Four Types Of Restraints Of Trade

“Oh no, I have a restraint of trade in my employment agreement!”

That was the thought that went through the mind of a client of mine.

He had already resigned and was looking forward to his new job.

However, he had forgotten that, in the long distant past, he had signed up to an employment agreement with his old employer containing a restraint of trade.

Did he need to worry?

What I explained to him is that every restraint is different and I would need to see his employment agreement to say how it would affect him.

It might not be as bad as he thought.

That is because not only are restraint clauses worded differently between agreements, but there are different types of restraints, some of which are more restrictive than others.

And then there is the matter of enforceability. It is possible that a restraint that attempts to restrict an employee too greatly will never be enforced.

As I explained to my client, there are at least four different types of post-employment restraints that you may come across.

Each of them attempts to stop you from doing certain things after you leave your employment, but as we will see, their effects vary greatly.

NOT TO SOLICIT STAFF

The restraint that has the least impact on you is one that simply prevents you from approaching your former co-workers to see if they want to join you at your new place of work.

This type of restraint will be readily upheld because the law sympathises with employers who want to maintain a stable workforce for the good of their business.

That stability can be threatened by the strong relational ties formed between staff members.

Co-workers can readily influence each other, even to the extent of persuading each other to change jobs. It is not unreasonable for employers to want to protect themselves against this threat.

And the impact of such a restraint on you is not unreasonable either. You are not prevented from earning a living – working for whoever you wish – simply because you can’t poach your former co-workers.

So while you may not be able to work with your friends, it has to be said that this type of restraint, on its own, will have limited effect on you when you leave.

NOT TO SOLICIT CLIENTS

The next level of restriction comes from a restraint that prevents you approaching clients that you dealt with on behalf of your former employer.

Again, you are not prevented from working wherever you wish by this restraint. You can – provided you do not seek to solicit work from the clients you are familiar with.

The rationale for this type of restraint is that your former employer has provided the means by which you have been able to develop client relationships.

You would not have developed those relationships otherwise. It would be unfair for you to now turn around and use those relationships to your own advantage, and against your employer’s interests.

Depending on where you hope to work, this can have an effect on you. Your next employer may not be so willing to hire you if you are not free to make use of your industry network by soliciting your client contacts.

NOT TO DEAL WITH CLIENTS

What if you do not approach the clients, but the clients approach you? Can you take the work then?

If your restraint prevents you from simply soliciting work from those clients, then you can work for clients who approach you unsolicited.

To address this, some employers include restraints of trade that prevent you from not only soliciting those clients but also from dealing with them altogether. This then stops you from accepting work from those clients who beg you to help them.

NOT TO COMPETE

The greatest impact on your freedom to work wherever you choose comes from a restraint that prevents you from competing with your former employer, whether as an employee of a competing business or by setting up shop in competition on your own.

More often than not, it is these types of restraints that many mean to refer to when they use the term “restraint of trade”.

These restraints are the most difficult for employers to enforce because they must show why it is necessary for you to be prevented from freely working wherever you wish.

Clearly there must be good grounds for the restraint, because there is a public interest in allowing you to make a living in your chosen profession or trade. There is also a public interest in promoting competition.

The employer may justify it by showing that you would have an unfair market advantage that could damage their business – either because of your influence over potential clients, your knowledge of confidential information, or some other advantage gained during your employment.

Even if the restraint is enforced, the length of time that you will be prevented from competing for will be reduced to the most minimal period possible to give the employer a fair period of protection.

CONCLUSION

Employees, like the client who visited me, can be unduly alarmed by the prospect of being restrained in some way once their employment ends.

Yet it may not mean that they are prevented from working wherever they wish.

The restraint against working for a competitor is just one type of restraint. The other restraints have less impact.

The upshot is that each restraint must be considered on its own merits. Even if enforceable, it may not have as much impact as you think.