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    Restraint of Trade and Employment Contract

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    Restraint of Trade and Employment Contract

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    22 views16 pages

    Restraint of Trade and Employment Contract

    Uploaded by

    abhishek5641

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 16

    Restraint of Trade and Employment

    Contract
    Arindam Basu
    Assistant Professor
    Rajiv Gandhi School of Intellectual Property Law
    IIT Kharagpur
    What is restraint?
     Employer/Trader tries to limit the freedom of other party/parties
    to the contract.

     The restraint may be partial or general.

     The covenantor:

     Tries to maximize his market advantage;


     Takes advantage of his bargaining skill;
     Tries to protect his legitimate business interests;
    Types of restraint?

    Contracts of employment

    Anti-poaching agreement

    Garden-leave clause

    Protection of trade secrets and confidential information

    Breach of confidence

    Sale of goodwill

    Solus ties

    Retain and transfer system


    Some Examples:

     Price-Fixing

     Direct Price-Fixing Agreements


     Exchanging Price Information
     Controlling Output
     Regulating Competitive Methods

     Allocating Territories

     Exclusionary Agreements
     Some Examples:

    Sale Price Maintenance

    Non-price Vertical Restraints:

    Allocating Territory
    Exclusive Dealing Agreements
    How far one can restrain other?
    Section 27 of ICA

     Agreement in restraint of trade, void: Every agreement by which


    any one is restrained from exercising a lawful profession, trade or
    business of any kind, is to that extent void.

    Exception:

    Saving of agreement not to carry on business of which


    goodwill is sold: One who sells the goodwill of a business may
    agree with the buyer to refrain from carrying on a similar business,
    within specified local limits, so long as the buyer, or any person
    deriving title to the goodwill from him, carries on a like business
    therein, provided that such limits appear to the Court reasonable,
    regard being had to the nature of the business.
    Negative and positive covenants

     In contracts containing negative obligations the


    restraint is direct.

     A positive obligation when it limits freedom, imposes an


    indirect restraint.

     Section 23 and Section 27.


    Employment contract
     Restraint during employment

     Restraint after employment

     Some observations by the Court:

     Niranjan Shankar Golikari Case, 1967 - Restraint during


    employment – Court granted injunction to the company
     Superintendence Company of India v. Krishna Murgai , 1980 –
    Premature termination of employment – Company failed to
    restraint the employee.
     Zaheer Khan Case, 2006

     VFS Global Services (P) Ltd. V. Suprit Roy, 2008 – Garden leave clause
    – Court disagreed
    Protection of trade secrets and confidential information
    Things to remember when drafting or reviewing:

     Definition of Confidential Information

     Explanation of Purpose for Disclosure

     Some common issues that one may face in drafting/negotiating a confidentiality


    agreement include:

     whether or not to include a "best efforts" clause;


     whether to limit access of Recipient employees to a "need to know" basis;
     whether Recipient should merely agree to protect the confidential information in
    a manner similar to the way the Recipient protects its own confidential
    information.

     Careful drafting of exceptions

     Term
    Goodwill – Limited exception

    Retain and transfer system - Eastham v. Newcastle


    United FC Ltd., 1964

    Trade unions – Section 19 of Trade Unions Act,


    1926

    Solus ties

     Construction of terms – Strictly construed

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