Employment - Restraint of Trade
RESTRAINT OF TRADE
The doctrine of restraint of trade is a legal device to attempt to hold the balance between two competing factors - an employee’s freedom to take employment as and when he wishes, and an employer’s interest in preserving certain aspects of his business.
Both factors are important, and indeed the law will protect the employer if necessary by the implication of the term fidelity in the contract of employment thereby restraining the employee inter alia from divulging confidential information.
However, the employer may wish to go further and extract an express promise from the employee:
a) Not to disclose certain information,
b) Not to place himself in a position in which he may do so, e.g. by not working for a competitor for a certain period of time within a certain area after leaving the employment.
It is thus established that an employer can stipulate for protection against having his confidential information passed on to a rival in trade. But experience has show that it is not satisfactory to have simply a covenant against disclosing confidential information.
The reason is because it is so difficult to draw the line between information which is confidential and information which is not; and it is very difficult to prove a breach when the information is of such a character that a servant can carry it away in his head. The difficulties are such that the only practicable solution is to take a covenant from the servant by which he is not to go to work for a rival in trade. Such a covenant may well be held to be reasonable. (RESTRICTIVE COVENANT)
The question then arises whether any given restraint clause is valid and enforceable against the ex-employee, or void??
The modern law on restraint of trade is to be found in Nordenfelt v Maxim Nodernfelt Guns and Ammunition Co and Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd a case on ‘solus’ agreements in the garage trade, where the HOL reconsidered the whole doctrine.
The doctrine of restraint of trade is a legal device to attempt to hold the balance between two competing factors - an employee’s freedom to take employment as and when he wishes, and an employer’s interest in preserving certain aspects of his business.
Both factors are important, and indeed the law will protect the employer if necessary by the implication of the term fidelity in the contract of employment thereby restraining the employee inter alia from divulging confidential information.
However, the employer may wish to go further and extract an express promise from the employee:
a) Not to disclose certain information,
b) Not to place himself in a position in which he may do so, e.g. by not working for a competitor for a certain period of time within a certain area after leaving the employment.
It is thus established that an employer can stipulate for protection against having his confidential information passed on to a rival in trade. But experience has show that it is not satisfactory to have simply a covenant against disclosing confidential information.
The reason is because it is so difficult to draw the line between information which is confidential and information which is not; and it is very difficult to prove a breach when the information is of such a character that a servant can carry it away in his head. The difficulties are such that the only practicable solution is to take a covenant from the servant by which he is not to go to work for a rival in trade. Such a covenant may well be held to be reasonable. (RESTRICTIVE COVENANT)
The question then arises whether any given restraint clause is valid and enforceable against the ex-employee, or void??
The modern law on restraint of trade is to be found in Nordenfelt v Maxim Nodernfelt Guns and Ammunition Co and Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd a case on ‘solus’ agreements in the garage trade, where the HOL reconsidered the whole doctrine.