A restraint of trade is defined as a limiting covenant that influences future activities.
These conditions can be found in:
The Courts have a wide discretion to determine the extent of such provisions, and deal with the facts of each individual case. It is also important to seek timeous legal advice as the restraint is judged whether it was reasonable at the time of the agreement.
The starting point of restraint provisions are that they are void and unenforceable as a matter of public policy. It is not in the interest of the public to deprive a person or entity of his economic potential.
Any condition that purports to restrain another must in all circumstances be no more than necessary to protect an interest. Many additional factors weigh in on the implementation and severity of limitation clauses including nature of the relationship between the parties, payments to compensate for a restraint and paid goodwill.
Principles to consider
The restraint must be more than a mere attempt to prevent competition.
Parties relying on protection must prove:
As stated before the Courts deal with restraints on a case by case basis, and the applications are as varied as the disputes.
Types of clauses
Limitation clauses are generally classed in three categories:
The application of restraints are not straight forward and can have severe consequences on future options after an employment or business relation has ended. Identical provisions can have vastly diverse outcomes based on different relationships and industries.
It is imperative that contracting parties seek independent legal advice at time of the agreement.