Reliance on an allegedly implied or tacitly accepted restraint of trade fails

An attempt to enforce a restraint of trade agreement against a former employee that was not reduced to writing failed. The former employer failed to prove that the restraint of trade was implicitly incorporated into the employment agreement; or that the former employee tacitly accepted the restraint of trade; or that the restraint of trade came into existence through a process known as quasi mutual consent.

A leading provider of generator hire, sales, maintenance and integrated power solutions for major customers employed a sales and marketing representative in mid-2016. The letter of appointment said “You will be required to sign a restraint of trade due to the nature of the position” and that a detailed contract of employment would be forwarded in due course.

The employer entered into a written employment agreement which contained a confidentiality clause but no restraint clause. The employer tried to rely on the terms of a restraint identical to other senior employees restraining the employer from competing with the applicant employer for 24 months. The actual terms were only set out in the letter sent after resignation.

The onus of proof was on the employer to prove a meeting of the minds or mutual understanding to enter into the restraint.

A tacit term is founded on the unexpressed intention of the parties. The courts will not readily import a tacit term. It cannot make contracts for people nor can it supplement the agreement of the parties merely because it might be reasonable to do so. An implied term is used to denote an unexpressed provision of a contract which derives from the common intention of the parties. Courts are reluctant to include restraints of trade by implication.

There was no evidence that both parties intended the tacit restraint term to be implied into the contract. The court was not satisfied that both parties agreed to the term and that it was the clear intention of both parties, in unequivocal and unambiguous terms to agree to the restraint.

Courts rely on the ‘bystander test’. The term will only be implied if it is necessary in the business sense to give efficacy to the contract. A court needs to be confident that if, at the time the contract was being negotiated, someone had said to the parties: “What would happen in such a case?” they would both have replied: “Of course, so-and-so. We did not trouble to say that; it is too clear.” There was no unequivocable conduct capable of no other reasonable interpretation than that the parties intended to, and did in fact, contract on the restraint terms alleged.

Quasi mutual consent exists where the parties intend to make a contract but are not in agreement as to the terms. There is no contract unless the circumstances are such as to preclude one of the parties from denying that they agreed to the terms. If a person conducts themselves that a reasonable person would believe they were assenting to the terms, they will be bound by them. There was nothing in the ex-employer’s conduct at the time of the agreement which could have led the applicant to reasonably assume that the employer agreed to the restraint.

If you need to rely on implied alternatively tacit alternatively quasi mutual consent to enforce a contract, the prospects of success are probably not good, and the likelihood of proving the contract, except on the clearest evidence is remote.

Patrick Bracher is a Director at Deneys and a globally recognised leading lawyer who advises on insurance law, financial transactions and regulatory matters.