Business Law

Running head: BUSINESS LAW
Business Law
Name of the Student
Name of the University
Author Note

1BUSINESS LAW
Question 1
Issue
David’s legal position needs to be determined as per the breach of restraint of trade
clause imposed upon him by Nu Shampoo, his ex employer.
Law
Restraint of trade clause refers to the clause that stops a person from carrying out a
trade or occupation which he was engaged in his last employment. It is a common
phenomenon that a person who has been connected with a particular industry would certainly
have a long standing experience and contacts in the market which could give his last
employer a serious challenge to carry out a smooth business. Therefore the employers
incorporate restraint of trade clause in the service agreements of their employees in order to
restraint them to engage in the similar industry, in order to safeguard their own business.
The Restraint Of Trade Act 1976 as well as the Competition and Consumer Act 2010 deals
with restraint of trade clauses and the issues that comes along with it. The Restraint of Trade
Act entitles the organisations to lay down restrictions on their employees for members to
engage in similar employment after they leave the organisation. However such restriction
must be bound by a certain time period and must also incorporate certain necessary and
reasonable reasons for putting up such restriction as argued in Petrofina (Great Britain) Ltd v
Martin [1996] Ch 146, 180. A court of law would only enforce of restraint clause if it found
that the restraint clause was not reasonable or necessary for the organisation and it is
detrimental to any public policy. Enforcement of such clause would only be possible when
the organisation would be successful to establish that such imposition of the restraint of trade
clause is necessary for the best interest of the organisation and it is absolutely necessary to
protect their goodwill and basic right to carry out a profitable business without unnecessary

2BUSINESS LAW
challenges from someone who has been given the opportunity to grow in the same
organisation as held in Adamson v New South Wales rugby league Ltd (1991) 31 FCR 242.
The organisations put search restrictions for preventing competition and solicitation from
their ex employees which is commonly seen when such employees resign or terminated.
Therefore in order to protect the best interest of the company the organisations must
prove that the restraint of trade clause has been imposed is necessary and reasonable. It must
also establish that the imposition of such restraint of trade clause is not detrimental to the
public policy or to the rights of the ex employee. The company must prove that if such
restraint of trade clause is not enforced by the court, it would face serious challenges which
will be detrimental to the company, its shareholders as well as the stakeholders.
In case the company success to establish that the restraint of trade clause was
reasonable and necessary, the ex employee who has violated his restraint clause would be
held liable and would be charged with legal actions for violating such clause. Such person
shall be directed to stop his trade or occupation immediately and could also be held liable to
pay damages to his ex employee for violating its restraint of trade clause. The amount of
damages would be calculated in accordance to the profit made by such person that has create
a challenges for the organisation and for it to attain its best interest.
Application
David was an employer of Nu Shampoo which belt in hair care products around South
Australia, right before he left the company to start his own business around the same area.
She was restraint from engaging into you any trade or occupation that dealt with the same
products for a term of five years by Nu shampoo. Such restraint of trade clause was imposed
on David as he was a tenured employee with the company having extensive knowledge of
the internal management of the company as well as had a good contact with the clients of the