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Restraint of Trade

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Definition:

Restraint of trade is a very old legal concept relating to the right of individuals to do business, or pursue a trade or profession, freely, without restraint.

Restraint of trade is an issue in non-compete agreements, where an employee or business owner accepts an agreement (sometimes for compensation) not to compete with the former employer or new business owner within a certain area for a specific period of time. If a court views a non-compete as unreasonable, it is usually based on the principle that it constitutes restraint of trade.

For example, an employment contract provision that prohibits a former employee from setting up a competing business for 5 years within a 100 mile radius of the former employer would likely be declared void because it constitutes restraint of trade. At issue in these contract situations is what is "reasonable" to protect the former employer, in this case, from having an employee leave the company and begin competing with his/her former employer, against the right of an individual to practice a trade or profession.

U.S. states have varied widely in their treatment of contracts which include non-compete agreements. At one end, California allows no non-compete agreements in contracts, and at the other end, many states have no specific legislative or statutory restrictions on non-compete agreements.

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