Do I Have to Disclose My Restraint of Trade Obligations to My New Employer?

By Alan J. McDonald

A restraint of trade clause is a provision commonly found in an employment contract which limit employees’ activities during or following employment which could adversely impact on the employer’s business. Examples of restraint of trade clauses include non-competition clauses, non-solicitation clauses, and non-disclosure clauses.

You are not under an obligation to disclose your restraint of trade obligations to your new employer unless there is a warranty clause in your contract of employment. By signing a contract with a warranty clause, you are representing or warranting that when entering into the new agreement, you will not be violating any express or implied obligations to any former employer.

Courts generally interpret restraint of trade obligations narrowly, applying them only as far as necessary to safeguard the employer’s legitimate interests. There is a strong aversion to limiting an individual’s ability to earn a living, so these restraints will only be enforceable if it is deemed reasonable in its scope and necessary for protecting the employer’s legitimate business interests.

The court will first assess whether there is a legitimate interest that needs protection. It will then evaluate if the restraint is limited to what is necessary to safeguard that interest. If the restraint goes beyond what is essential, it may be considered unreasonable. The onus is on the party imposing the restraint to demonstrate that it is both reasonable and necessary for protecting a legitimate interest

Courts determine this on a case-by-case basis. In determining the reasonableness of a restraint of trade clause, a court would consider factors such as:

• how long the restrictions will be in effect.
• the extent of the geographical area covered by the restraint.
• the types of actions the employee is prohibited from undertaking.
• whether the restraint adequately safeguards the employer’s legitimate interests.
• if the restraint is excessively harmful to the employee’s interests or the public good.
• whether the employee has received sufficient compensation during the restriction period.

If an employer suspects that an employee is breaching or is about to breach a restraint provision, they have several options beyond merely sending stern letters. The actions an employer can take largely depend on the clarity and enforceability of the restraint clause in the employment contract, the employer’s readiness to pursue legal action, and the employee’s capacity and resolve to contest the employer’s claims.

While courts strive to avoid hindering an individual’s ability to earn a living, they have shown a willingness to uphold an employer’s interests when there is compelling evidence of a breach of reasonable restraint provisions.

If you believe you have been subjected to a restraint of trade clause, we encourage you to contact us today. Our experienced employment lawyers are here to help you navigate your rights and seek the compensation you deserve for any unreasonable restrictions placed on your ability to work.