Setting Boundaries – Restrictive Covenants And Restraints Of Trade

Restraints of trade in the employment contract are quite often not given the attention they deserve until the time comes when the employer is under threat by a former employee and enforcement action is required to protect the business.

Question 1: What makes for a good (i.e. enforceable) restrictive covenant?

The Isle of Man High Court in Rational Services Limited t/a "Pokerstars" v Scott (24 February 2011) considered the law applying to covenants in restraint of trade which can be distilled as follows:-

• The starting point is that the public have an interest in every person carrying out his trade freely: the restraint of trade doctrine limits freedom of contract and thus a post termination covenant will be deemed unenforceable as contrary to public policy, unless it can be justified as being reasonable to the interest of the parties and the public;