Situations in which the courts have recognized that the employer has a legitimate interest in imposing a restriction include: At trial, the trial judge dismissed Just Group`s claims, even though it was found that Just Group had a legitimate interest in protecting its confidential information and that Peck did have access to his confidential information during his employment. 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. Norman Selwyn, a renowned labour law writer, notes: “There are four legitimate interests in which the employer is entitled to limited protection, namely (a) trade secrets and confidential information, (b) existing customers and connections, (c) working for competitors, and (d) attracting existing employees.” [2] For example, a type of commercial offence is a tort in which a party interferes in a business relationship or contract. The party affected by the disruption is entitled to claim legal damages through a tort claim for intervention. Trade restriction establishes the general rule that trade restriction clauses are void unless they protect a legitimate interest and have a proportionate scope. It is quite common for an employment contract to contain a clause that prevents an employee from carrying out his business activity after the end of the employment relationship, especially in the case of employees who are employed in a position of trust and whose role they include in certain business contacts, trade secrets or other information that is very sensitive to the company in question. As a general rule, such a clause would also impose a fine to be paid on the employer in the event of a breach by the former employee. Just Group filed a lawsuit to enforce the restriction clause to prevent the employee from taking a job at Cotton On until the expiry of the applicable restriction period (at least 12 months). The employee`s previous position is usually a relevant consideration in determining whether any of the above situations apply to their situation. For example, a restriction may be more reasonable if it is imposed on older employees who have had access to trade secrets or direct contact with customers. Section 22 of Constitution Act 108 of 1996 provides that every citizen has the right to freely choose his or her profession, profession or profession.

It also provides that the practice of a trade, profession or profession may be regulated by law. However, an observer may wonder why the notion of trade restriction is still relevant in our law. However, it has been found that the restriction of commercial clauses in employment contracts is not unconstitutional. To survive constitutionally, a clause restricting trade in a contract of employment must comply with the common law rules on trade restriction. These assumptions may seem confusing, but the crucial point to remember is that restrictions are applied only to the extent that they are reasonable. The Peck case highlights the difficulties that employers are likely to encounter when attempting to apply standard restriction clauses when insufficient care and attention has been paid to the necessary limits of restrictions. However, restriction clauses can be applied if they are carefully drafted. Employers must ensure that the restrictions do not go beyond what is reasonably necessary to protect their particular business interests. If the restriction is too broad, it is very unlikely to be applied. 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. For example, the court could rule that 12 months is too long to protect a legitimate business interest. Then the following shorter period would apply. In the example above, it would be six months. The court could also rule that all of Australia is too broad. The next line, New South Wales, would then apply. The former employee would not be able to work for a competitor in the New South Wales area for 6 months. Typically, an employer will seek a remedy called an injunction if they want to enforce a post-employment restriction. This is a formal court order that, if successfully invoked, enforces the restriction to prevent the employee from engaging in the activities covered by the restriction. 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. What is a trade restriction? Restricting trade is a type of economic damage that involves interfering with someone else`s ability to do business freely.

3 min read Restriction clauses are difficult to apply, but it is not impossible to do so if they are formulated very carefully. To be enforceable, the party seeking to enforce the restriction must demonstrate that the restriction is reasonable and does not go beyond what is necessary to protect the legitimate business interests identified by the employer. The appropriateness of the restriction is assessed on the basis of what it hypothetically prohibits, and not on the basis of whether the conduct in question falls within the scope of the provisions of the restriction. Trade restriction clauses are often included in employment contracts to allow employers to protect their business interests by restricting an employee`s freedom to engage in certain activities during or after termination of employment. For example, the Sherman Antitrust Act includes a trade restriction section, which states in part: “Any treaty, combination in trust or other form, or conspiracy to restrict trade or commerce between several states or with foreign nations shall be declared illegal.” 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. In a recent case, an employee signed an employment contract that included a trade 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.

Other examples where a restriction has been found to be too broad are as follows: the restriction on trade is unenforceable if it is contrary to public policy because it unreasonably restricts a person`s right to engage in or pursue 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. 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. 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. Just a few months after starting her job at Just Group, the employee took a job at another fashion retailer, Cotton On Group Services Pty Ltd (Cotton On), in a position of Chief Financial Officer – the Group`s Chief Financial Officer – and then announced her resignation from Just Group.