Business Law

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

1BUSINESS LAW
Table of Contents
Question 1......................................................................................................................2
Issue............................................................................................................................2
Law.............................................................................................................................2
Application.................................................................................................................4
Conclusion..................................................................................................................5
References......................................................................................................................6
Question 2......................................................................................................................7
Issue............................................................................................................................7
Law.............................................................................................................................7
Application.................................................................................................................8
Conclusion..................................................................................................................9
References....................................................................................................................10

2BUSINESS LAW
Question 1
Issue
The issue is to evaluate the legal position of David for he breached the restraint of
trade clause that required him not to engage himself in the hair-care industry for the next five
years, imposed by Nu Shampoo, his previous employer.
Law
Restraint of trade is a clause that is usually enforced when an employee leaves an
organisation. A restraint clause, by its name can be understood as a clause that impose
restraint on an individual under certain condition. A restraint of trade clause is usually
attached with the agreement that a person signs while he enters into a contractual relationship
with an organisation, either as an agent or an employee. It is a restrictive covenant, which is
added to the employment contract, only enforced while an employee resigns or gets
terminated from the employment, and thus becomes operative. It restricts such person from
engaging into similar form of work when he leaves the organisation. In Australia, the
Restraint of Trade Act 1976 (NSW) and the Competition and Consumer Act 2010 governs the
matters related to restraint of trade clauses along with the disputes arising out of such clauses.
A restraint of trade clause is usually evaluated on the basis of its necessity and
reasonableness to the person or organisation imposing it. In the case of Mitchel v Reynolds
(1711) 1 P Wms 181, Lord Smith had states that it was a right of a person or trader to carry
out business freely within the boundary of one’s country pertaining to matters that are not
contrary to the law of that land. However, it is to be noted that if the law puts restraint on a
trade, it needs to be obeyed by all or by a particular person so restrained. Therefore, as held
by the Southern Cross Computer Systems Pty Ltd v Palmer (No 2) [2017] VSC 460, to
enforce a restraint of trade clause, it must be established that such restraint clause is

3BUSINESS LAW
reasonable and necessary for protecting the goodwill, business requirement or financial loss
of the organisation that might be affected if such restraint clause is not exercised. The court
looks into an issue pertaining to restraint of trade clause based on the textual wording of such
clause as whether it has quoted fairly or not, thereby determining the reasonableness of the
clause. Organisations usually impose restraining clause in order to prevent competition and
solicitation. It is significant for any company or organisation to diminish their competition
which may be brought against them by any of their employees who ought to have insider
information and contacts with the existing customers of such organisation, which would
make such person an advantage to set up a personal business and operate against his previous
company. The organisation also look forward to prevent its ex-employees from extending
their solicitation in the same field in which he was involved in his last employment, as it is a
general phenomenon with the leaving employees.
The court may reject an application to enforce restraint of trade if it finds that such
restraint clause is unnecessary and unreasonable. However, to overrule such clause, the court
must see that such a restraint clause is detrimental to the individual or to a group of people
and it does no good to the company as well. The court shall only enforce it if it is established
that such restraint clause is an utmost necessity to the company, as otherwise it would face
challenges relating to its finances as well as its corporate governance. For enforcing the
clause, the court considers the following factors, like a) negotiation between the parties, b|)
the characteristic of the employee so restrained, c) restraint duration, and d) area within
which such restraint clause is enforced. These factors plays a vital role to convince the court
as to enforce the restraint of trade clause imposed by an organisation against an employee.