Agreements That Unreasonably Restrain Trade

Non-competition prohibitions are not inherently illegal as long as they are reasonable and do not infringe on a person`s right to do business. The court is looking at what is reasonable, taking into account all the factors in the situation. When a court finds that a non-competition clause is inappropriate, it is generally based on the principle that it constitutes a trade restriction. The original case that motivated the concept of trade restriction was in England in the 1890s. Arms manufacturer Thorsten Nordenfelt had sold his business, and both parties had agreed that the seller “would not manufacture weapons or ammunition anywhere in the world and would not compete with Maxim for 25 years.” The case was decided by the House of Lords, which held that: in this particular case, Reddy/Siemens, the court found that the restriction of the trade agreement only prevented the worker from holding a job with a Siemens competitor – it did not prevent the worker from being employed, but simply limited the employer concerned. The court also found that the worker had access to confidential information from the employer (Siemens) and, although it is sufficient for him to be able to disclose this confidential information, it is not necessary for him to actually disclose that information. That is why the restriction of the trade agreement was found to be valid and applicable. In order to ascertain whether a contract constitutes a commercial restriction, a court will consider three factors: each case of commercial restriction is different. It is impossible to know in advance how a court could rule on a limitation of the commercial case; the circumstances of each case are unique.

If a staff member has access to confidential information and has the opportunity to disclose it, the first two requirements are met. Whether there is an alternative remedy takes into account the relevance of limiting the trade agreement and balancing competing interests. The deference of trade doctrine is based on the two concepts of prohibition of agreements that are contrary to public policy, unless the relevance of an agreement can be demonstrated. A trade restriction is simply a kind of agreed provision that aims to curb the trade of another. In Nordenfelt v Maxim, Nordenfelt Guns and Ammunition Co[2], for example, a Swedish arms inventor, by selling his business to an American arms manufacturer, promised that he would “not manufacture weapons or ammunition anywhere in the world and would in no way compete with Maxim.” Limiting trade clauses is not uncommon in trade agreements. They prevent one party from competing with the other during and after the agreement. They may be related to employment restrictions, restrictions between partners and restrictions on a contract to sell a business. For example, an employer may include a trade limitation clause to protect its business interests by preventing a worker from using its systems, customers and intellectual property for the benefit of a competitor.

Trade restriction establishes a general rule that trade restrictions are non-applicable unless they protect a legitimate interest and are proportionate. Any activity that tends to restrict trade, sale or transportation in intergovernmental trade is considered a trade restriction. Spanline has designed, produced and sold home extensions or additions through a national network of franchises and sub-franchises. Since 2001, RPR Maintenance (RPR) has been franchised by Spanline on the south coast of New South Wales. In 2003, Marmax, RPR and Spanline entered into a sub-franchise agreement that granted Marmax a sub-franchise by imposing restrictions on RPR not to encourage, participate, finance, operate or compete with Spanline franchises in the Illawara franchise sector. The same obligations were imposed on Marmax with respect to the franchise territory on the south coast. California does not allow any non-compete clauses on contracts.

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