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When are Restraint of Trade Agreements enforceable?

Our courts have accepted that restraint of trade agreements are enforceable unless they are contrary to public policy because they impose an unreasonable restriction on a person's freedom to trade or work.

The courts must make a value judgment with two policy considerations in mind when determining the reasonableness of a restraint.  Firstly, public interest requires that parties should comply with their contractual obligations and secondly, all persons should be permitted to engage in trade and commerce or their professions, with due regard to the relevant constitutional values.

The onus of proving that a restraint is unreasonable and unenforceable rests upon the restrained party.  A restraint clause designed solely to stifle competition is generally not enforceable for being contrary to public policy.  When a party seeks to enforce a restraint of trade, the courts will generally evaluate the restraint based on the following key issues:

  • Is there an interest that is deserving of protection after the termination of a business relationship?
  • Is that interest prejudiced by the conduct of the restrained party?
  • If the interest is so prejudiced, how is the prejudice weighed both qualitatively and quantitatively against the interest of the restrained party to be gainfully employed if the order sought is granted?
  • Is there another aspect of public policy as dictated by the values of the Constitution and which is unrelated to the relationship between the parties that, nonetheless, requires the restraint either to be upheld or struck down?

From an employee's point of view, you must therefore be mindful of your contractual obligations at the time that you commit to them and understand the consequences should a restraint be enforced.

From an employer's point of view, you must be certain of the nature of your proprietary interests that require protection and accept that the enforceability of the restraint does not depend exclusively on the wording of your contract.