[Question] Restraint of trade clause - question

[Bullet]

I had a 34% share in a franchised optometry practice. My partner and I had a fall out and due to differences we couldn't resolve, we descided to split. I resigned from the company and sold my shares to my partner. I was basically only payed out for what the fittings and fixures of the business are worth - approximately equivalent to six month salary. In the sales agreement which I had to sign, there is a restraint of trade clause effective for three years which prohibits me from practicing in the same town. Initially it didn't bother me because my plan was to move to another town and work there. My situation has now changed, my wife is pregnant and it is difficult for both of us to find work elsewhere. My wife has a good job in town and we also own a home here. My best option would be to open my own practice in town. How enforceable is the restraint of trade clause? And what's the worst that can happen?

[AndyD]

I think there's two questions, the worst that would happen is that your ex-partner drags you to court to have the order upheld but what's the likelyhood he/she would do this? Second, would the terms of the restraint of trade be reasonable in the eyes of a court?

How long ago was the restraint of trade signed by you? Are you a qualified optometrist or were you working as a retailer?

[ghostwriter]

You may want consult a lawyer about this. It is my general understanding that restraint can be argued on the bases that you have the right to earn a living and practise your trade. Secondly is it possible to contact your partner and have him/her sign a contract that will remove the restraint of trade?

If not you will have no choice but to challenge the restraint of trade in court. I am sure your partner wouldn’t want this because it can become an expensive waste of time. Consult a lawyer ask him what your options are and then see what you can do.

[Bullet]

Hi Andy,

I signed the agreement about 3 months ago. I am a qualified dispensing optician.

[garthu]

Hi Bullet,
Restraints are very difficult to enforce as it is against constitution. It must specify a period and an amount/value applied to it. It cant just say you cannot work for 3 years.If it says you cant work OR you pay R100 000, then could be enforceable.
Bottom line, you gonna have to get an attorney!
Good luck

[ghostwriter]

After doing some research it appears that the "restraint of trade" clause is a common debate. In most cases the court does not grant the employer the right to restrain trade as there are some considerations to be made.

My question now is Mister Bullet; are you planning on opening your own practise? Or are you looking for employment?

See the courts must consider your legal need to work and right to practise your trade against what your partner may claim as "unfair competition."

Regardless you will need to get the restraint lifted by speaking to your partner and see if this is a possibility, because going to court is unavoidable as most employees had to fallow this path.

I would like to have given you links sadly for some reason I cannot or so it appears.

Best of luck to you Sir.

[Dave A]

Based on what you've presented, the restraint is probably enforceable.

You were a partner.
You entered a sales contract and understood this included a restraint clause, which at the time you accepted.
The restraint is limited to a specific area - you're free to open up in another town.

[Bullet]

Thanks for all the feedback and advice. I will probably consult a lawyer as well, just to have a look at the agreement I signed.

[daveob]

Would a restraint like this prevent you from being employed by someone else (like your wife) to work in a business as an employee ?

[desA]

My experience with this kind of matter is that the court would expect your ex-partner to compensate you for loss of income during the restraint period. In other words, it has to be fair on both sides - balancing scales, as it were.

There will be ways around the restraint - if it is geographical. Eg. you trade fractionally outside the defined area. Anyway, how well was the area defined in the first place & also what did you understand it to define.

Practically, few of these things stick.

[ghostwriter]

My experience with this kind of matter is that the court would expect your ex-partner to compensate you for loss of income during the restraint period. In other words, it has to be fair on both sides - balancing scales, as it were.

There will be ways around the restraint - if it is geographical. Eg. you trade fractionally outside the defined area. Anyway, how well was the area defined in the first place & also what did you understand it to define.

Practically, few of these things stick.

Nice!!!

Do you think the courts will rule that? Or is it more like a 40/60 scenario ?

[desA]

@ghostwriter: Admittedly, these points are based on views & opinions taken some 15 years back.

Who knows what the latest scenario really is? Perhaps you'd advise cases which oppose the fair balances & geographical definition views.

[Duncan]

Guys, just some food for thought for the next time someone, and really this applies to anyone, who wants to put in a restraint of trade clause to either employment contracts or partnership agreements.
Any restraint has a cost attached to it and the enforcer should be paying you for the right to not operate in your area for the period of the agreement. By applying this you dont have to worry about working, fighting or starving as he will pay you to enforce the agreement, but have it brought in at the outset when the agreements are signed. Its too late afterwards to start worrying and fighting about it.

[ghostwriter]

Guys, just some food for thought for the next time someone, and really this applies to anyone, who wants to put in a restraint of trade clause to either employment contracts or partnership agreements.

Any restraint has a cost attached to it and the enforcer should be paying you for the right to not operate in your area for the period of the agreement. By applying this you dont have to worry about working, fighting or starving as he will pay you to enforce the agreement, but have it brought in at the outset when the agreements are signed. Its too late afterwards to start worrying and fighting about it.

It is in my opinion that if the person enforcing the restraint of trade is to be held liable in the proposed way, that they will not agree to it. Secondly hindsight or not very few contracts are open for negotiations especially when it comes to employment.

Noting this... Is there a transcript of a court case with this type of scenario? I would like to know if the court ever had to make a ruling on this subject as stated?

Regardless it is worth remembering as stated by Duncan really smooth!


You people rock

[Dave A]

There are a number of excellent threads on restraint of trade already, with some legal references.

Restraint of trade clause in employment agreement
Restraint of Trade against a member of a cc
Restraint of trade question for ex-cc member

As much as I admire the enthusiasm for the notion that restraints are difficult to enforce, I feel a cold shower is in order.

May I point out that Bullet has as yet failed to present a viable reason as to why the restraint might be deemed unreasonable and therefore not enforceable.

There is a written contract in place.
Payment of a reasonable sum was made (equivalent to 6 months salary).
The restraint is quite narrowly area specific and of specific duration.

What am I missing here?