What is "restraint of trade"

n. (context legal English) An agreement that prevents fair competition on the open market, such as an agreement by one party to hire a second party to work within a profession on the condition that the second party will not compete against the first.

n. any act that tends to prevent free competition in business

Restraint of trade is a common law doctrine relating to the enforceability of contractual restrictions on freedom to conduct business. It is a precursor of modern competition law. In an old leading case of Mitchel v Reynolds (1711) Lord Smith LC said,

it is the privilege of a trader in a free country, in all matters not contrary to law, to regulate his own mode of carrying it on according to his own discretion and choice. If the law has regulated or restrained his mode of doing this, the law must be obeyed. But no power short of the general law ought to restrain his free discretion.

A contractual undertaking not to trade is void and unenforceable against the promisor as contrary to the public policy of promoting trade, unless the restraint of trade is reasonable to protect the interest of the purchaser of a business. Restraints of trade can also appear in post-termination restrictive covenants in employment contracts.