Restraint of Trade in Employment Contracts

When seeking to enforce a restraint of trade against a former employee, which of the following interests takes precedence? 

  1. The interests of an employee in being able to earn a living by using his or her legitimately obtained skills, experience and knowledge;
  2. The interests of the public in being able to obtain the services of an employee, the freedom of trade and the freedom to engage in competition; or
  3. The employer’s interest in protecting confidential information, customer connections, staff and supplier connections, which the employer has spent much time, resources and money to develop.

This is a question with no particular answer.

At law, prima facie the interest of the public takes precedence, making restraints of trade in employment contracts void.

However, courts are now more willing to enforce these clauses if the employer is able to demonstrate that the restraint is reasonably necessary to protect the employer’s legitimate business interests, and is not so large as to interfere with the interests of the public.[1]

When is a restraint reasonably necessary to protect the employer’s legitimate business interests? What are the tricks to drafting enforceable restraints of trade? How should employers go about enforcing a restraint of trade?

We answer these interesting questions in our paper “Drafting and Enforcing Restraint of Trade Clauses: Recent Developments and Trends” (by Alistair Macpherson (Director)).

[1] Nordenfelt v Maxim Nordenfelt Guns and Ammunition Company [1894] ACC 535 at 549; Lindner v Murdock’s Garage (1950) 83 CLR 628.

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