Restraint of Trade, when inserted into a Sale and Purchase agreement for a business, is an important part of any agreement. But, do they have the same effect in your Employment agreements? Before you insert a restraint of trade you need to consider if you have a proprietary right to protect. This is often trade connections or trade secrets that, in the event that your Employee moved to a competitor, would have an adverse effect on your business and as such you need to protect that interest.
Any restraint of trade needs to be balanced against the Employees’ right to earn a living. In order to determine whether a restraint of trade is reasonable, the Courts will consider:
• Do you, as an employer, have an interest that deserves to be protected?
• Is it reasonable that your employee be restrained from that specific activity?
• Is the restraint period reasonable?
• Is the geographic limit of the restraint reasonable?
• What compensation was given to your employee in exchange for them agreeing to be restrained after the end of their employment?
As my eight-year son has recently found an interest in cooking, he wanted to make the family “Krabby Patty’s” as a meal (yes, his favourite program is SpongeBob SquarePants). For those in the know, the recipe is a secret and Plankton (the owner of the Chum Bucket) wants to secure it to turn around his fortunes. This would definitely qualify as a proprietary interest that is worth protecting. While I have not reviewed SpongeBob’s employment contract personally, it would be reasonable to expect to see a restraint of trade period that would be for an extended period of time that covered Bikini Bottom as the geographical area.
If the courts feel that a restraint of trade clause is too restrictive, or too generic (a “catch all” clause) they can invalidate the clause and if the secret was worth keeping it may undo the attempt to secure the interest. There are other ways of protecting your business including non-solicitation, confidentiality agreements, and intellectual property clauses that should be examined as viable alternatives.