Restraint of Trade Clauses Flashcards
Introduction
James Holland and Stuart Burnett
Jack Allen v Smith 1999
Dairy Crest Ltd v Pigott 1989
James Holland and Stuart Burnett
A restraint of trade clause is a clause which can be found in a contract of employment designed to ‘stifle competition away from ex-employees.’
Jack Allen v Smith 1999
When considering the validity of a restraint clause, the courts need to look into its reasonableness in terms of market, time, area covered and public policy
Dairy Crest Ltd v Pigott (1989)
each case shall be treated based on its facts when assessing reasonableness
Protection from disclosure of information
Foster v Suggett (1919)
Faccenda Chicken v Fowler
Thomas v Farr plc
Foster v Suggett (1919)
The court held that particular knowledge of secret glass-making process is worth protecting.
Faccenda Chicken v Fowler
Confidential information is implied in the contract
Thomas v Farr plc
The greater the confidential information to which the employee has access to, the greater the likelihood of the clause to be reasonable and enforceable.
Protection from making use of trade connections
Wallace Bogan v Cove (1997) CoA in Dawnway v De Braconier d'Alpen Bell J in SBJ Stephenson v Mandy M&S Drapers v Reynolds Hannover Insurance v Schapiro Fitch v Dewes Jessel MR in Middleton v Brown
Wallace Bogan v Cove (1997)
There must be a clear connection between the employer and the client
Court of Appeal in Dawnway v De Braconier d’Alpen
An employer has the right of maintaining a stable workforce within limits of reasonableness
Bell J in SBJ Stephenson v Mandy
Bell J allowed a clause protecting the employer from poaching his staff as this was an insurance company, and the employees represented the prime assets of the company.
M&S Drapers v Reynolds
the CoA held that clients brought to the company by an ex-employee still belong to him.
Hannover Insurance v Schapiro
the court held that the clients brought by an ex-employee still belonged to the company
Jessel MR in Middleton v Brown
The duration of the restraint should be limited to the time it takes for a replacement employee to demonstrate his effectiveness.
Fitch v Dewes
Relaxed attitude in case of lengthy clauses for trade connections
Area covered
Littlewoods v Harris
Underwater v Street (1968)
Turner v Commonwealth Minerals
Allan Jones LLP v Jahall
Littlewoods v Harris
The court has allowed a clause restraining a person working within the UK for 1 year + the court stated that the clause should refer to named competitors and specific areas
Underwater v Street (1968)
The Court has allowed a worldwide clause for 3 years
CoA in Turner v Commonwealth Minerals
The court stated that only clauses containing areas in which the employee worked can be valid.
Allan Jones LLP v Jayhall
The restraining clause should not be exagerated and it should merely protect the employer’s interest.
Public Policy
Herbert Morris v Saxelberg
Allied Dunbar v Weisenger
Herbert Morris v Saxelberg
The employee should prove that the clause is against public policy
Allied Dunbar v Weisenger
The test is not based on balancing interests
Blue pencilling and court interpretation
Hollis&Company v Stocks (2000) CoA in Prophet v Huggett Sadler v Imperial Life (1988) Business Seating v Broad Mont v Mills Hannover v Schapiro
Hollis&Company v Stocks (2000)
The courts may, within limitations remove words or sentences from a clause to make it reasonable
CoA in Prophet v Huggett
It is not up to the court to re-write the contract, even if it leaves the employer with a ‘toothless restrictive covenant.’
Sadler v Imperial Life (1988)
3 conditions are necessary for severance:
- the remaining of the clause must make sense
- the remaining of the clause must be supported by consideration
- the removal of the provision must not change the contract of employment
Termination of contract
General Billposting v Atkninson
Rex Stewart v Parker -1988
Wrongful dismissal
General Billposting v Atkinson
Technical breach
Rex Stewart v Parker
Remedies
General Billposting v Atkinson
Evening Standard v Harrison
American Cyanamide v Ethicode
General Billposting v Atkinson
- wrongful dismissal removes the restraint of trade clause
- the employee can get damages
Evening Standard v Harrison
Garden leave
American Cyanamide v Ethicon
Injunction
