A contract that restrains a person from carrying on a lawful trade, profession, or business is, as a general rule, void to the extent of that restraint. The law takes this position because a person's ability to earn a livelihood through their trade or skill is considered too important to be casually restricted by private agreement, and because unrestricted competition is generally considered beneficial to the wider economy.

The general rule against restraint of trade is subject to important exceptions, recognised because certain restraints, far from harming competition, actually protect a genuine, legitimate interest without imposing restrictions broader than necessary to protect that interest. First, a restraint accompanying the sale of a business, by which the seller agrees not to carry on a similar business within specified, reasonable local limits, is valid, provided the restriction is reasonable in its geographic and temporal scope relative to the nature and extent of the business actually sold. Second, a restraint between partners of a firm, agreeing not to carry on a similar business during the continuance of the partnership, or agreeing on how a departing or continuing partner may or may not compete after the partnership ends, within reasonable limits, is generally valid.

A restraint's validity under either of these recognised exceptions still depends on the restriction being reasonable, and not excessive relative to what is genuinely necessary to protect the interest in question -- a restriction covering an unreasonably wide geographic area, or continuing for an unreasonably long duration, given the actual nature and reach of the business or partnership involved, may still be struck down as void even though it falls within one of the exceptions in principle.

Outside these narrow, recognised exceptions, an ordinary employment contract term that seeks to prevent a former employee from working in the same trade or profession after their employment has ended, going beyond merely protecting an employer's genuine trade secrets or confidential information through reasonable means, is generally void as an unlawful restraint of trade, since an employee's general skill, knowledge, and experience gained during employment belong to the employee personally, and a blanket restriction on ever using them again in a similar trade is considered contrary to a person's basic freedom to earn a livelihood.