If a contract restricts a person’s freedom to trade or to work it is seen as a
starting point to be against public policy and therefore void, unless it can
be justified in some way. It is quite common to find this kind of restraint in
a contract of employment or in the contract by which a person buys or sells
a business.
To persuade the court that a term which restrains trade, and prevents a
person working, should not be void the party wishing to include it must
show the court that it is a reasonable term, both between the parties, and in
the public interest.
Various factors may affect reasonableness and these in turn may depend to
some extent on their own particular set of circumstances.
Protection of trade secrets
Where an employee knows the secret ingredients of a product, or the secrets of
the operation of a business, it would be sometimes be unfair if that employee
were to leave and then use that knowledge in working for a competitor.
Protection of a range of clientele
Often when a person leaves employment a restriction is imposed on their
freedom to work for an immediate competitor in order to avoid the clients
of the first business transferring their business to the competitor and
making it impossible for the first business to have a reasonable chance of
continuing. In the case of Lansing Linde v Kerr (1991) the Court of Appeal
said obiter that the phrase could cover customers’ names as easily as
chemical formulae. A restriction could be in terms of geographical location
or length of time. Compare the following cases. In the first case the
restriction was held to be too wide, whereas in the following three cases
restraints were allowed because of the nature of the work and the need to
protect the employer’s ability to continue trading without losing custom.
The last case shows that too great a restraint will lead to doom!
202 Contract law
What valid reasons may exist to persuade a court that one person has has a
right to stop competition?Forster v Suggett (1918)
A restriction on a manager’s freedom to work in the manufacturer of
glass, for five years after the end of a particular employment, was held
valid, given that the manufacture involved secret processes.