Enforcement of Restraint of Trade Clauses - Agency Fails to Enforce

In a society that promotes freedom of trade, it is no wonder that the law as regards restraint of trade agreements provides only limited protection. Such agreements are relatively common within agency agreements. Coming into effect when the agency ends, they are normally used to prevent the agent from soliciting former customers for a period of time.

The courts will only enforce such an agreement to the extent that it is reasonably necessary to do so to protect a legitimate business interest. To be enforceable, the agreement must be reasonable both in terms of time and geographic coverage.

In a recent case the agency agreement specified that after its termination the agent was not allowed, for a period of two years, to solicit ‘any person, firm or company’ who had been a customer of the principal within the year prior to termination of the agency agreement. This group included customers who had had no dealings with the agent.

Although the two-year restriction was not thought to be objectionable by the court, it found the clause to be too broad to be enforceable, especially as there would be customers who had dealt directly with the principal who the agent would not know were customers.

“The message for businesses seeking to rely on such clauses is to take care that the wording is not too broad, or the court will render the agreement unenforceable,” says Leigh Ellis, a solicitor with Gillhams. “We can assist in the negotiation and implementation in these commercial agreements.”