01 Jun Restraint of Employees: A tale of Employees VS Employers
Business owners are constantly worried of the threat a former employer poses to their business if they decide to start their own business in direct competition. The most common way employers protect their business is through imposing restraint of trade clauses through employment contracts. There are a number of factors which Courts will take into consideration when deciding whether to uphold a restraint of trade clause.
Courts will tend not to enforce restraint of trade clauses which deprive former employees of earning a living or restrict healthy competition in the market place unless the restraint falls into special circumstances. The onus is on the employer to demonstrate there are special circumstances which give rise to a need to protect their business.
The Courts are principally concerned with no more than an adequate level of protection afforded to the business. Some of the relevant factors in this regard are:
- the geographic region which covers the restraint;
- the time length for which the restraint is to operate;
- remuneration and compensation for the restraint;
- the negotiating positions of the employees and employers;
- what type of role the employee was in i.e. client relationship/sales roles;
- the exact nature of the business that is supposed to be in competition; and
- the makeup of the customer base of newly formed company in competition.
Employees in client relationship and sales roles are particularly sensitive when it comes to non-soliciting of clients from businesses they have previously worked at. These types of roles are heavily skewed to the employee’s connections in the workplace and are scrutinised by the Courts when assessing restraints of trade.
The nature of the new business that opens up in competition with the firm trying to enforce a restraint will also be regarded by the Courts. Obviously, a business selling fruit who has an employee that leaves to start up a mechanic business next door will not attract any enforcement as this would not be necessary to protect the legitimate interests of the business.
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