2009-05-18 14:04:30

There has been a spade of decisions over the last 3 years dealing with the enforceability of restraint of trade provisions. Those cases have laid to rest the usual response of lawyers that the courts won't enforce such clauses.

It has always been the case that restraint of trade clauses are enforeable if they are reasonable and their aim is to protect a proprietary interest.

No one is entitled to be protected against mere competition. But a court will enforce a restraint that is reasonable and is intended to protect confidential information, customer connection/goodwill, employee connection and goodwill in the case of commercial contracts.

The most usual restraint is a covenant from an employee by which he/she undertakes not to work for a rival trader and/or not to contact clients of the former employer. Such a restraint may be justified on the basis of the need to protet the former employer's confidential information and/or its customer connection/goodwill.

An employer's customer connection restraint is legitimate if the employee has become, vis-a-vis the client, the "human face" of the business, namely the person who represents the business to the customer. The restraint may have to be limited to customers with whom the former employee had a relationship. It may. however. legitimately extend beyond customers with whom the employee has personal contact where the employee may have acquired influence over or special knowledge of the clientele as a result of the seniority of his or her position, or where the employee's role includes obtaining and extending cusom for the employer's business.

Generally, the test of reasonableness for the duratio of a non-solicitation covenant, when it is supported by customer connection, is what is a reasonable time during which the employer is entitled to be protected against solicitation, which in turn depends on how long it would take a reasonably competent replacement employee to show his or her effectiveness and establish a rapport with customers.

Restraints based on the protection of confidential information are enforceable but difficulty is usually caused by the lack of specificity in their drafting. Many such covenants have as their hallmark a generic definition of what constitutes "confidential information" rather than identifying the category of information sought to be protected. Such lack of specificity leads to the former employer having to "live with the consequences of such ambiguity as may be involved in its choice of words."

Staff connectio also consitutes part of the goodwill of a business. It is therefore amenable to protection by a covenant in a manner similar to customer connection, even in the absence of protectable confidences. The solicitation of staff may also consitutte the tort of inducing breach of contract.

©  Carmen Champion 2009

……………………………………………………………………………………………………………..