Also known as: restraint of trade · restraint on trade · restraints of trade
Written by attorneys · grounded in primary & secondary sources — see below
A promise whose performance would limit competition in any business or restrict the promisor in the exercise of a gainful occupation. The promise is unenforceable on public policy grounds when the restraint is unreasonable because it exceeds what is needed to protect a legitimate interest of the promisee or because the promisee's need is outweighed by hardship to the promisor and injury to the public.
Rosa Ruiz sold her entire book of brokerage clients to Regal Apparel. The agreement barred her for five years from serving any wealth-management client nationwide. When Rosa began working at a local bank, Regal sued to enforce the clause. The court refused enforcement because the nationwide industry-wide ban exceeded what was necessary to protect the goodwill Regal had purchased.
Pinnacle Stadium sued Creek Game in federal court alleging that eligibility rules unreasonably restrained trade and suppressed player salaries. Creek Game answered with a damages counterclaim and demanded a jury trial on all issues. The district court had to decide whether the presence of the legal counterclaim entitled Creek Game to a jury on the restraint-of-trade issues even though the original complaint sought only equitable relief.
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A promise is ancillary when it is made as part of an otherwise valid transaction or relationship such as the sale of a business or the formation of an employment or partnership relation. A promise made after the transaction ends or one that protects no legitimate interest of the promisee is not ancillary and is therefore unreasonable.
A restraint is unreasonable if it is greater than needed to protect the promisee's legitimate interest or if the promisee's need is outweighed by hardship to the promisor and likely injury to the public. Courts examine duration, geographic scope, and the breadth of restricted activity.
No. Even when a noncompete accompanies a legitimate sale of a business or client book, the restraint must still satisfy the reasonableness test. A restriction that reaches far beyond the purchased goodwill in time, geography, or scope remains unenforceable.
Yes. If the unenforceable restraint is not an essential part of the agreed exchange, a court may enforce the balance of the agreement while refusing to enforce only the offending promise.
…The fact issue in the counterclaim is whether the cross-defendants and co-conspirators therein named conspired together in restraint of trade and to monopolize in the manner alleged in the counterclaim. Absent conspiracy, whether or not the distributors licensed a single first run picture to Petitioner’s drive-in, be it in…