The currency of the Restraints of Trade Act 1976 was determined in background research, but one finds that it commenced on November 15th, 1976, has not been found unconstitutional by common law, all its amendments have commenced, and it has not been superseded nor repealed. The Act is current to date.
As stated, the Act covers the events in question by Bust-A-Move because they took place in New South Wales, which is the Jurisdiction covered by the Act. The Act was in force at time of the incident, as Mixmaster Meg has only recently resigned from Bust-A-Move, and the Act has been in place since 1976.
The relevant provisions in the Act are s 2 and s 4. While s 2 is only relevant in interpreting the Act, the provisions in s 4, specifically s 4(1), s 4(2), and s 4(3) have direct implications to the validity of the restraint of trade clause Mixmaster Meg has breached:
4 Extent to which restraint of trade valid
(1) A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not.
(2) Subsection (1) does not affect the invalidity of a restraint of trade by reason of any matter other than public policy.
(3) Where, on application by a person subject to the restraint, it appears to the Supreme Court that a restraint of trade is, as regards its application to the applicant, against public policy to any extent by reason of, or partly by reason of, a manifest failure by a person who created or joined in creating the restraint to attempt to make the restraint a reasonable restraint, the Court, having regard to the circumstances in which the restraint was created, may, on such terms as the Court thinks fit, order that the restraint be, as regards its application to the applicant, altogether invalid or valid to such extent only (not exceeding the extent to which the restraint is not against public policy) as the Court thinks fit and any such order shall, notwithstanding sub-section (1), have effect on and from such date (not being a date earlier than the date on which the order was made) as is specified in the order.[1]
According to these provisions, Bust-A-Move’s restraint of trade over Mixmaster Meg is only valid if it is not against ‘public policy’. This term is ambiguous at best, but a look to the definitions used in s 2 of the Act for clarification informs that ‘public policy means public policy in respect of restraint of trade’[2] and ‘restraint of trade means a restraint of trade created by contract, created by the rules of an association, or otherwise created.’[3] Unfortunately, this still does not offer the client much clarity.
Despite the ambiguous definitions used in the provisions, a look at the language of s 4(3) suggests, that even if it is unclear of whether the restraint is against public policy, the reasonableness of the restraint will be determined as the Court thinks fit.[4] There is extrinsic material to support this wide interpretation. In the New South Wales Law Reform Commission’s Report on Covenants in Restraint of Trade, which was a precursor to the Act in question, it was stated that:
A court would know the limits of restraint as to duration, area, and activity which the parties contemplated. Where, the relevant limits to the restraint as promised: it would know what the promisor has done or intends to do is in breach of his promise: and it would know the interest which the promisee is entitled to protect within the limits of public policy.[5]
This implies that courts are well versed in the terms of reasonableness and public policy, and the Act is not so much concerned with defining those terms, but rather empowering the common law to govern arising issues.
To better understand Bust-A-Move’s position in this perspective, one must look at the generally accepted principles recognized by the common law. Law of Contract explains:
It is generally accepted that for a restraint to be reasonable the restraining party must identify an interest of the coventee calling for protection... Recognised interests include the interest of an employer in exclusivity of service during the employment, in the protection of trade secrets, and in preventing solicitation by employees of the employer’s clients or customers.[6]
Since the Act indicates that the interpretation of its provisions is subject to the view of the common law; and since the common law generally accepts that reasonable restraint is valid when preventing solicitation by employees of the employer’s clients of customers; one can conclude that Bust-A Move Break Dance Studio’s restraint of trade may be valid under the provisions of the Restraints of Trade Act 1976.
[1] Restraints of Trade Act 1976 No 67 (NSW) s 4.
[2] Ibid S 2(1).
[3] Ibid s 2(2).
[4] Ibid s 4(3).
[5] New South Wales Law Reform Commision, Covenants in Restraint of Trade, Report No 9 (1970) 25.
[6] N C Seddon and M P Ellinghaus, Law of Contract (LexisNexis Butterworths, 8th Australian Ed, 2002) 865.
