An agreement in restraint of trade is a contractual provision that restricts a party`s ability to engage in a particular trade, business, or profession. Such agreements have been widely criticized as they tend to limit competition in the marketplace. In most jurisdictions, agreements in restraint of trade are considered to be void and unenforceable. However, there are some exceptions to this general rule.
One of the most common exceptions to the rule against restraint of trade agreements involves the sale of a business. When a business is sold, the seller may agree to refrain from competing with the buyer for a certain period of time. This is typically referred to as a non-compete clause and is designed to protect the buyer`s business interests. Non-compete clauses are generally enforceable if they are reasonable in terms of duration, geographic scope, and the type of activity restricted.
Another exception to the rule against restraints of trade involves employment contracts. Employers may include non-compete provisions in employment contracts to prevent their employees from leaving the company and competing against them. However, such provisions must be reasonable in terms of duration, geographic scope, and the type of activity restricted. In addition, the employer must have a legitimate business interest in protecting its confidential information, trade secrets, or customer relationships.
A third exception to the rule against restraints of trade involves agreements between parties in the same industry. For example, industry associations may agree to limit the production of certain goods or services to maintain fair competition in the marketplace. Similarly, competitors may agree to divide up the market geographically to avoid unnecessary competition.
In summary, agreements in restraint of trade are generally void and unenforceable. However, there are some exceptions to this rule, including non-compete clauses in the sale of a business, employment contracts, and agreements between parties in the same industry. It is important to seek legal advice before entering into any agreement that restricts your ability to engage in a particular trade, business, or profession.