In a non-compete clause, any limitation in terms of time, territory, and type of business must meet the reasonableness test.
Abusive and unreasonable clauses, especially in adhesion contracts, are rarely approved by the courts.
Over the years, a photocopier distributor installs several of its devices at various retailers, such as convenience stores and pharmacies, where people can photocopy their documents themselves, for a fee to the retailer. At the time of installation, the retailer signs an adhesion contract stating that, during its duration and for one year after its termination, it will be prohibited for the signatory to be involved, directly or indirectly, in any business renting a photocopier within a radius of 25 miles. It is even stipulated that this clause remains valid regardless of which party terminates the contract. A competing distributor solicits the retailer and encourages them to terminate the contract. The distributor turns to the court to obtain an injunction to stop this solicitation.
The Court of Appeal*, based on case law, states that normally, any clause that attempts to restrict trade is against public policy. However, for contractual reasons, case law allows for restrictions necessary to protect the parties, provided that these restrictions remain reasonable, both in terms of duration and territory. Judge Joseph R. Nuss concludes that the restrictions limiting any involvement in such a trade within a 25-mile radius are unreasonable since this amounts to 5,092 square kilometers.
In a non-competition clause, any limitation in time, in relation to the extent of the territory and the type of business, must meet the "reasonableness test", failing which it will be considered contrary to public policy.
Be wise, use your intelligence, and you will surely pass the "reasonableness test".
*C.A 500-09-006414-981, 1998-12-04
