Restraint of Trade

A restraint of trade is a legal provision or clause in a contract that restricts a person or entity from engaging in certain business activities or competing with another party for a specified period and within a certain geographic area. Here’s a closer look:

Key Features of Restraint of Trade:

1. Purpose:
• The primary aim is to protect legitimate business interests, such as trade secrets, customer relationships, and intellectual property.
2. Duration:
• Restraints typically specify a time frame during which the individual or entity cannot compete.
3. Geographic Scope:
• The agreement often includes a defined geographic area where the restrictions apply.

When Does It Apply?

1. Employment Contracts:
• Employers often include restraint of trade clauses in employment contracts to prevent former employees from taking sensitive information to competitors or starting competing businesses.
2. Partnership Agreements:
• Partners may agree to restraints to protect the business if one partner decides to leave or sell their share.
3. Sales Agreements:
• When selling a business, the seller may agree not to compete in the same market for a certain period to protect the buyer's investment.

Legal Considerations:

• Reasonableness: For a restraint of trade to be enforceable, it generally must be reasonable in terms of duration, geographic area, and the interests it seeks to protect.
• Public Policy: Courts will not enforce restraints that are overly broad or that unduly restrict an individual’s right to earn a living.

In summary, a restraint of trade is a tool used to protect business interests, and its enforceability depends on its reasonableness and the specific circumstances surrounding the agreement.