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

Restraints of trade: covenants invocated in the employment contract to protect the employer against competition from former employees, have existed in centuries. Although their continuation has been debated as these restraints, by their very nature infringe on the employee’s right to freely work and the essence of free competition, most industrialized countries have today acknowledged their purpose. That is because it has been realized that a restriction of trade was in certain circumstances justifiable as the proprietary interests of the employer were in need of protection. The purpose of this thesis is to present and compare the regulation of restraints of trade in Sweden and New Zealand: two countries that not only are 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 or nullify such restraints, whereas the collective agreement of 1969 provides guidelines for the reasonability of the restraints. In New Zealand, employment matters are taken up in the Employment Relations Authority and the Employment Court, and by appeal, the Court of Appeal and the Supreme Court. Similar to Sweden, the courts are given discretionary power to decide in this matter, with public policy shaping the view on restraint of trade policy and section 8 of the Illegal Contracts Act giving the courts discretion to enforce, modify or nullify the restraints. Although the legal systems may vary, the study has shown that the courts in both countries judge the restraints by taking all circumstances and factors of the case into consideration, and the reasoning behind the judgment is similar in both Sweden and New Zealand. The courts will allow a restraint of trade if it is proven that the employer does have legitimate interests in need of protection and the restraint of trade is not too excessive in its restrictions. This proves that it is the balance and fairness of the interests of the parties that is the foundation behind the reasoning of the regulation.Validerat; 20101217 (root