The scope of Non-Contact clauses in employment contracts
News    ·   06-04-2016
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AUTHOR: Lisa Abela

Last month, the First Hall Civil Court confirmed that ‘non-contact’ or ‘restraint of trade’ clauses imposed upon an employee may be struck down by the Court, even ex officio, if they are unlimited in temporal and geographic scope.

A supplier of domestic and industrial electrical installation products sued its former sales manager for breach of his contractual obligation not to solicit any supplier, client or any firm in the habit of dealing with the employer, whether during or after termination of his employment. 

The employee worked for the company from 2009 until he resigned a year and four months later. During this time, specifically during his notice period, he sought to set up a competing venture and procure products from the company’s supplier. In addition, he attempted to secure business with one of the company’s customers.   The company sued claiming business related damages.

Notwithstanding the fact that the sales manager was not contesting the validity of the non-contact clause in question, the Court considered that this clause raised a matter of public policy due to its anti-competitive effects. As such, the validity of the clause was scrutinised by this Court.

In so far as it related to the period following termination of employment, such a clause, unlimited in time and geographic scope as it were, was declared invalid by the Court and therefore unenforceable. According to the Court, a clause that purports to perpetually bar an ex-employee from seeking to establish a commercial relationship with any former supplier or client that it may have had contact with was unreasonable. The same logic applied to a non-contact clause that purports to perpetually bar commercial relations within geographical territories other than those where the company operates.

In drafting such clauses, therefore, it may bode well to keep in mind, that a non-contact clause, following termination of employment is enforceable only if it is limited in time frame, business and geographic scope.

 

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