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Restraint of Trade Clauses

15 Aug 2014, 11:08 by Edward Webb

Labels: contract, court, employee, employer, employment, trade-clauses

A restraint of trade clause is a term contained within a contract that seeks to limit a party’s ability to be employed by an alternative business. The most common type of restraint clause is contained within a contract of employment and is one which simply seeks to restrict an employee’s ability to work for another business during the term of their employment.
The next level of restraint of trade clause seeks to limit an ex-employee from working for a competitor for a specified period of time. Clauses such as this are prima facie void, they will only be uphold by the court if the employer can show it has a ‘legitimate proprietary interest to protect’ (LPI).
An LPI may be a trade secret, a list of existing clients, a manufacturing process or other important confidential information.
One of the leading cases on restraint of trade clauses is Faccenda Chicken Ltd v Fowler [1986] I.C.R. In this case Mr Fowler had previously worked for Faccenda Chicken Ltd, when he finished his employment he set up his own business. Faccenda Chicken Ltd sued Mr Fowler and argued he had information about the names and address of its clients. The court held that whilst there is a clear obligation not to disclose information that may cover a secret process or other information which is a sufficiently high degree of confidentiality to amount to a trade secret it does not extend to all information acquired by an employee during the time of their employment.
The question of whether a restraint of trade clause will be deemed enforceable or not is by no means a simple question. The court will look at a number of factors.
The first is whether the clause is an express or implied term (i.e. written into the contract of employment or not). If it is an implied term the court is not likely to enforce the contract but if it is an express term, the court will then look to see if there is a LPI (e.g. trade secret).
The next stage is to consider the extent of the clause. The court will want to see that the clause goes no further than offering the minimum protection necessary to protect the employer. If the clause is too restrictive it is not likely to be enforced. The characteristics of the clause that will be considered are the time restriction, geographical restriction and scope of the clause.
The above characteristics are taken on a case by case basis. I have previously dealt with a restraint of trade dispute in the aerospace industry. My client wanted to employee Mr A from its rival (Party B) however, Mr A had a 12 month restraint of trade clause. At first, it was argued this clause would not be enforced because whilst Mr A was aware of some trade secrets / client lists, these were largely historic. Party B protested and investigated it’s employee further, it transpired that Mr A was aware of a technical specification for a new product and had emailed this to himself the night before his resignation. Unfortunately this was not helpful. In any event, I was able to argue for a reduction in the restrain to trade clause to 5 months because it was clear this was all that was necessary to protect Party B’s interests.
Historically, restraining someone for a period of over 5 years had been enforceable (Forster & Sons Ltd v Suggett (1918) 35 T.L.R 87), indeed in more high value cases a clause restraining someone’s ability to work for 25 years in a particular industry has been held to be enforceable (Nordenfelt v Maxim Nordenfelt Guns Co Ltd [1984] A.C. 535).
Owing to the complexities of restraint of trade clauses, due consideration must be given when drafting the same. It may be that each department in a given business will need a different level of protection and the more senior the employee the more extensive the restriction.

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Direct Access, Public Access Extension into family and crime

14 Jan 2011, 12:21 by John Snell

Labels: careless-driving, direct-access, drink-driving, employment, lawyers, licensing, personal-injury, public-access, reckless-driving, speeding-offences

The extension of direct access or public access, as it is also known, into the areas of family and crime has meant that there has been a significant increase in work for barristers in these fields. In criminal work this has been particularly noticeable with road traffic offences such as drink driving, speeding offences, careless driving and reckless driving seeing the main growth. There has also been a substantial increase in people looking for licensing lawyers and employment lawyers through direct access, public access. However, probably the greatest area of growth in the direct access, public access barristers scheme is with clients searching for a personal injury lawyer to conduct their case.

 Anyone wishing to instruct a barrister in a direct access, public access case can find more information on our direct access page.

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Discrimination: Amnesty International v Ahmed

19 Aug 2009, 12:44 by Pauline Walker

Labels: constructive-dismissal, employee, employment, race-discrimination, race-relations

On 13 August 2009 the EAT gave its decision in Amnesty International v Ahmed (UKEAT/0447/08/ZT). The case concerned Ahmed, a Sudanese woman, who was refused promotion to the position of Sudan Researcher by Amnesty as they believed that such an appointment would compromise their perceived impartiality and therefore their effectiveness. She resigned and claimed for race discrimination and constructive dismissal.

In their judgment, upholding the original tribunal's decision the EAT stated that this behaviour constituted direct discrimination contrary to sections 1(1)(a) and 4(2)(b) of the Race Relations Act 1976 as the decision not to appoint her was based solely on her ethnic origin and despite Amnesty's potentially justifiable reasons. (James v Eastleigh Borough Council [1990] 2 AC 751 applied). The claim for constructive dismissal failed.

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Update on new and current maternity rights and benefits

22 Jan 2009, 09:37 by Joseph Neville

Labels: article, employees, employers, employment, maternity-leave, pregnant

Joe Neville has written an article, which first appeared in the December/January issue of Independent Lawyer, on:

  • The difference between ordinary and additional maternity leave;
  • When employees qualify;
  • The changes to statutory maternity pay;
  • Employers' obligations towards pregnant employees.

Read the article here.

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Direct Access: Compromise Agreements

03 Nov 2008, 10:48 by Robert Rees

Labels: compromise-agreements, contract, direct-access, employee, employment, employment-tribunal, lawyers

  As the recession looms there will be many employers wishing to relieve themselves of staff to save costs. Many will prefer their employees to leave voluntarily and to sign compromise agreements. These when properly made lawfully prevent employees going to employment tribunals to  contest the circumstances of their leaving. Employers will sweeten the pill by agreeing to pay and ex-gratia lump sum. Barristers through the direct access scheme are amongst qualified lawyers who are allowed to sign these agreements to make them lawful as preventing employees from going to employment tribunals.

In case an employee has in fact been guilty of some behaviour which would otherwise have entitled the employer to dismiss, prudent employers can include a clause or warranty to the effect that the money payable under the compromise agreement will not in fact be paid if it is discovered that indeed the employee has been guilty of something which would have given the employer the right to dismiss. Such a clause can be termed a warranty along these lines, the employee agreeing as follows:

"You warrant as a strict condition of this agreement that there are no circumstances of which you are aware or of which you ought reasonably to be aware which would constitute a repudiatory breach on your part of your contract of employment which would entitle or have entitled the company to terminate your employment without notice."

In Collidge v Freeport plc [2008] IRLR 697 an employee was found to have been guilty of financial impropriety prior to a payment of £445k, under a compromise agreement and so no payment was made by the employer. The Court of Appeal upheld the judge's unsurprising finding that such a clause was a condition precedent for payment under the compromise agreement and the employer did not have to make the payment. Mr C's warranty was a condition, a sina qua non, of the employer's obligations to pay. The warranty was a pre-condition of the employers liability to perform its obligations under the contract.

Writen by Robert Rees, Barrister at New Walk Chambers, specialising in direct access, employment law and compromise agreements.

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