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Business and Commercial Law - Restraint of Trade

Date: October 08, 2010

Authors: LAC Lawyers

Key employees have always been the cornerstone of every successful business or enterprise and great difficulties are caused by the sudden loss or departure of key employees which in turn could harm the relationship between the business and its clients. Key employees have over the years enjoyed a close relationship with losing them would have a detrimental effect on the management and reputation of the business.

Can you restrain the key employees from leaving or restrain your competitor from employing them?

The first step in every employment relationship starts with the Contract of Employment. The contract forms the foundation of every employer-employee relationship. Consequently, the contract of employment must be careful drafted in anticipation of key employees being poached by your competitor.

Restraint of trade clauses remain an important aspect of an employer’s attempt to prevent key employees from joining a competitor. The question that arises relates to the effectiveness and legality of such a restraint of trade clause. The restraint of trade clauses cannot be drafted too broadly which would make them powerless. The general rule seems to indicate that restraint of trade clauses are void as being against public policy. However cases law seems to indicate that the restraint of trade clauses are valid if they are inserted for the reasonable protection of the legitimate business of the company. The question of reasonableness is a question of fact to be decided by the courts.

Another method of preventing key employees from joining a competitor is to put the key employees on ‘garden leave’. However one must be careful in doing so and the contract of employment must be careful drafted to allow an employer to do so. The absence of such a right by the employer to place the key employees on ‘garden leave’ may amount to repudiation of the contract of employment and may result in the key employee commencing action against the employer for breach of contract.

In the event that there are reasonable grounds for preventing the key employee from joining a competitor, an injunction would be the most sought order in a court proceedings. The injunction would prevent the key employee from joining the competitor. There are many issues that need to be considered before invoking the court discretion and applying for an injunction to restrain the key employee from joining the competitor and one of the issues relates to the adequacy of damages.

 

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