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Contracts in Restraints of Trade, STEP 2: is it reasonable with regards …
Contracts in Restraints of Trade
to deem a contract
void and unenforceable
legitimate interest that
the party relying on the clause is
trying to protect
Reasonableness of the clause
with regards to the parties
Should not be against
public policies
STEP 2:
is it reasonable with regards
to the interest of both parties and the public
Area
Reasonable
employee acquired additional
skills and knowledge of the trade
in his employment
Not Reasonable
Natural talent was significant,
employment had no training
Duration
Reasonable
<5years reasonable and adequate
Unreasonable
20 years went beyond necessary period
Scope
Reasonable
severely restricted the scope
of the clause in terms of locality
1km radius
Unreasonable
scope of clause was too wide
tries to establish permanent presence
beyond the country / region
TEST of reasonableness
if reasonable to the parties but not to the
public, will still be void
Party who set and relied on EC
had a stronger bargaining power - unreasonable
there was alternative means of meeting
customer requirements
customer received inducement to enter
customer knew / ought to have known
existence and extent of EC - reasonable
for term that excludes liability - has to be reasonable
at the time of contract that compliance is practicable
were the goods manufactured to the special
order of the customer?
STEP 1:
identify legitimate interest
Trade secrets
branding and reputation, people will not
go back on their words
Maintaining stable work force
Trade secret and business connections
employee has personal knowledge and
infleunce over the customers and he
is well known for his skill
STEP 3:
Failure of test - clause is void
Severance of entire clause
"Blue Pencil Test"
run through and strike out objectionable
words does not alter the meaning
does not mutilate convenant to a point
it does not make sense
intention is to save the contract by cutting away the illegal portion, deletion of parts of the clause