Essay Restrictive Covenants

Essay Restrictive Covenants

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Restrictive Covenants

In the situation described in this problem, a restrictive covenant
would be the best way to protect the company's interests. Although the
implied terms of employee confidentiality regarding company
information would be valid in this case, they wouldn't stop an
employee working with rivals. All doubt should be removed by the
inclusion of a clause in which the employee undertakes not to carry on
a particular trade or profession for a period after the termination of
the contract. It would permit the company to seek a interim interdict
in court against Dr MGleam and Ms Wilkes preventing them from
breaching the covenant.

Restrictive covenants are common in many contracts (partnership, share
holders, buyer-seller) including employment contracts. Prima facie,
such rules are illegal and unenforceable unless the covenantee (the
side who gains from the restriction) can invoke the restraint of trade
doctrine which was introduced into law as a result of the famous House
of Lords case of Nordenfelt v. Maxim Nordenfelt.

To prove that the covenant is justified, the covenantee must show
three things. That the covenant is necessary to protect a legitimate
interest of the covenantee (it's not sufficient to avoid future
competition with the covenantor). The restraint in the covenant must
be reasonable as between the parties, and that the restraint is in the
public interest. It is interesting to note that few cases where a
covenant is held to be reasonable have been viewed as being contrary
to public interest.

These three criteria are not yes/no questions and therefore courts
will examine the practical effects of a co...


... middle of paper ...


...a)
separately. In this fashion, if a judge were to construe the covenant
as being unreasonable, one term could be 'blue penciled' without
canceling the whole covenant.(Mulvein v. Murray 1908)

As all sources state that it is within the rights of the company to
protect their trade secrets and trade connections, it is entirely
reasonable for Dr McGlean and Ms Wilkes to sign a covenant restricted
their right to trade with past and present clients of the company
within the districts the company operates in and for a specified
period of time. Dr McGlean's covenant would specifically treat the
subject of electronic engineering and Ms Wilkes' would be in terms of
marketing and connections. Such terms would prevent the employees
getting 'poached' by rivals and would be held as reasonable and
enforceable in a court of law.

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Essay Restrictive Covenants

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