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Kreisson Legal discuss importance of restraint of trade

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There have been a number 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 would not enforce such clauses. Kreisson Legal discuss the importance of employer’s protection.

It has always been the case that restraint of trade clauses are enforceable if they are reasonable and their aim is to protect a proprietary interest. No one is entitled to be protected against mere competition, however 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 competitor and/or not to contact clients of the former employer. Such a restraint may be justified on the basis of the need to protect the former employer’s confidential information and/or their customer connection/goodwill.

An employer’s customer connection restraint is legitimate if the employee has become, with reference to 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 custom for the employer’s business.

Generally, the test of reasonableness for the duration 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.

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