Restraints of Trade: The Legal Practice

Abstract

This article assesses the impact of legal practice upon the enforceability of employment restraints of trade. Post-employment restraints range from those prohibiting use of confidential information acquired through employment (non-disclosure clauses), or the solicitation of previous customers (non-solicitation clauses), to wider clauses imposing an obligation on the employee not to compete with the employer for a defined period after the termination of the employment (non-compete clauses). The empirical research reported in this article demonstrates that there is much uncertainty in the operation of the law around the use of restraint of trade clauses in employment contracts. While most usefully nuanced, the evidence suggests that to a significant extent, this uncertainty weighs more heavily on the side of any dispute that is least able to bear it – the employee. In light of our findings, we have introduced a limited number of reform options (ranging from the radical to the limited, and from the substantive to the procedural) that would assist in reducing the over-enforcement, or over-observance, of restraint clauses.

Keywords: restraint of trade, non-compete, enforcement, uncertainty

JEL Classification: K00, K31