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Is this a reasonable restraint of trade?

On Behalf of | Oct 21, 2020 | Firm News

New Jersey business owners like you may understand that most restraints of trade are not legal. In accordance, the penalty for the illegal restraint of trade is often hefty. 

But did you know that not all instances of trade restraint are illegal? In fact, there are many legitimate reasons to restrain trade as common business practices. 

What is an illegal restraint of trade?

According to Merriam-Webster, a restraint of trade is an activity that stops one party from conducting business as usual. There are illegal examples of restraint of trade, like fixing prices. In this scenario, two or more businesses work together to create a fixed price that they then use to run a third competitor out of business. Another includes tortious interference, in which unlawful interference in a business deal occurs. 

But there are legitimate and legal examples of restraint of trade. Non-compete agreements fall under this category. In some areas, these agreements are reasonable and enforceable. There, an employer can disallow employees from aiding competing companies. 

Legitimate restraint of trade

To be legitimate, restraint of trade must serve a legitimate interest. This is a limited interest, and must not interfere with or go against the interest of the public. One example involves manufacturers working out trade agreements. They collaborate with distributors to serve certain areas. While a trade restraint, it serves legitimate interests and does not go against the public’s interest. 

It is important to understand what is and is not legal under New Jersey laws. This allows you to navigate the line between legitimate and illegitimate restraint of trade.