Also known as: combination in restraint of trade · combinations in restraint of trade or commerce · restraint of trade · Sherman Act combinations
Written by attorneys · grounded in primary & secondary sources — see below
A contractual promise that limits competition in any business or restricts the promisor in the exercise of a gainful occupation. Such a promise is unenforceable on public policy grounds when it is ancillary to an otherwise valid transaction or relationship yet greater than needed to protect the promisee's legitimate interest or when the promisee's need is outweighed by hardship to the promisor and likely injury to the public.
Elliot withdrew from Apex Capital after several years as a financial analyst. His withdrawal agreement barred him for three years from any lending, investing, or financial advising role anywhere in North America. Apex sought to enforce the clause to protect its deal pipelines. A court refused enforcement because the continent-wide ban on Elliot's entire profession exceeded what was necessary to safeguard Apex's legitimate interests.
VoltAuto offered volume discounts to its dealers only if they agreed not to sell any competing electric vehicles. GreenRide Motors signed the required contract term. A consumer group challenged the provision as contrary to public policy. The court declined enforcement because the agreement created an unreasonable restraint of trade that suppressed competition without serving a protectable interest tied to the dealership relationship.
Select any source to read its text and confirm it supports the definition.
A noncompete ancillary to a valid transaction or relationship is unenforceable if its scope is greater than needed to protect the promisee's legitimate interests or if the promisee's need is outweighed by hardship to the promisor and likely injury to the public.
Supporting sources
No. When the unenforceable restraint is not an essential part of the agreed exchange, a court may enforce the remainder of the agreement while refusing to enforce only the offending portion.
Supporting sources
Courts derive the policy from the need to protect the public welfare by preserving competition and avoiding undue restrictions on individuals' ability to pursue gainful occupations.
Supporting sources
The court examines the restraint's duration, geographic reach, and scope of prohibited activity against the specific interests the promisee seeks to protect, such as trade secrets or customer goodwill, and refuses enforcement when the clause sweeps beyond those interests.
Supporting sources