Illegal Contracts

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Illegal Contractual Terms and Restraints of Trade in Contracts

When dealing with contract law, many problems can arise. There can be illegal terms in the contract or it can just be void. There are restraints on trade which include limiting employees from competing against their employers post employment and so on. Throughout this essay, these restrictions will be analyzed. The difference between illegalities, voids and restraints will be presented, along with cases to provide examples. It must be known that there is a difference between void contracts and illegal contracts. A void contract is not even considered a contract, as it is unable to be enforced by law. In the event that a contract is not only void but illegal, the courts will refuse to help a party who purposely agreed to an illegal arrangement. (Smyth, 2007) There will be no suing for any promised money, or the return of previously transferred property. It is known that when both parties have the knowledge of the illegalities, the court will not assist either of them. This leaves the defendant in a stronger position, as the plaintiff has no assistance. (Smyth, 2007) When one thinks of specifications in a contract, they think that the contract’s conditions are final in terms of the employees’ actions in the future. However, this is false. There are three clauses: the restraint of trade agreement, the non-competition clause and the restrictive covenant. (Ball, 2008) The purpose of these clauses is to restrict employees from being able to work for a company in the same industry as their employer. It is important that employers be aware that there is a lot of skill needed to create an enforceable restraint on post-employment positions. (Ball, 2008) As mentioned above, a major issue that arises within contracts is restraints of trade. It is important to know what restraints of trade means before going into further detail of how they relate to illegalities in contracts. A restraint of trade is a contract in which one party agrees with another party to place restrictions on future trading with another external party. (Overall, 2008) A contract is considered illegal if it opposes good morals, according to common law. Unless an agreement unreasonably limits a person’s ability to trade, it is enforceable. (Overall, 2008) As it stands in present day, it is seen that all restraints of trade are enforceable unless otherwise proved so in court. In order for courts to do so, they must take into consideration a number of factors. The first factor is the reasonableness of the restriction. If the restraint of trade exceeds any necessary lengths it would take to protect the interests of an employer, by public policy it is deemed unreasonable. (Overall, 2008) To show that a restraint of trade is unreasonable, there are three issues to be examined. The first is whether or not sport is considered a trade. In the British case Gasser v. Stinson, the International Amateur Athletic Federation made an argument that amateurs could not make enough money to make a living for themselves. (“Restraint of Trade”, 2006) As well, the money they did make was from contracts between federations and sponsors. This statement was rejected by the judge when he said, I am unable to accept that these circumstances take the case out of reach of restraint of trade law. The policy underlying restraint of trade law is that people should be free to exploit for their financial gain the talents and abilities that they may have. I would accept that restraint of trade law would not be applicable to activities that were undertaken for no financial reward at all (for example, school sport). . But, in a sport which allows competitors to exploit their ability in the sport for financial gain and which allows that gain to be a direct consequence of participation in competition, a ban on competition is, in my judgment, a restraint of trade. (“Restraint of Trade”, 2006)

In the case Johnson v....
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