“This employee is not allowed to deal with a competitor of the company after the end of his employment relationship: in an ongoing case, an employee has signed an employment contract that contains a commercial restriction clause. The clause stipulated that the employee could not cooperate with competing companies for a certain period after the end of his employment relationship. The employee resigned and quickly started working for a competitor. He said the clause was unenforceable because the cascading format meant it was not secure. A trade restriction is a provision typically found in employment contracts that prohibits an employee from working directly or indirectly with a competitor for a certain period of time and in a limited geographic area after the end of their employment. Whether a restriction is appropriate in its scope depends on three central considerations: in Basson v. Chilwan and Others, 1993 (3) SA 742 (A), the General Court identified five questions to be asked when considering the appropriateness of a restriction of a trade agreement. If the limitation of the commercial clause is unreasonable, the Labour Relations Authority or the labour court may determine that the clause cannot be enforced, so the employee does not have to comply with it. The court considers a number of factors before applying the employee`s restriction clauses, including: A trade restriction clause is typically included by the employer in an employment contract to protect the employee`s business interests and goodwill. When interpreting trade restriction clauses, the court will seek to reconcile the employer`s legitimate and reasonable business interests with your rights to free employment. Each of those considerations will have to be weighed against the particular circumstances of the present case. If a restriction is unreasonably broad, an employee may apply for a court order striking down or restricting the restriction. Unless there is a legitimate basis for a restriction, the courts will generally limit the scope of the restriction so that the employer can continue to apply the restriction in part to the extent reasonably necessary.

This is called “reading down,” a restriction. Trade restriction clauses are enforceable to some extent. For them to be enforced, they must protect the legitimate business interest of the employer (i.e. a trade secret) or the reputation of the company. Non-compete obligations apply in several circumstances: in New South Wales, this presumption is reversed – instead, a trade restriction is considered valid, but only to the extent that it is not contrary to public policy. A restriction is considered to be contrary to public policy if it is found that there has been a “manifest failure” on the part of the employer to attempt to keep it within reasonable limits. A restriction on trade is inapplicable if it is contrary to public policy because it unreasonably restricts a person`s right to practise or exercise a profession. In determining the appropriateness of a restriction on a trade agreement, all the circumstances of the case must be taken into account. The circumstances to be taken into account are not limited to those that existed at the time of the termination of the restriction, but must be extended to the circumstances that had existed since the conclusion of the restriction and to the circumstances that existed at the time the restriction was applied for enforcement.

As a general rule, minimising competition is not sufficient to establish a legitimate interest. For this reason, the employer must ensure that the application of the restriction of commercial clauses to the employee does not exceed the legitimate commercial interest of the employer. In general, trade restrictions are enforceable only if they are reasonable and not contrary to the public interest. This includes assessing the following question: If you wish to apply a trade restriction clause, it is strongly recommended that you seek independent legal advice yourself. Yes, a trade restriction clause may prevent you from working for a competitor for a certain period of time in a specific geographic area. However, a number of factors determine whether this restriction is enforceable or not. We are able to review, draft and advise on restriction clauses and their applicability in general. If your company needs help, please contact us. Examples of restrictions commonly found in employment contracts include: Here are some factors to consider when determining whether a trade restriction clause is enforceable: Contract law: A person or company that believes their right to trade has been violated can take their case to court and claim that the contract or business agreement is illegal.

If the terms of a contract restrict trade, the contract cannot be taken to court to be heard (as a lawsuit) because it is illegal. Trade restrictions are clauses in employment contracts/agreements that can prevent employees from working for competitors (for a certain period of time), disclosing confidential information, and poaching other employees. It can also prevent you from starting a competing business or targeting/supporting your former customers for a while. Any activity that tends to restrict trade, sale or transport in interstate trade is considered a restriction of trade. Trade restrictions are a problem in non-compete obligations and other restrictive agreements, including non-solicitation and non-disclosure agreements. Under a non-compete obligation, an employee or business owner agrees to an agreement (sometimes in exchange for remuneration) so as not to compete with the former employer or new business owner in a certain field and type of work for a certain period of time. In general, it is said that any agreement on a trade restriction is considered unenforceable unless the restriction is proven appropriate. This means that even if you have voluntarily accepted restrictions in your contract after the end of the employment relationship, the starting position is that they are null and void and have no effect.

An enforceable and valid restriction in employment contracts is crucial if an employer hopes to rely on it to enforce a former employee`s obligations after the end of the employment relationship. Non-compete obligations are not inherently unlawful as long as they are proportionate and do not infringe a person`s right to do business. The court considers what is reasonable, taking into account all the factors of the situation. Where a court finds that a non-compete obligation is inappropriate, it is generally based on the principle that it constitutes a restriction on trade. For example, a court may find that an Australia-wide restriction is too broad because the employer`s business operates only in New South Wales. The court can then “read” the restriction so that it applies only in New South Wales. U.S. states have changed a lot in their treatment of non-compete agreements. The court will not apply a restriction clause that is too long or geographically too broad. The cascading clause format means that the following condition applies if any of the conditions are unenforceable.

Your employment contract may contain common trade restriction clauses. These include: For an employer to be able to apply a trade restriction, there must be a specific trade restriction clause in the employment contract. Commercial restriction clauses are included in employment contracts to protect commercial interests. It is for a court to decide whether they are reasonably formulated. Where a clause is taken into consideration, the employer`s legitimate and reasonable business interests are reconciled with the employee`s rights to the free exercise of trade or employment. If you have any questions about a trade restriction clause, please contact LegalVision`s employment lawyers at 1300 544 755 or fill out the form on this page. These assumptions may seem confusing, but the crucial point to remember is that restrictions are applied only to the extent that they are reasonable. Other examples of a restriction deemed too broad are the following: even if such a clause is included in the employment contract, it may not be enforceable.

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