Describe about the Business Law for Business Legitimate Interest.
Issues
Whether Richard and his father have made a valid contract? If yes, then Can Richard sue his father for the recovery of his weekly allowance @ $200?
The raised issue is resolved by evaluating the elements of contracts which are required to make a valid contract.
A contract is an agreement which is made by the parties themselves and which has relevance and legality in law. To make a valid contract the basic contractual requirements are:
Offer – Every contract can be established only when an offer is made at the first place. When an offeror wishes an offeree to act as per the terms and conditions prescribed by him then he communicates his intention to such an offeree. This communication of the offeror intention to an offeree is an offer in contract law and is held in Carlill v Carbolic Smoke Ball Company[1892] EWCA Civ 1. An offer can be made orally or in writing but must communicate the offeror intention clearly. (Clark 2012).
Acceptance- When the offeree receives the offer so made by an offeror and affirms the same then it is called acceptance. An acceptance is made when it is made without bringing any variations to the terms of the offer (Empirnall Holdings Pty Ltd v Machon PaullPartnersPty Ltd (1988) 14 NSWLR 527. (Clark 2012).
Intention to create legal relations – Every offer and acceptance which is made by an offer and offeree should be made with an intention to create a legal relationship between them. If there is no intention to bind a legal relationship then there is no contract even if all other elements are present and is held in Australian Woollen Mills Pty. Ltd. v. Commonwealth (1954) 92 CLR 424. (Lucke, 2016)
The general presumption that prevails in law is that when the parties are in family relationship then there is no presence of legal intention (Balfour V. Balfour [1919] 2 KB 571 & Cohen v. Cohen (1929) HCA 15). But when the party’s are in commercial relationship then there is presence of legal intention amid the parties (Rose and Frank & Co v Crompton [1925] AC 445.
But, this general presumption is not always true and can be rebutted by proof of evidence. For instance in the leading case of McBride v. Sandland (1918) 25 CLR 69 & Turner v. Turner [1918] HCA 66, the court held that when the parties are at family relationship but while exchanging offers and acceptances the party’s intent to abide by the same legally, then, there is contractual relationship amid the parties even though the parties are in family relationship.
Capacity of the parties – Both the offeror and the offeree are the parties who make a valid contract but both the parties should be capable as per the law of the land in order to make a valid contract. The parties are said to be capable when they are mentally sound and have attained the age of majority (Re Walker (1950). Generally the parties are considered to be major when they have attained the age of 18 years of age. However, at times the parties have not attained the age of 18 and had entered into contract, then, such kind of contract is voidable. But when the contract is made by the parties for their necessity or for their employment then such contracts are valid in law and are enforceable by the minors. In the leading case of Nash v. Inman [1908] 2 KB 1 & Roberts v Gray [1913] KB 520, it was held that a contract by a minor for necessity is valid. However, the necessity of such minor must be analyzed by the surrounding circumsttbces and the standard of living of the minor. (The Law Teacher, 2016).
Consideration – finally, when a valid offer and acceptance is made by the parties who are capable to make a contract with a legal intention then such promises must always be support by something which is valuable in nature whether in cash or kind (Beaton v McDivitt (1987) 13 NSWLR 162. This something of value in law is called consideration and must be sufficient to support the promises thought it is not necessary that the same must be absolute. (Moles & Sangha, 1998).
All the legal principles that are studied above are now applied to the facts of the case.
The father of Richard, who is a millionaire, has asked him to clean the yard (both front and back). He promised to give him $200 for the same. Thus, an offer was made by the father to Richard. The offer which was made by the father was duly accepted by Richard. Thus, a valid acceptance was made amid them.
This valid offer and acceptance results in an agreement which is supported by valid consideration of $200. Id. But, since the contract taken by Richard is for his necessity,
Now, Richard was a poor student and he agreed to take the offer of father because he is need of money. considering that Richard is minor, then, as per law, a contract with minor is not valid, however, since Richard was very poor and the offer of father was accepted by orchard because of his necessity, thus, such kinds of contact is valid in law.
Also, generally a contract amid a father and son is not considered to be valid as they are in family relationship. But this assumption can be cancelled if proved otherwise. As per facts, the father used to gave $350 to the Gardner for keeping the yard clean. Later he gave the work to Richard beachside he was doing the same job in $ 200 which is less than $ 350. Thus, his intention was made to motive Richard to earn by doing the job. Also, Richard undertook the task as he was poor and is in need on money. Hence, the intention of both the parties was to abide by the contact and hence there is presence of legal intention.
So, there is presence of all contractual elements.
Conclusion
To conclude, the contract amid the father and Richard is valid as there is presence of all contractual elements amid the two.
Issues
Whether the non-compete clause which was imposed by Frère Bros upon Joe is valid?
When any contract is made amid an offeror and offeree by complying with all the essential elements in valid contract, then, the terms of such valid contract is imposed upon the parties and the parties are compelled to comply with such terms of the contract. Many times when an employer appoints an employee then he enters into an employment contract with such an employee the employer incorporates several terms and conditions to which an employee must comply with. One such term which an employee is obligated to comply with is the non-compete clause (Write v Gasweld (1991) 22 NSWLR 317. (Doherty, 2016)
A non-compete clause is a clause which is made part of the employment contract and imposes restrictions upon an employee not to conduct any business activity which is similar to the nature of the employment in which he is employed with. The basic reasons as to why an employer incorporates such a kind of clause within an employment contracts are: (Tobin, 2012)
To safeguard the goodwill of the company – One of the main reasons for the implementation of the non-compete clause in employment contract is that the goodwill of the company in the market can be protected. When any employer has undertaken any business activity then a kind of good will is established by him. If the employee is permitted to undertake a business activity which is similar to that of his employer then the goodwill of the employers business is hampered which may also affect his business interest. Thus, incorporation of non-compete clause to protect goodwill is valid (HRX Holding Pty Ltd v Pearson[2012] FCA 161.
To protect the legitimate interest – when the non-compete if not implemented results in hampering the legitimate interest of the employer then in such situation the employer is permitted to incorporate the non-compete clause in the contract which allows the protection of legitimate interest and this policy of the law must be protected if the same can be achieved by relying on the non-compete clauses (Hanover Insurance Brokers Ltd v Schapiro [1994] IRLR 82. (Doherty, 2016)
To maintain secrecy – The clause can also be maintained to protect the secret and confidential information of the company, when an employee is working with the company then there are various information which are gained by such an employee and if such an employee is permitted to carry out another business activity which is similar to the business of an employer then the employee can exploit such confidential information for his own good which hampers the interest if an employer.
Thus, upon these grounds, the incorporation if a non-compete clause is valid (Prime Creative Media Pty Ltd v Vranjkova and Motoring Matters Pty Ltd [2009] FCA 1030.
But, if a non-compete clause is incorporated and the same is:
Against the public policy – The public policy of the country which is developed by the government of the country should not be hampered by the application of non-compete clause. If any public policy is hampered by such clauses then the clauses are invalid in law.
Against the legitimate interest of the employee – If by the application of non-compete clause the legitimate interest of the employee himself is hampered then such kinds of clauses is not valid. For instances, in the leading case Wallis Nominees (Computing) Pty Ltd v Pickett [2013] VSCA 24 a restriction is imposed on the employee for 12 months years till which the employee was not permitted to work in the similar business. The clause was held to be invalid as the duration was very long and is not within the legitimate interest of the employee himself.
Is illegal –If the non-compete clauses which is imposed upon the employee is illegal in nature the such kinds of clauses has no relevance in law.
In such cases, the non-compete clause is not valid and is thus not enforceable upon the employee.
The legal principles is now applied to the facts of the case.
As per the facts of the case, Frère Bros has employed Joe. As per the employment contract:
The employment contract is for five years;
Joe has agreed to provide his services exclusively to Frère Bros;
Joe will not act in films for any other company during this period.
However, in the very first year of the employment Joe has made a contractual relationship with Pretty Pictures.
By applying the law of non-compete clause, it is submitted that Frère Bros is authorized to incorporated non-compete clause in order to protect his legitimate interest, goodwill and maintain secrecy of his business. In order to protect his interest, Frère Bros has incorporated a non-compete clause for five years.
In the leading case of Wallis Nominees (Computing) Pty Ltd v Pickett (2013) it was held that normally a valid non-compete is such which is imposes restrictions upon the employee for a reasonable duration. A restriction which is beyond a reasonable duration is not valid. Such restriction is only valid when the employer can provide relevant proof to support the same.
Thus, Frère Bros has imposed a restriction of five years which is very long and will ultimately hamper the legitimate interest of Joe as he will not able to work in any another company for five ling years.
Thus, if not valid proof is laid down by Frère Bros, then the clause is not valid and Joe can work for any other company.
Conclusion
Since the restrain of five years is very long thus Frère Bros cannot rely on the clause unless and until valid proof of evidence is laid down by Frère Bros wherein he can prove that the restriction of five years is necessary to provide the legitimate interest of Frère Bros.
Reference List
Clark, J. (2012). Australian Contract Law. Agreement. (online). Available at: https://www.australiancontractlaw.com/law/formation-agreement.html. [Viewed on 15th 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 15th September 2016].
Lucke, H.K. (2016). The Intention To Create Legal Relations. (online). Available at: https://www.austlii.edu.au/au/journals/AdelLawRw/1970/1.pdf. [Viewed on 15th September 2016].
Moles, R & Sangha, B. (1998) Consideration (online). Available at: https://netk.net.au/Contract/04Consideration.asp. [Viewed on 15th September 2016].
The Law Teacher. (2016). Capacity of the parties. (online). Available at: https://www.lawteacher.net/lecture-notes/contract-law/capacity-lecture.php. [Viewed on 15th September 2016].
Tobin, A. (2012). Australia: Protecting confidential information and business goodwill before, during and after the employment relationship (online). Available at: https://www.mondaq.com/australia/x/176144/Contract+of+Employment/Protecting+confidential+information+and+business+goodwill+before+during+and+after+a+business+relationship. [Viewed on 15th September 2016].
Case laws
Australian Woollen Mills Pty. Ltd. v. Commonwealth (1954) 92 CLR 424.
Balfour V. Balfour [1919] 2 KB 571
Beaton v McDivitt (1987) 13 NSWLR 162.
Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1
Cohen v. Cohen (1929) HCA 15.
Empirnall Holdings Pty Ltd v Machon Paull PartnersPty Ltd (1988) 14 NSWLR 527.
Hanover Insurance Brokers Ltd v Schapiro [1994] IRLR 82.
HRX Holding Pty Ltd v Pearson (2012) [2012] FCA 161.
McBride v. Sandland (1918) 25 CLR 69.
Nash v. Inman [1908] 2 KB 1 .
Prime Creative Media Pty Ltd v Vranjkova and Motoring Matters Pty Ltd [2009] FCA 1030.
Rose and Frank & Co v Crompton [1925] AC 445
Roberts v Gray [1913] KB 520.
Re Walker (1950)
Turner v. Turner [1918] HCA 66.
Write v Gasweld (1991) 22 NSWLR 317.
Wallis Nominees (Computing) Pty Ltd v Pickett [2013] VSCA 24
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