Reasonable restraint of trade clauses contracts in

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‘Reasonable’ restraint of trade clauses Contracts in restraint of trade (irrespective of category), are prima facie void and unenforceable. However, a restraint can be valid if it is no wider than is necessary to protect the legitimate interests which it is designed to protect. ‘Width’ in this context has both time and space dimensions. A valid restraint of trade clause can only restrict the affected party’s behaviour within the precise geographical area in which he or she could adversely affect the other party’s legitimate interests and it can only last as long as the restraint is reasonably necessary to ensure that that interest is not prejudiced. Anything wider will generally be invalid. For example, assume that X has a small suburban legal practice in Townsville and employs a number of solicitors (including Y). His employment contracts all contain restraint of trade clauses. Y’s contract provides that if he leaves X’s employ he will not work as a solicitor anywhere in Queensland for a period of ten years. That restriction is far wider in both time and space terms than is necessary to protect X’s legitimate business interests — in this case the clients that Y could possibly entice away if he set up a practice close to where X operates. Consequently it would be completely invalid. Had X limited the scope of the clause to something more reasonable — say, restricting Y’s ability to set up in the same suburb or within a radius of ten kilometres from it (where he could conceivably poach X’s clients) and for a period of two years instead of ten years (when the clients might conceivably still remember Y and be influenced to transfer their allegiance and their business to him) it could be enforceable. Consequences of void contracts
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© Stephen Graw 2012 Broadly, the consequences of voidness are the same whether the voidness derives from statute or common law. The contract is void but only insofar as it contravenes the statutory or common law restriction and it will be unenforceable to that extent. If the voidness does not extend to the whole contract but only to a part of it the contract, other than the void provisions, can still be enforced. This is achieved by a process known as ‘severing’. Void provisions can be severed (excised) from the contract provided the whole sense and purpose of the contract is not thereby destroyed. For instance, if an employment contract contained a restraint of trade clause which limited the employee’s right to engage in a similar occupation after leaving his or her current employment that clause would probably be invalid (because it is too wide). That invalidity would prevent the restraint of trade clause being enforced but it would probably be severed from the contract so that it did not nullify the contract as a whole and prevent the other terms being enforced. Consequently, the employee could still sue for unpaid wages and the employer could still sue for any breach of the employee’s duties.
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