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Today’s touch-point is the right of an employer to protect its proprietary interests within the workplace.

There is a common misconception amongst many members of the public that restraint of trade agreements is invalid and are unenforceable. As a matter of fact, nothing could be further from the truth.

Restraint of trade agreements are not regulated by Labor Law; these agreements are regulated by the Law of Contract. The circumstances surrounding every restraint of trade clause are different. Since employers operate in different industries, have different assets and trade secrets that need to be protected.

It is well established that the proprietary interests that can be protected by a restraint agreement are of two kinds.

1. The first consists of the relationships with customers, potential customers, suppliers, and others (trade connections).

2. The second consists of all confidential matter which is useful for the carrying on of the business and which could therefore be used by a competitor to gain a competitive advantage (trade secrets).

The way the restraint undertaking is formulated in the contract is critical, as the courts will look very closely at the terms and conditions of these undertakings to determine if they should be enforced.

In determining whether a restraint is enforceable, a court will consider, inter alia, the following factors:

  1. The length of time for which the restraint operates.

  2. The geographical area to which the restraint applies.

  3. Whether a restraint payment was paid to the employee.

  4. Whether the employee still can earn a living.

  5. The proprietary interest or capital asset that the employer seeks to protect.

A restraint of trade agreement is thus enforceable unless it is shown to be unreasonable - the onus of showing that it is unreasonable rests upon the person alleging it. It is to this end, that the only way for an employee to escape from the provisions of a restraint are to either successfully litigate, provide a written undertaking to the employer, settle the matter through negotiations with the employer, or wait patiently for the duration of the restraint to expire.

Should the employee not be bound by a restraint in his/her employment contract, the employer has no entitlement to try and prevent him/her from working after termination of the employment relationship, even if this is for a direct competitor, and even if this in fact causes harm or damage to the former employer through loss of business.

It is therefore advisable that employers sign restraint agreements with their employees to avoid any disputes down the line. Employers should however only restrain senior employees and those employees who, in their day-to-day operations have access to and would possess the proprietary information of the business.

Contact Compliance Hub today so you can enjoy the benefits of well-constructed employment contracts that protect your company’s proprietary interests.

Article By:

Tiffany Reed: HR & EE Consultant - Compliance Hub

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