What is a restraint of trade clause?

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A restraint of trade clause is designed to protect a business’ commercially sensitive information by restricting the employee’s business activities when they finish working for that employer. Usually they are limited to a specific geographical area and only last for a specific period.

There are two main types of a restraint of trade clause:

  • Non-competition – where a former employee is prevented from working in a similar field to their former employer’s business
  • Non-solicitation – where a former employee is allowed to take another job in the same or similar industry, but is restricted from contacting their former employer’s clients about their new business

To enforce a restraint of trade clause, it must be included in the employment agreement and the conditions must be reasonable. It is best to get independent legal advice for your specific situation. There is a multitude of complex factors to consider whether a trade clause is enforceable.

Even if an employment agreement does not contain a specific restraint of trade clause, the employer may still be able to prevent the employee to use highly confidential information in a way that it may affect the employer’s business.

If a restraint of trade clause is breached, the employee may face an injunction from the court restraining him from continuing such activities. In some cases, the employer is able to ask for damages to cover any losses resulting from the breach.

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