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What is “restraint of trade,” and how can it affect my business?

On Behalf of | Jun 13, 2023 | Business Consulting & Advice |

The business world is notoriously competitive, with rivals constantly seeking to secure an advantage. Nonetheless, companies are legally prohibited from engaging in certain unfair practices that aim to cause harm to competitors. One example of such tactics is referred to as “restraint of trade”.

Essentially, a restraint of trade is any action that prevents a company from trading as they would have done without such a restriction being in place. One common example includes using heavy-handed measures to discourage a market rival from competing in the same market space.

What does the law say?

The doctrine of restraint of trade was born out of English common law and is codified in the U.S. under the Clayton Act and the Federal Trade Commission Act. The provisions contained within this statute, and relevant state laws, provide affected parties with grounds to pursue civil damages should they suffer monetary losses due to an unlawful restraint of trade.

Restraint of trade claims are generally launched on the basis of tortious interference. The plaintiff must show that interference from another party directly caused them quantifiable harm. Usually, this means economic losses, but that isn’t always the case. A claim may also be lodged on the basis that the restraint of trade prevented the company from conducting business as usual in a broader sense. For example, if a restraint of trade resulted in the breakdown of a contractual agreement and subsequent damage to the reputation of the company.

Are all restraints of trade unlawful?

It’s important to note that not all restraints of trade are unlawful. For instance, some employees may be subjected to lawful non-compete agreements which prevent them from competing directly against their former employer upon termination. Additionally, if a restraint of trade is deemed to be reasonable and not in conflict with the public interest, then it will stand. For example, some distributors agree with other parties that they will only serve specific geographical locations.

An unlawful restraint of trade can cost your business significantly. Contact us for a consultation, and learn how you can avoid some of the legal problems that plague many businesses.