6. Restraint of Trade - Contracts in Restraints of Trade...

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Contracts in Restraints of Trade Definition: A Covenant (legally binding agreement) that restricts the freedom of trade of contracting parties in one way or another Used to protect interests i.e. clientele, trade secrets, employees and their skills. Public policy considerations for covenants in restraints of trade: 1) Encouraging competition is in the interests of society (Clauses are not in the interest of society) 2) It is in the interest of society that covenants voluntarily entered into is upheld 3) Sales and purchase of businesses and transfer of knowledge from employers to employees is in the interest of society Even if an employee agrees to restrictive covenants, he is not precluded from arguing later that the covenants are restrictive. Validity of “Restraint of Trade” Clause Two Requirements: 1) There must be legitimate interest that the party relying on the clause is seeking to protect 2) The clause has to be reasonable, having regard to the interest of the parties and public generally. Case: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co (1984) General Rule: All covenants in restraint of trade are prima facie void and unenforceable, and may only be valid if it is reasonable in the interests of the parties and in the interests of the public. Burden of Proof: On the party seeking to rely upon the covenant in restraint of trade to show that covenant was reasonable at the time the contract was made.
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