Discuss about the Business Law for Trade Clauses Inemployment.
The basic issues that originate from the given factual situations are:
Whether there is a valid contract between the father and Richard?
Whether Richard has any right in law against his father for weekly allowance?
The above two issues can only be resolved when the basic elements which govern the formation of a valid contract can be analyzed.
In Australia, the law of contract governs the elements which are required for the establishment of a valid contract. The law specifies that when an offer is made by an offeror is accepted along with consideration and the parties are capable and have legal intent to abide by the contract, then, a contract is said to be formulated. Thus, from the above definition, the basic elements which are required for the formation of a valid contract are: (The Law Handbook 2016)
Offer – An offeror is the person who initiates an offer. The intention of the offeror to do or not to any act when communicated to another person (offeree) with a hope of approval, then, such communication is called an offer. An offer must be made by an offeror and must be communicated to an offeree to be valid. An offer can be oral or written and can be made to one person or to the world at large Carlill v Carbolic Smoke Ball Co (1893). However, an offer is only valid when it is clear and without any ambiguity. An unclear offer has no relevance in law (Payne v Cave (1789). (Clark, 2012)
Acceptance – When the offeror by complying all the legal principles makes a valid offer to an offeree, then, if such an offeree gives his assent to the same, then, it is called an acceptance Latec FinanceLtd v Knight (1969). A valid acceptance only exists when it is made by an offeree to an offeror. An acceptance without the knowledge of an offer is no acceptance. Also, an acceptance must correspond to an offer in order to be valid and binding. (Gillies, 2004).
Once an offer and acceptance is made then it results in the formation of agreement which when coupled with capacity, intention and consideration makes a valid contract.
Capacity of the parties – when a valid offer and acceptance is made by the parties, then, in order to make a valid contract it is necessary that the promises which are exchanged must be made by the parties who are capable to exchange the promises. The parties are capable when they are mentally stable, not unsound and have attained that majority age, that is, they are eighteen years of age Re Walker(1950). If the parties are not capable as per the law of the land, then, the mutual exchange of promises by such parties are not valid and the contracts made by such parties has no relevance in law and makes the contract voidable.
But, if a minor enters into a contract with another party and the basis of the contract is for the necessity of the minor of for the benefit of the minor if for the employment of the minor, then, in such cases, the contract are considered to be valid and cannot be rescinded. Such contracts have legal sanctity in law ((De Francesco v Barnum (1890) & Nash v. Inman (1908). (Moles & Sangha 1998).
Intention to create legal relations – The offeror and offeree when makes an offer and acceptance respectively, then, it is a settled law that such exchange of promises are binding upon the parties only when such promises are made with a legal intention, if there is absence of legal intent then there is no contractual relationship between the parties even when all the other contractual elements are present (Ermogenousv Greek Orthodox Community of SA Inc (2002). Normally when a contract is of commercial nature then the parties are assumed to be legally intent whereas in domestic relationship the legal intent is absent Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1989). But, this general theory can be disapproved by providing evidence to establish the same. (McKendrick & Liu, 2015).
Consideration - when the parties makes an offer and the other parties accepts the same, then, it is very necessary that such promises must be supported by consideration (Coulls v Bagots Executor & Trustee Co Ltd. (1967). A consideration is a value in money or kind which must support the promises to make them enforceable in law. a contract without considerations are not enforceable and are gratuitous in nature. (Gillies, 2004).
Thus, all the elements of contract must always be present in any contractor to make it binding.
The analysis of law is now applied to the facts of the case.
It is submitted that the father has asked Richard to keep the yard clean. The father used to hire the Gardner for the same job at $350. However, the same job is now offered to Richard at $ 200.
Thus, an offer is made by the father to Richard.
Richard was a poor student and in order to earn the money he agreed to the said offer. Thus, a valid acceptance is made by Richard.
This exchange of offer and acceptance is supported by a valid consideration of $ 200.
Also, both Richard and father are major and are of sound mind, thus, are capable to make a contract.
Finally, the relationship of father and Richard are non-commercial, thus, generally there is no contract between the two. But, it is submitted that the father made an offer to Richard because he is getting the same job done at much cheaper rate and thus intent to abide by the same. Also, Richard agreed to the job because he was poor and intent o abide by the job to earn money.
Thus, both the parties wish to abide by the contract legally.
So there is presence of all the contractual elements to establish a valid contract between the two.
Thus, there is a valid contract between father and Richard and thus Richard can sue the father to claim his weekly allowance.
The basic issue that originates from the given factual situation is Can Joe liable to the clause that is incorporated by Frère Bros in the employment contract?
The application and relevance of non-compete or restrain clauses made part of the employment contract are analyzed in the given part.
Clauses which limit or restrict the rights of the employee to indulge in similar kind business which is undertaken by an employer are called restrain or non-compete clauses Write v Gasweld (1991). These are the clauses which are normally relied upon the employer and are made part of the employment contract. Law has given consent to the application of non-compete clauses in employment contract upon various grounds. Such as: (Doherty, 2016).
That the reason for the incorporation of the clause is to restrain the employee and such restrain is considered to be valid only when the restrain is for a particular duration which is of a certain time limit. In Smith v Nomad Modular Building Pty Ltd (2007), the court held that the basic retrain of time limit on the employees if up to one year which may be extended up to three years if there are justified reasons to support the same. However, a limitation beyond such time period is not considered to be valid unless and until there are justified reason to support the same.
Likewise, a restrain is only permitted to be imposed upon the employee when it is for a specific geographical area. A restrain that an employee will never work in particular areas is not valid and cannot be imposed upon an employee in law.
Whenever an employer’s incorporating a non-compete clauses in an employment contract then it is necessary that such clauses must protect the good will of the company (Stenhouse Australia v Phillips (1974). The basic reason for the implementation of the non-compete clause is that if the employee is permitted to indulge in the similar kind of business then it will certainly affect the goodwill of the company which is earned by the company with hard work and labor. (Gibson & Fraser, 2014)
Further, the clauses are considered to be very essential when such clauses protect the legitimate interest of the employer. If the clauses have no relevance to protect the interest of the employer but are only made part of the employment contract in order to harass the employee then such clauses has no relevance in law and must not be made part of the employment contract (Woolworths Limited V Mark Konrad Olson (2014)
The restrain clauses are also considered to be valid when such clauses protect the confidential information of the company. It is many a times analyzed that if the employee is permitted to indulge in similar kind of business without any time or place restrain, then, such an employee uses the relevant information which is acquire by such an employee while working for his ex-employee (AGA Assistance Australia Pty Ltd v Tokody (2012). And such information is used by the employee for his own benefit which not only hampers the confidentiality of the company but also affects the goodwill of the company in the market. (Hopgood Ganim 2016)
Thus, because of the above laid down reasons, it is very necessary that the incorporation of restrain or non-compete clauses are considered to be valid.
However, It is not always that the restrain clauses are considered to be valid. Many a times, if it is found that the incorporation of the clauses has breached the public policy or have hampered the legitimate interest of the employee or is of such a lengthy duration that affects the employee in every regard without justifications from the employer, then, in such situations, the clauses are considered to be invalid in nature Nordenfeldt v Maxim Nordenfeldt Guns and Ammunition Company (1894). (Mayor 2016)
If the employer has to rely on the clause then it is very necessary him to prove that that application of clauses is very necessary for his legitimate interest. Otherwise the clause has no relevance in law.
The law is now applied to the facts of the case.
Frère Bros and Joe have entered into an employment clauses according to which Frère Bros is an employer and Joe is appointed by Frère Bros. Frère Bros has employed Joe to his acting services for a period of five long years. The employment contract also contains clauses that if Joe undertakes any acting project with any other company apart from Frère Bros, then, the contract is considered to be violated. However, Joe violated this restrain clause of the employment contract and made a contract with Pretty Picture.
It is submitted that the contract with five long year restrain is very lengthy and if Frère Bros wants to rely on the same then it is very necessary for Frère Bros to prove that the clause is required to protect its legitimate interest and confidentially of the company.
Otherwise, the clause is not valid and is not imposed upon the parties.
It is thus concluded, that the restrain clauses made part of the employment contract by Frère Bros is only considered to be valid when the clauses protects the legitimate interest, confidentiality and goodwill of Frère Bros. otherwise, Joe can avoid the clauses as the same is for a very long duration and thus hampers Joes legitimate interest and is against public policy.
Brown M (2016) non-compete clause < https://www.mayerbrown.com/files/uploads/Documents%5CGuide%20to%20Restrictive%20Covenants/MB_rest_cov_asia.pdf>. [Viewed on 11th September 2016].
Clark, J. (2012). Australian Contract Law. Agreement. (online). Available at: https://www.australiancontractlaw.com/law/formation-agreement.html. [Viewed on 20th September 2016].
Doherty, JC. (2016) Non-compete and restraint of trade clauses inemployment contracts (online). Available at: https://www.fglaw.com.au/non-compete-employment/. [Viewed on 20th September 2016].
Gillies, P. (2004). Business law. Federation Press.
Gibson, A & Fraser, D. (2014) Business Law 2014. Pearson Higher Education AU.
Hopgood Ganim (2016) Non-compete Clause (online). Available at: https://www.hopgoodganim.com.au/page/Publications/Industrial_and_Employment_Law_Alert_Recent_court_case_provides_clues_to_successfully_enforcing_non-compete_restraint_obligations_-_31_Aug_2012/. [Viewed on 20th September 2016].
Moles & Sangha (1998) consideration (online). Available at: https://netk.net.au/Contract/04Consideration.asp. [Viewed on 20th September 2016].
McKendrick, E & Liu, Q. (2015). Contract Law: Australian Edition. Palgrave Macmillan
The law HandBook (2016) Elements of contract (online). Available at: https://www.lawhandbook.org.au/07_01_02_elements_of_a_contract/. [Viewed on 20th September 2016].
Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1989).
AGA Assistance Australia Pty Ltd v Tokody (2012).
Carlill v Carbolic Smoke Ball Co (1893).
Coulls v Bagots Executor & Trustee Co Ltd. (1967).
De Francesco v Barnum (1890).
Ermogenous v Greek Orthodox Community of SA Inc (2002).
Latec Finance Ltd v Knight (1969).
Nash v. Inman (1908).
Nordenfeldt v Maxim Nordenfeldt Guns and Ammunition Company (1894).
Payne v Cave (1789).
Re Walker (1950).
Smith v Nomad Modular Building Pty Ltd (2007).
Stenhouse Australia v Phillips (1974).
Write v Gasweld (1991).
Woolworths Limited V Mark Konrad Olson (2014).