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Covenants In Restraints Of Trade Model Answer Notes

LPC Law Notes > Employment Law Notes

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A more recent version of these Covenants In Restraints Of Trade Model Answer notes – written by University Of Law students – is available here.

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Covenants in Restraint of Trade Model Answer Is the covenant likely to be enforceable against X? If so, what remedies would be available?

LEGITIMAT E INTERESTExplain the law in general, briefly "A restrictive covenant restraining an ex-employee from working in a competing business or soliciting ex-customers is prima facie void as being in restraint of trade. An employer is not entitled to protect himself against competition as such; he must have an interest to protect" Take each clause and employee separately and explain: o Whether the clause would address the employer's concerns about this employee if it is valid o Whether the employer has a legitimate interest to protect for this employee o Whether the clauses are reasonable on these facts in terms of:
? Subject matter (bearing in mind the employee)
? Time (bearing in mind the subject)
? Area (if relevant) o How the 'blue pencil test' could operate (strike out certain bits of the clause) o The employer's remedies The employer must have a legitimate business interest to protect. Legitimate business interests are: o Trade secrets or other highly confidential information which 'if disclosed to a competitor would be liable to cause real or significant damage to the owner of the secret which the owner had tried to limit dissemination of' (Lansing Linde Ltd v Kerr)
? Example: Knowledge of special rates and discounts could potentially cause real or significant damage to the owner of the secret, as such prices could be undercut by the competing business or those prices could be disclosed to customers who are paying full rates o Trade connections (e.g. employers' relationships with their customers and clients (goodwill)); the employer will have to demonstrate that a breach would result in actual or potential harm to the employer's business (Jack Allen v Smith)
? Example: Would X's breach of the covenant cause actual harm to the company? Consider: Has he created close relations with the customers? Has he retained phone numbers/customer details? If so, the employee could use that information in a manner which causes harm to the employer's business o The employer's interest in maintaining a stable and trained workforce (Dawnay, Day & Co)

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