Restraint of trade clause - question

**ghostwriter** · 29-Nov-11, 08:49 AM

Originally Posted by 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.

Nice!!!

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

**desA** · 29-Nov-11, 11:20 AM

@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** · 29-Nov-11, 11:40 AM

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** · 29-Nov-11, 12:50 PM

Originally Posted by 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.

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** · 29-Nov-11, 10:47 PM

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?

**AndyD** · 29-Nov-11, 11:46 PM

I don't think you're missing anything. Unless there's something we're not aware of, I can't see any reason the agreement wouldn't hold water in this case either.

**Duncan** · 30-Nov-11, 01:47 AM

Dave & Andy, i agree nothing missed there. Its a bit like closing the stable door after the horse has bolted.
What i note from this is that while he was a partner he was also employed in the business. The exit agreement should have been handled by a competent lawyer who would have noted that the payment for fixtures and fittings, while equivalent to 6 months salary was actually legally due to the exiting member as he was a share holder. An amount of compensation should have been covered there for goodwill in the business but this is not normally a lot unless there are signed contracts with a monetary value attached to them.
The bottom line here, to me and in my limited opinion, is that he was not an employee in the sense but a partner and the agreement of restraint here is far more contractual and enforceable than one designed for an employee. A good lawyer would have seen to it that he was protected and got the best deal but often one doesn't go that route due to costs, lack of experience and our ability to trust people to do the right thing.
Funny how 18 years ago i signed an employment contract that had a restraint of trade clause. I knew then that it really was worth anything to the employer as he cannot take away my ability to earn an income. Now i have been self employed, running my business's for the last 5 years, if i had to be offered employment with a clause i would fight it, i suppose knowing that i can easily go back to been self employed. Its really a fear based decision and a lot of employers know that they can try and push this onto employees, as there are not a lot of jobs out there, so jumping ship isn't always an option.
One final word of advice, make sure they are a good lawyer and experienced in this area. I have used two of SA's biggest law firms and have been disappointed with the individual lawyer's ability and negotiation skills and it cost me a lot of money in the end.

**desA** · 30-Nov-11, 07:02 AM

There seems to be something in the SA mentality - control & domination - that introduce these clauses into agreements, in the first place. Their basis is clearly unethical, except in a narrow range of circumstances.

From my extensive travels abroad, I find this kind of activity to be offensive, to say the very least. I have not seen it to be the norm in other countries. Generally the societal norms & ethics prevail.

Should potential partners attempt to bring this kind of stuff to the table, I would walk away in principle.

**Pap_sak** · 30-Nov-11, 08:18 AM

I disagree Des. Lets take this as an example. The OP now has a great advantage over the now total owner..I am going to call him TO. As we all know when opening a new business there is a steep learning curve and you never get it right the first time. Maybe the shop is to big, maybe too small, maybe the wrong location, maybe not enough customers in town to service the business, maybe the rent is too high. The OP now has all that, where the TO is stuck with it.

The OP now wants to use that information to take business away from the TO after they came to an mutual agreement. I hope the original agreement sticks, I think the OP should stick to it and not run to a lawyer looking for loopholes. I would love to know what he would say if the tables where reversed.

It's a pity that we have lost the " my word is my bond" and now expect lawyers to fight our battles. Bad form, IMO.

**desA** · 30-Nov-11, 08:53 AM

I respectfully counter.

Controlling sensitive business information & trade secrets is different to a restraint of trade on an individual. This aspect can be adequately managed without preventing the person from plying their trade, or launching an entirely new operation. His learning up to that point would also have come at great expense to himself.

If this malarky were applied, for instance, in the computer hard-disk industry, history would show that no innovation would have taken place outside of the original colossal designs. The industry spawned & continued to spawn new entrepreneurs. Interestingly-enough, many of the original names are still around.

This control & dominate philosophy runs counter to free-trade & capitalist philosophy.