The Enforcement Of Restraint Of Trade Agreements

Employers often elect to enforce the provisions of a restraint of trade clause incorporated in contracts of employment of former employees who act in breach of such an agreement. A restraint of trade clause is in principle valid and the party seeking to avoid the restraint [the employee] bears the onus of proving that the restraint was unreasonable, contrary to public policy and therefore not deserving of enforcement. This test, in effect, made it easier for an employer to enforce the restraint of trade provisions as long as they were reasonable.

 

In the context of the constitutional right freely to choose one’s trade, occupation or profession and the right to dignity, courts are now deciding that the employer bears the onus to prove the reasonableness of the restraints in question.

 

Contracts in restraint of trade must protect some proprietary interests of the person who seeks to enforce it before it will be enforced. These interests may take the form of trade secrets, confidential information, goodwill or trade connections. If the restraint does not protect the proprietary interests of an employer, no protection or enforcement would be possible. It has been said that a man’s skills and abilities are part of himself and he cannot ordinarily be precluded from making use of them by a contract in restraint of trade. Even if an employer has expended time and money on the training of the employee “it affords the employer no proprietary interest in the workman or in his knowledge or skills”.

 

Not all information obtained in the course of employment is secret or confidential. If information is of such a nature that “it is inevitably carried away in the employee’s head after the employment has ended” the employee may use the information for himself or herself, subject of course to a duty of good faith while being employed.

 

What public policy is and whether a term in a restraint agreement is contrary to policy is now determined by reference to the values that underlie our constitutional democracy as given expression by the provisions of the Bill of Rights.

 

The task of a court has been described thus:

 

“A court must make a value judgement with two principal policy considerations in mind in determining the reasonableness of a restraint.

 

The first is that the public interest requires that parties should comply with their contractual obligations, and the second is all persons should in the interests of society be productive and be permitted to engage in trade and commerce or the professions… In applying these two principal considerations, the particular interest must be examined. A restraint would be unenforceable if it prevents a party after termination of his/her employment from engaging in trade or commerce without a corresponding interest of the other party deserving of protection. Such a restraint is not in the public interest. Moreover, a restraint which is reasonable as between parties may for some other reason be contrary to the public interest”.

 

It follows that given the nature of the restraint clause and the need for a court to balance the contractual provisions against the right to be a productive worker, a restraint clause should be drafted to reflect this balance.

 

Before information qualifies as a trade secret, it needs to comply with three requirements:

 

  • The information must not only relate to but also be capable of application in the trade or industry; 
  • The information must be secret or confidential. The information must accordingly-objectively determined-only be available  to a restricted number of people or to a close circle or, as usually expressed, the information must be something which is not public property or in the public knowledge; 
  •  Finally, the information, objectively viewed, must be of economic or business value to the plaintiff.

Employers would well be advised to carefully analyse their existing restraint of trade agreements and, where necessary, tailor them to present day efficacy requirements.

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2 Responses to “The Enforcement Of Restraint Of Trade Agreements”

  1. MaryLynn Lockem Says:

    I just have a question If my contract as expired and it was not renuid does the restraint of trade still apply?
    Or if the employer was in breach of contract by not paying salaries does the restraint of trade still count?

  2. Yes the restraint of trade would ordinarily still apply. The restraint of trade applies irrespective of the reason or circumstances of the termination of employment. An employer’s breach of contract by not paying salaries does not undo the restraint. Employees have a clear remedy to pursue recovery of unpaid salary.

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