Also known as:restraints on trade · restraint of trade
Written by attorneys · grounded in primary & secondary sources — see below
A promise whose performance would limit competition in any business or restrict the promisor in the exercise of a gainful occupation. Such a promise is unenforceable on public policy grounds if it is unreasonably in restraint of trade because the restraint is greater than needed to protect the promisee's legitimate interest or because the promisee's need is outweighed by hardship to the promisor and likely injury to the public.
Sources & Authorities· 11 sources
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Restatements
Hornbooks
Study Supplements
How it applies
Common Examples
5
Overbroad Withdrawal Noncompete
Roger Ramirez withdrew from Redwood Bank after serving as a senior lending officer. His withdrawal agreement barred him for three years from any role in lending, investing, or financial advising across North America. Redwood Bank sought to enforce the clause to protect its deal pipelines. A court would find the restraint unreasonably in restraint of trade because its geographic and functional breadth exceeded what was needed to safeguard the bank's legitimate interests.
Parallel Conduct Allegation
Ryan Roberts and several regional telecom providers each adopted identical pricing schedules that reduced consumer options. Roberts sued under antitrust law claiming the parallel conduct amounted to a restraint on trade. The complaint alleged no facts suggesting an actual agreement among the providers. A court would dismiss the claim because the allegations failed to show the existence of a contract or conspiracy that imposed the restraint.
Bell Atlantic Corp. v. Twombly550 U.S. 544, 556, 127 S.Ct. 1955, 167 L. Ed. 2d 929 (2007)
Mandatory Fee Schedule
Renee Rogers, a local attorney, challenged a county bar association's published fee schedule that set minimum charges for title examinations. The association argued the schedule merely supplied information. Evidence showed the schedule created a rigid price floor that limited competition among lawyers. A court would hold the schedule an unreasonable restraint on trade because it fixed prices rather than providing nonbinding guidance.
Goldfarb v. Virginia State Bar421 U.S. 773, 788
Jury Trial Demand
Rebecca Ross sued Regal Apparel for breach of an exclusivity clause that prevented her from selling competing apparel lines. Regal Apparel counterclaimed that the clause itself constituted an unlawful restraint on trade. Ross demanded a jury trial on the counterclaim. A court would grant the demand because the restraint-on-trade issue carried legal character that entitled the parties to jury resolution.
Beacon Theatres, Inc. v. Westover359 U.S. 500 (1959)
Expressive Conduct Restriction
Rhea Reynolds operated a theater that featured nude dancing performances. A state statute required performers to wear pasties and G-strings. Reynolds argued the statute imposed an unreasonable restraint on trade by limiting her ability to offer the performances that drew customers. A court would uphold the statute because it regulated conduct rather than targeting expression and advanced a substantial government interest.
Barnes v. Glen Theatre, Inc.501 U.S. 560 (1991)
Common questions
Frequently Asked
4
How does a court determine whether an ancillary noncompete is an unreasonable restraint of trade?+
A court first confirms the covenant is ancillary to a valid relationship such as employment or partnership withdrawal. It then asks whether the restraint is greater than needed to protect the promisee's legitimate interests. If the scope exceeds that need, or if the promisee's need is outweighed by hardship to the promisor and likely public injury, the covenant is unenforceable.
Supporting sources
What makes a noncompetition clause broader than necessary to protect a legitimate employer interest?+
A clause is broader than necessary when its duration, geography, or scope of prohibited activity reaches work that does not threaten the employer's confidential information, goodwill, or trade secrets. For example, a worldwide five-year ban on any aerospace-related role exceeds protection of specific propulsion designs. Courts refuse enforcement when the restraint sweeps past the employer's actual competitive concerns.
Supporting sources
Can a contract term be unenforceable as a restraint on trade even without an explicit statutory prohibition?+
Yes. Courts derive public policy from the need to protect the public welfare, including open competition, and may refuse enforcement of terms that impose unreasonable restraints even when no statute directly forbids the conduct. The Restatement recognizes restraint of trade as a distinct category of unenforceable promises on this ground.
Supporting sources
Does the presence of a legitimate interest such as protecting confidential information automatically validate a broad noncompete?+
No. A legitimate interest justifies only a restraint no greater than reasonably necessary to protect that interest. When the clause bars the employee from an entire profession across a wide area for an extended period, courts find it unreasonable despite the employer's confidentiality concerns.
Supporting sources
, would present us with a different question, e. g., American Column Co. v. United States , 257 U. S. 377 (1921); Maple Flooring Assn. v. United States , 268 U. S. 563, 580 (1925). But see…
to protest low pay); cf. United States v. Albertini , 472 U. S. 675, 687-688 (1985) (rule barring respondent from military base upheld in application against entrance on base to protest…
, by the defendants by virtue of the Chicago system of release, will you have occasion to consider whether or not the plaintiffs demanded and sought to obtain a playing position in C'…
and the Restatement (Second) of Contracts,” 57 N.Y.U.L.Rev. 669, 683-708 (1982); Note, “The Antitrust Implications of Restrictive Covenants in Shopping Center Leases,” 86 Harv.L.Rev.…
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