Restraint of Trade Clause in Employment Contract

A restraint of trade clause is a common feature of employment contracts that is designed to protect the employer`s legitimate business interests. This clause typically prohibits an employee from engaging in certain activities that could be detrimental to the employer`s business for a specified period of time after leaving the job. The intention is to prevent employees from using the knowledge, skills, and information gained during the course of the employment for competitive advantage or to harm the employer`s business.

However, restraint of trade clauses are not always enforceable, and the courts will consider various factors before upholding such clauses. One of the most important factors is the reasonableness of the clause. A restraint of trade clause that is too broad or unreasonable in scope or duration is likely to be struck down by the courts.

To be reasonable, a restraint of trade clause must be no wider than necessary to protect the employer`s legitimate business interests. For example, a clause that prevents an employee from working in the same industry for one year after leaving the employer may be considered reasonable. However, a clause that prevents an employee from working in any industry for five years may be considered too broad and unreasonable.

Another important factor that the courts consider is the nature of the employee`s work. If the employee`s work is not directly related to the employer`s core business, a restraint of trade clause may be considered unreasonable. For example, a clause that prevents a receptionist from working for a competitor after leaving the employer may be unreasonable.

Employers should also be aware that restraint of trade clauses cannot be used to prevent an employee from earning a living. The courts will not uphold a clause that deprives an employee of their right to work and earn a living, unless there is a clear and compelling reason to do so.

In conclusion, restraint of trade clauses can be an effective tool for employers to protect their legitimate business interests. However, such clauses must be reasonable in scope and duration, and must not prevent an employee from earning a living. Employers should seek legal advice before including such clauses in employment contracts to ensure that they are enforceable and will not be struck down by the courts.