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Although employment relationships are characterized by both inequality of bargaining power and employee subordination to the employer, the common law has clung to the fiction that the parties are formally equal and that it should play a neutral role. The received wisdom is that protective legislation and collective bargaining are necessary institutions, designed to offset or dilute these two key features characteristic of the employment relationship. But the eminent British labor lawyer Kahn-Freund understood very well that there were limits to the common law’s adherence to formal neutrality in the case of the contract of employment. He realized that there was one significant isolated situation where the courts would harness the common law to “lift the veil of [formal] equality and to allow the fact of subordination to impinge upon the validity of [the contract of employment].” And that instance was in the case of the doctrine of restraint of trade, where the common law would be deployed as a means of protecting the employee from onerous restrictive covenants—which are essentially express contractual terms in the employee’s employment contract prohibiting them from working for a competing business of the employer after the termination of the employment contract. More tellingly, however, the policy for doing so is not the inequality of bargaining power existing in the employment relationship, but instead, the freedom of the employee to trade and the interest of the public in “preventing employees from depriving themselves of their freedom to compete.” Seen from this perspective, somewhat surprisingly, non-compete restrictive covenants are regulated by the restraint of trade doctrine despite—rather than because of—the inequality of bargaining power lying at the heart of the employment relationship. And the foundation for that common law intervention was and is the protection of liberty, competition and trade.
