How to protect your business from restraint of trade? What is a restraint of trade? How to maximise the protection of a restraint of trade clause?
Restraints of trade in Victoria are any clause in a contract – typically an employment or business sale contract – which restricts one of the contracting parties from engaging in certain kinds of competition. This competition may arise out of the goodwill of the business, or of the employee’s goodwill with the employer’s clients, or because of confidential information or trade secrets about one of the parties that could be used to the advantage of a competing business. Clause was a non-solicitation term. Three main rules govern the use and construction of restraint of trade clauses. The public has an interest in every person carrying on trade freely.
So has the individual. All restraints of trade that interfere with individual liberty , of themselves, are prima facie contrary to public policy and void. Cascading provisions will cover a variety of restraint periods (for example, months, months or months) and geographic regions (Australia, Victoria or Melbourne).
The ability to restrain former employees is contingent upon the efficacy of the restraint of trade clauses. As a general rule, restraint of trade provisions are void. However, the law allows the use of restraint clauses where it can be proven that there were “special circumstances” which made it necessary to protect the interests of the parties. The restraint clause prevents the vendor, for a specified period or geographic area, working for another business similar to the one they are selling. Restraint of trade clauses are provisions found in an employment agreement that operate to restrict a former employee’s conduct once their employment has ended.
Generally speaking, a restraint of trade clause refers to an instance where one party agrees with another party to restrict a person’s right to carry on their trade or profession. Southern Cross Computer Systems Pty Ltd v Palmer (No 2) In the recent case of Southern Cross Computer Systems Pty Ltd v Palmer (No 2), the Victorian Supreme Court prevented an IT specialist from working for a competitor after it upheld a four year restraint period. In Victoria , the legal position regarding restraints is determined by common law principles. It offers tips for drafting restraint of trade clauses in Victoria to avoid legal traps. New South Wales is the only jurisdiction that has enacted legislation regarding restraints of trade.
Where all parties intended to create a valid lawful restraint agreement, it is. Just Group contended the proposed employment was in breach of a restraint clause in its employment agreement with Ms Peck. A clause, restraining an employee with respect to future employment is void as a restraint of trade unless there are special circumstances that demonstrate that the clause is reasonably imposed to protect a legitimate.
A typical restraint clause prevents a departing employee from working for a competitor in any capacity for a specified period. Other restrictions may also be include such as not soliciting a former employer’s clients, customers or staff, and not using a former employer’s confidential information. The most common restraint of trade clauses.
Importantly, the restraint of trade clause relied on was not contained in an employment agreement, but an agreement to sell his shareholding in the company. Justice McDonald found that the restraint afforded reasonable protection of the purchaser’s goodwill in the company that could be attributed to the shareholding. The Court of Appeal upheld the decision at first instance that a post-employment restraint of trade clause was not enforceable if the contract ended due to the employer’s breach or repudiation. The Court of Appeal noted there was no Australian authority for upholding a restraint of trade clause where an employer repudiated the contract and. Legal contract between a buyer and a seller of a business, or between an employer and employee, that prevents the seller or employee from engaging in a similar business within a specified geographical area and within a specified period.
It intends to protect trade secrets or proprietary information but is enforceable. A restraint of trade clause is often constructed by a “matrix” in terms of the perio distance and operates commonly in a sale of business context to restrain a person from providing a competing business whether personally or in the capacity as an employee, officer or subcontractor. In Victoria, the legal position regarding restraints is determined by common law principles. In this blog, we focus on employment agreements. The Court held that the restraints within the employment contract were too broad and more than what was reasonably necessary to protect legitimate commercial interests.
The importance of a well drafted and executed restraint clause is paramount to ensure that it will be upheld by a Court, should the need arise. If a restraint of trade clause in your employment contract is uphel the court may: Impose an injunction to stop a breach or continuing breach of the clause by the former employee. Make an order for compensation to the former employer.
How Restraint of Trade Works Any activity that tends to limit trade , sales, or transportation in interstate commerce is considered restraint of trade. Planet sought to enforce a restraint of trade clause against the first defendant, Ms Dunlop. Ms Dunlop entered into an independent contractor relationship with Planet to provide services as a personal trainer to Planet clients.