competition from former employees.
Common Law Doctrine of Restraint of Trade
Post-employment restraint clauses are subject to the doctrine of restraint of trade. The doctrine of restraint of trade is committed to the notion of freedom of trade – that the individual and the public have an interest in every person’s carrying on trade freely.
Accordingly, as a general rule, all post-employment restraint clauses that interfere with individual liberty are of themselves contrary to public policy and therefore void. However, an employer could enforce a void restraint clause if it is reasonable, that is, reasonable in reference to the interests of the parties concerned and the interests of the public. In practice this has meant the employer must establish the restraint is no wider than is reasonably necessary to protect a legitimate business interest.
The courts will always consider the nature and extent of the particular activities which the employee is required to forego, the geographical area in which those activities are prohibited and the duration of the restraint.