Why employers need to be reasonable with restraints of trade
COMMENT Putting together an enforceable restraint in an employment agreement can be tricky, whether in terms of non-competition or non-solicitation, or both.
COMMENT Putting together an enforceable restraint in an employment agreement can be tricky, whether in terms of non-competition or non-solicitation, or both.
COMMENT
Putting together an enforceable restraint in an employment agreement can be tricky, whether in terms of non-competition or non-solicitation, or both.
The comments below only scratch the surface of the issues that can arise.
The basic legal principles are simple – even first-year law students could recite them. However, those principles camouflage the complexities that can arise.
The position is not helped by repeated statements by judges and academics that restraints of trade are prima facie void as being against public policy.
It is true that restraints have to be justified, but the business reality is that a restraint is likely to be enforceable if it is reasonable.
And there’s the rub – what is reasonable? In a very recent case, restraints were watered down or held to be unenforceable.
What can be said with some certainty in the employer-employee context includes the following:
Even if a restraint is enforceable, where an ex-employee will not co-operate the legal costs of seeking an injunction to restrain the employee from acting in breach of the restraint can be a formidable hurdle (particularly for a very small business).
Still, the courts will enforce reasonable restraints and employees who breach them flagrantly can face significant liability, especially where this results in loss of business for the employer.
These comments are not legal advice. For that, you need to see a commercial or business lawyer.
Steve Dukeson is principal of Dukeson's Business Law, Auckland