Restraint of trade clauses are a common feature in employment contracts, designed to protect the interests of the employer once an employee leaves the company. These clauses can restrict an ex-employee’s ability to work for a competitor, start a similar business, or poach clients or staff. However, for these clauses to be enforceable, they must be reasonable and necessary to protect the legitimate business interests of the employer. This article provides key advice for employers on mastering restraint of trade clauses.
Understanding Restraint of Trade Clauses
A restraint of trade clause, also known as a restriction of trade clause, is a provision in a contract that restricts an employee’s activities after their employment ends. The purpose of this clause is to protect the employer’s business interests, such as confidential information, trade secrets, and customer relationships. However, the restraint period, which is the duration of the restriction, must be reasonable and not overly restrictive. The restraint period meaning in this context refers to the length of time the ex-employee is restricted from certain activities.
Key Elements of a Restraint of Trade Clause
There are several key elements that make up a restraint of trade clause. These include:
- The restraint period: This is the length of time the restrictions apply after the employee leaves the company.
- The geographical area: This is the area in which the restrictions apply.
- The activities restricted: This could include working for a competitor, starting a similar business, or soliciting clients or employees.
It’s important to note that a restraint of trade clause is different from a no trade clause. A no trade clause meaning in an employment context could refer to a provision that prevents an employee from engaging in any trade or business during their employment. This is different from a restraint of trade clause, which applies post employment.
Enforceability of Restraint of Trade Clauses
For a restraint of trade clause to be enforceable, it must be reasonable and necessary to protect the legitimate business interests of the employer. The restraint of trade law, as outlined in the Restraint of Trade Act, stipulates that any contract in restraint of trade is void unless it is reasonable. This means that if a court finds the clause to be overly restrictive, it may not be enforceable.
How to Master Restraint of Trade Clauses
Here are some key tips for employers on how to master restraint of trade clauses:
- Ensure the clause is reasonable: The restraint period, geographical area, and activities restricted should all be reasonable. For example, a restraint period of several years may be seen as unreasonable, while a period of a few months may be more acceptable.
- Protect legitimate business interests: The clause should be designed to protect legitimate business interests, such as trade secrets, confidential information, and customer relationships.
- Use an employee key agreement template: An employee key agreement template UK can help ensure that the clause is drafted correctly and includes all necessary elements.
- Seek legal advice: It’s always a good idea to seek legal advice when drafting a restraint of trade clause to ensure it is enforceable.
Getting Around Restraint of Trade Clauses
While it’s not advisable to try to get around restraint of trade clauses, it’s important for employers to be aware that employees may attempt to do so. This could involve arguing that the clause is unreasonable or unnecessary. To prevent this, employers should ensure that the clause is drafted correctly and is reasonable and necessary to protect their business interests.
Conclusion
Mastering restraint of trade clauses is crucial for employers to protect their business interests. By ensuring the clause is reasonable, protects legitimate business interests, and is drafted correctly, employers can increase the likelihood of the clause being enforceable. It’s always a good idea to seek legal advice when drafting a restraint of trade clause to ensure it meets all legal requirements.
