Restraints of trade in employment contracts : a study of the regulation in Sweden and New Zealand

University essay from Luleå tekniska universitet/Industriell ekonomi och samhällsvetenskap/Samhällsvetenskap

Abstract: Restraints of trade: covenants invocated in the employment contract toprotect the employer against competition from former employees, have existedin centuries. Although their continuation has been debated as theserestraints, by their very nature infringe on the employee's right to freelywork and the essence of free competition, most industrialized countries havetoday acknowledged their purpose. That is because it has been realized that a restriction of trade was in certain circumstances justifiable as theproprietary interests of the employer were in need of protection. The purpose of this thesis is to present and compare the regulation ofrestraints of trade in Sweden and New Zealand: two countries that not onlyare geographically distant but also make us of different legal systems: civil law and common law.In Sweden, discretion is given to the Labour Court to decide in this manner.§ 36 and 38 of the Contract Act respectively allow to the Court to modify ornullify such restraints, whereas the collective agreement of 1969 providesguidelines for the reasonability of the restraints.In New Zealand, employment matters are taken up in the Employment RelationsAuthority and the Employment Court, and by appeal, the Court of Appeal andthe Supreme Court. Similar to Sweden, the courts are given discretionarypower to decide in this matter, with public policy shaping the view onrestraint of trade policy and section 8 of the Illegal Contracts Act givingthe courts discretion to enforce, modify or nullify the restraints. Although the legal systems may vary, the study has shown that the courts inboth countries judge the restraints by taking all circumstances and factorsof the case into consideration, and the reasoning behind the judgment issimilar in both Sweden and New Zealand. The courts will allow a restraint oftrade if it is proven that the employer does have legitimate interests inneed of protection and the restraint of trade is not too excessive in itsrestrictions. This proves that it is the balance and fairness of theinterests of the parties that is the foundation behind the reasoning of theregulation.