Understanding the Restraint of Trade Clause in Employment Contract Example

Understanding the Restraint of Trade Clause

A restraint of trade clause in an employment contract is a provision that limits an employee's ability to engage in certain activities after leaving the company. This clause is designed to protect a business's legitimate interests, such as trade secrets, client relationships, and proprietary information. It is essential for both employers and employees to understand the implications of such clauses, as they can significantly affect future employment opportunities.

Key Components of a Restraint of Trade Clause

When drafting a restraint of trade clause, several key components should be included to ensure its enforceability:

• Scope of Restriction: Clearly define the activities that are restricted, such as working for competitors or starting a similar business.
• Geographic Area: Specify the geographical limits within which the restrictions apply, ensuring they are reasonable and not overly broad.
• Duration: Indicate how long the restrictions will remain in effect after the employment ends, typically ranging from six months to two years.
• Legitimate Business Interests: Articulate the specific interests the clause aims to protect, such as confidential information or customer relationships.

Example of a Restraint of Trade Clause

Here is an example of a restraint of trade clause that might be included in an employment contract:

The Employee agrees that for a period of twelve months following the termination of their employment with the Company, they will not engage in any business activities that compete with the Company within a fifty-mile radius of the Company’s primary location. This includes, but is not limited to, working for or consulting with any competing business.

Enforceability of the Clause

The enforceability of a restraint of trade clause depends on several factors, including its reasonableness in terms of duration, geographic scope, and the interests it seeks to protect. Courts typically assess whether the clause is necessary to protect the employer's interests without unduly restricting the employee's ability to find work. Employers should seek legal advice when drafting such clauses to ensure they comply with state laws and are likely to be upheld in court.

Implications for Employees

Employees should carefully review any restraint of trade clauses before signing an employment contract. Understanding the restrictions can help avoid potential legal disputes in the future. If an employee believes a clause is overly restrictive or unfair, they may want to negotiate the terms before finalizing the contract. Seeking legal counsel can also provide clarity on rights and obligations under the clause.

Using airSlate SignNow for Employment Contracts

When preparing employment contracts that include a restraint of trade clause, airSlate SignNow offers a secure and efficient way to create, edit, and eSign documents. Users can easily prepare and send contracts for signature, ensuring all parties have access to the most up-to-date version. This streamlines the process of finalizing employment agreements while maintaining compliance and security.