Restraint of trade clauses are common in the sale and purchase of a business and in some employment agreements. In a business context, they offer protection to a buyer who has acquired a business and prevent the seller from directly competing against the buyer. A restraint provision in an employment context is designed to protect the employer’s business interests when key employees leave. There’s a general perception that these clauses are difficult to enforce, so why bother?
The purpose of a non-competition restraint in regard to the sale of a business is to ensure that the purchaser is able to retain the benefits of the business they have purchased including existing and potential customers. It prevents the seller from establishing, working for or being involved in a similar business. Non-competition restraints are routinely used in the sale and purchase of businesses.
The first consideration before inserting a restraint of trade clause in an employment agreement is to decide whether or not you, as the employer, have a proprietary right (be it trade connections or trade secrets) which might be considered reasonable to protect. The effect of a restraint in an employment agreement is to prevent your employee from working for a competitor or opening a competing business immediately after their employment ends. Due to the restriction placed on any employee’s livelihood, the necessity for the restraint (which will benefit you as their employer) must be balanced against your employee’s right to earn an income (a restriction for your employee).
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