It is rather common for an employment contract to include a clause restraining an employee from exercising his trade/profession following the termination of said employment, particularly in the case of employees who are employed in a position of trust and whose role makes them privy to certain business contacts, trade secrets or other information which is very sensitive for the business in question. Typically such a clause would also impose a fine payable to the employer in the event of a breach by the ex-employee.
Despite the frequency of their use, local legislation does not refer specifically to such clauses and case-law on the matter is not extensive, presumably since a number of these disputes tend to be settled out of court.
Historically, the general rule adopted was that all clauses in restraint of trade were considered invalid. Eventually, the courts started accepting the concept of “partial restraint if reasonable and not contrary to the public interest (Ansons’s Law of Contract, 23rd Edition, page 333)”. In the judgment given by the Commercial Court on 31 July 1969 in the case Joseph Xerri nomine vs Brian Clarke, it was stated that “…it may safely be asserted that if clauses in restraint of trade may be impugned at all - and they certainly can in deserving cases - the heading under which an exercise of this sort may be attempted is Section 1028 (today Article 985) of the Civil Code which provides that things which are impossible, or prohibited by law, or contrary to morality, or to public policy, may not be the subject matter of a contract.”
The renowned employment law author Norman Selwyn states, “there are four legitimate interests in respect of which the employer is entitled to limited protection, namely (a) trade secrets and confidential information, (b) existing customers and connections, (c) working for competitors, and (d) enticing existing employees.”
It is clear from an examination of relevant case-law that in order for a restraint of trade clause to be enforceable, adequate compensation must be offered to the employee to make up for this restriction. This is in order to satisfy the quid pro quo requirement. Furthermore, such clause must fulfil a ‘reasonableness’ test, both in terms of the restriction imposed, i.e. that it is for a particular period, limited in application (e.g. applicable only to work with clients of the ex-employer), as well as, if applicable, in terms of fine imposed in the event of such breach.