Agreement in Restraint of Trade Is Void Exception

Agreement in Restraint of Trade is Void Exception Explained

Agreement in restraint of trade refers to a legal contract between two or more parties that restricts or prohibits them from engaging in certain business activities. The practice is regarded as an infringement of competition laws, which are designed to protect fair trading practices. Therefore, agreements in restraint of trade are often considered void. However, there are exceptions to this rule, and this article will explain the agreement in restraint of trade is void exception.

The exception to the rule applies when the restricted activity is necessary to protect a legitimate business interest. Legitimate business interests include the protection of confidential information, trade secrets, goodwill, and client relations. In such cases, the courts may consider the restriction as reasonable and valid.

For instance, in a case where an employee has access to confidential client information, a business may require them to sign a non-compete agreement that prevents them from working for a competitor for a certain period after leaving their job. In this case, the court may uphold the agreement because the legitimate business interest of protecting confidential information is established.

Furthermore, the courts may also consider the duration and geographic scope of the restriction when determining its validity. A restriction that is too broad or overly restrictive may be considered unreasonable and unenforceable.

It is important to note that the agreement in restraint of trade is void exception is not absolute. The courts will scrutinize such agreements on a case-by-case basis to determine their validity. As such, businesses should ensure that their agreements in restraint of trade are drafted clearly and explicitly to protect legitimate business interests without infringing on competition laws.

In summary, while agreement in restraint of trade is generally considered void, there are exceptions when the restriction is necessary to protect legitimate business interests. Therefore, businesses should seek legal advice to ensure that their agreements are enforceable within the limits of the law.