Also known as: unreasonable restraints on trade · restraint of trade · unreasonable restraint of trade
Written by attorneys · grounded in primary & secondary sources — see below
A promise that limits competition in a business or restricts a person from pursuing a gainful occupation. Such a promise is unenforceable on public policy grounds when it is ancillary to a 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 left Apex Capital after signing a withdrawal agreement that barred him for three years from any lending, investing, or advising role anywhere in North America. Apex sought to enforce the clause to protect its deal pipelines. A court found the continent-wide ban on an entire profession exceeded what was necessary to safeguard Apex's specific interests and imposed undue hardship on Elliot, rendering the restraint unenforceable.
After selling his local delivery business to Regional Logistics, Sam signed a covenant not to operate any competing service within a five-state area for seven years. Regional Logistics sought to enforce the clause to protect customer relationships acquired in the sale. A court found the geographic and temporal scope exceeded what was necessary to safeguard those relationships and imposed undue hardship on Sam, rendering the restraint unenforceable.
Select any source to read its text and confirm it supports the definition.
After leaving a software partnership, Dana was barred by the partnership agreement from developing any competing application worldwide for five years. The remaining partners sought to enforce the clause to protect shared code. A court found the worldwide ban exceeded what was necessary to safeguard the partnership's specific interests and imposed undue hardship on Dana, rendering the restraint unenforceable.
A noncompete ancillary to a valid relationship such as employment or partnership withdrawal is unenforceable if its scope 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.
No. Even when an employer has a legitimate interest in protecting client lists or trade secrets, the restraint must still be no broader than necessary in duration, geography, and scope of prohibited activity.
The court asks whether the restraint exceeds what is needed to protect the employer's specific confidential propulsion designs and whether the breadth imposes undue hardship on the employee or harms the public.
Yes. Courts may decline to enforce terms that conflict with the public policy against unreasonable restraints of trade, independent of any statutory antitrust claim.
…in question frequently are interstate transactions. The necessary connection between the interstate transactions and the restraint of trade provided by the minimum-fee schedule is present because, in a practical sense,[^maj-11] title examinations are necessary in real estate transactions to assure a lien on a valid title of the…