Elements of a Valid Contract
A contract is essentially a meeting of minds, which may only occur when the following five elements are present: an offer, an acceptance of the offer, an intention to form a binding contract, a consideration, and capacity. An offer represents an intimation of the willingness to enter a contract on given terms, and must be made with the intention to be binding upon acceptance. It must be definite and certain, such that it will not necessitate further negotiations prior to acceptance (Carlill v Carbolic Smoke Ball Co., 1893). It should also look like a contract in the estimation of a reasonable person and must be communicated to the offeree(s). Effectively, an offer is different from an invitation to treat or provision of information and/or statements of intention. To form an agreement, the offeree(s) must agree to and satisfy all the terms of the offer, and communicate their acceptance to the offeree. In Gibson v Manchester City Council (1979), a contract may only exist when the acceptance mirrors a clear offer. Any alteratations or disagreement with any of the terms of the offer amounts to a counter offer, which in effect rejects the original offer in its entirety. Under the Uniform Commercial Code (UCC), however, a change of the offer’s terms may not always extinguish the offer. If parties are both the offeror and the offeree(s) are merchants, the revised terms automatically form part of the contract unless they are rejected by the offerer, while in the case the offeree is not a merchant, the alterations represent a proposal subject to the merchant’s acceptance.
Thirdly, there must be a bargain or exchange of promises by which both parties receive a benefit and suffer a detriment. A consideration may not be adequate i.e. the market value of the consideration does not have to be the same as the benefit to be gained, but it must be valuable and sufficient in the estimation of the law. As such, a price of $1 in exchange of a private jet would be valid. This excludes gifts, promises of affection, betting/gaming, etc. Further, the contracting parties must have the competency and authority. Forthly, parties who are mentally incapacitated, either by disease or influence of substances such as alcohol and drugs, may not enter into a contract. Similarly, minors may not enter into contracts, except for contracts to provide necessities. The last element of a valid contract is the necessity for the object of the contract to be legal. Effectively, contracts that violate the state or federal laws, such as contracts to commit murder or sale illegal goods, are void (Barnett, 2010; Seaquist, 2012).
Restraint of Trade
The UCC applies to commercial transactions involving the sale of securities and goods, including leases and documents of title, secured transactions, bulk sales, letters of credit, negotiable instruments, funds transfers, bank deposits, and bulk transfers. On the other hand, common law generally governs contracts for employment, service, insurance, real estate, and intangible assets. The said contract is with respect to the provision of services of a chef to the Fabulous Hotel, which is not only a contract for the provision of a service, but also a part of a contract for employment. Effectively, the contract is governed by common law. More specifically, the clause in question falls under the post-employment restraint of trade.
Unenforceable Non-compete Agreements
The enforcement of non-compete agreements demands a delicate balancing of critical business considerations. Firstly, the employer needs to hire highly trained skilled employees in order to be profitable and competitive, without fearing that the employees would steal or use the employers’ business secrets against the employer, during their employment or after leaving the organization. However, employees need to be mobile to provide for themselves and their families or advance their careers in dynamic market places. As such, the enforceability of non-compete agreements depends on how reasonable those contracts are with respect to both the employer’s and the employee’s interests. Effectively, non-compete agreements are unenforceable if they are unreasonable. Reasonable restraints of trade must be no more restrictive than it is needed to protect the employer’s legitimate interests. In American Pamcor, Inc., v. Klote (1969), the court held that non-compete agreements can only be enforced to the extent that they are specifically tailored temporarily and geographically. The Restatement of Contracts, Section 186(a) provides that agreements to restrain trade is only reasonable if it is ancillary to legitimate business interests, and is no more than it is needed to protect the said interests. This is, in turn, dependent on the level of access that employees have to trade secrets and customers, the measures taken by employers to protect such secrets, the investments in the development of the trade secrets, and the ease with which the protected information can be replicated. In this case, the non-compete agreement may be unenforceable under the following circumstances:
Geographical Area
In this case, head chefs may gain important access to recipes, processes, and other information, which they can use against the Fabulous Hotel after leaving its employ, but the geographical restriction may be unreasonably broad since the Fabulous Hotel does not serve the entire metropolitan area. It would be reasonable if the agreement was limited to the same street or business district, etc., close enough so that the chef may reasonably use customer contacts to solicit customers from, or in competition, with their former employer. Similarly, it is necessary to determine whether such trade secrets that the chef may had access to are such that the employee can reasonably use them to the detriment of the Fabulous Hotel. In Safety-Kleen Systems, Inc. v. Hennkens (2002), the court held that non-compete agreements that simply seek to protect the employer from any form of competition overreach the need to protect the employer’s legitimate interests.
The length of time
The length of time that restraint on trade may be unreasonably long, such that the employee is overly restricted in making a living and further their career. It helps to determine whether finding another job in the said geographical region, within the two year period, would have any negative effect to the Fabulous Hotel’s legitimate interests. This in turn will be influenced by the ease with which the employee can replicate the business secrets, the value of the said secrets with respect to the Fabulous’ Hotel’s interests, and whether their use by the employee during the said period could cause the company a detriment. If these, and any other relevant considerations are found to be unreasonably restrictive, then the clause would be unenforceable.
References
American Pamcor, Inc., v. Klote, 438 S.W.2d 287, 290 (1969).
Barnett, R. E. (2010). The Oxford Introductions to U.S. Law: Contracts. Oxford: Oxford University Press.
Carlill v Carbolic Smoke Ball Co., 1 QB 256 (1893).
Gibson v Manchester City Council, 1 WLR 294, [1979] 1 All ER 972 (House of Lords 1979).
Poole, J. (2016). Textbook on Contract Law. Oxford: Oxford University Press.
Safety -Kleen Systems, Inc. v. Hennkens , 301 F.3d 931, 935- 36 (8th Cir. 2002).
Seaquist, G. (2012). Business law for managers. San Diego, CA: Bridgepoint Education, Inc.
