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Kores Manufacturing Co Ltd v Kolok Manufacturing Co Ltd (1958) CA
Case Summary: This case concerns a restrictive covenant between two competing carbon paper and typewriter ribbon manufacturers, Kores and Kolok. In 1934, they agreed neither would employ each other's former employees (within the past five years). When Kores moved factories in 1955, the covenant's validity was challenged.
Key Issue: Was the 1934 agreement a valid restraint of trade?
Court's Decision: The Court of Appeal held the restraint was invalid.
Reasons for the Decision:
Case Summary: This case concerns a restrictive covenant between two competing carbon paper and typewriter ribbon manufacturers, Kores and Kolok. In 1934, they agreed neither would employ each other's former employees (within the past five years). When Kores moved factories in 1955, the covenant's validity was challenged.
Key Issue: Was the 1934 agreement a valid restraint of trade?
Court's Decision: The Court of Appeal held the restraint was invalid.
Reasons for the Decision:
- Unreasonable Scope: The agreement's geographical and employee scope were deemed excessive. The restriction wasn't limited to the period when factories were adjacent (Tottenham). It applied regardless of whether an employee possessed trade secrets. The court found that preventing an employee from joining a competitor solely because of that competitor status is not a legitimate business interest.
- Implied Termination Clause: The court assumed (in Kores' favour) an implied term allowing termination on six months' notice. This highlights the court's reluctance to uphold such broad restraints.
- Focus on Parties' Interests: The court primarily based its decision on the unreasonable nature of the restraint between the parties, not explicitly on public interest grounds, although subsequent cases (Esso Petroleum) suggested a public interest analysis might have been more appropriate.
- Restraint of Trade: Agreements restricting trade are generally unenforceable unless reasonable in the context of protecting a legitimate business interest.
- Reasonableness Test: The reasonableness of a restraint is assessed based on factors such as:
- Geographical scope: How wide is the area covered by the restriction? (Here, it was deemed too broad.)
- Duration: How long does the restriction last? (The court assumed a 6-month notice period, suggesting the original unlimited duration was problematic).
- Nature of the employee's work: Did the employee have access to sensitive information? (The agreement didn't distinguish between employees with and without trade secrets.)
- Legitimate business interest: Was the restraint necessary to protect a genuine business interest? (The court found preventing competition alone wasn't sufficient.)
- Public Interest: While the court’s judgment primarily focused on the parties’ interests, the Esso Petroleum case suggests that the public interest is a relevant consideration when evaluating restrictive covenants. Broad restrictions that hinder competition are likely to be considered against the public interest.
- What are the elements of a valid restraint of trade clause? Apply these elements to the facts of Kores v Kolok.
- Why was the geographical scope of the restraint in Kores v Kolok deemed unreasonable?
- How did the court address the absence of a specific termination clause in the agreement?
- Explain the difference between the court's approach in Kores v Kolok and the suggested alternative approach highlighted in Esso Petroleum.
- What are the implications of this case for employers seeking to include restrictive covenants in employment contracts? What specific measures should be taken to ensure such covenants are enforceable?
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