Definition
A restraint of trade is any contract, agreement, or combination that limits, suppresses, or eliminates competition in a trade, business, or commercial market. The term operates in two distinct legal contexts:
1. CONTRACT LAW (non-compete and ancillary restraints): An agreement by which a party binds itself to refrain from engaging in a particular business, profession, or trade — either entirely or within specified geographic or temporal limits. Such agreements are presumptively void as against public policy, but courts will enforce them when they are ancillary to a legitimate transaction (such as the sale of a business or formation of a partnership), reasonably limited in scope, and no broader than necessary to protect the legitimate interests of the party seeking enforcement.
2. ANTITRUST/COMPETITION LAW: Any contract, combination, or conspiracy that unreasonably restricts free competition in a market. This sense — codified in the United States by the Sherman Antitrust Act of 1890 — extends well beyond two-party non-compete agreements to encompass price-fixing, market division, group boycotts, and other collective commercial conduct that stifles competition to the detriment of the public.
The two senses share a common ancestor in the common law's general hostility to monopoly, but they diverged sharply after 1890. In modern legal research, the contract-law sense and the antitrust sense are usually treated as separate doctrinal bodies.
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Common Language
Modern common usage (Wiktionary): An agreement that prevents fair competition on the open market, such as an agreement by one party to hire a second party within a profession on the condition that the second party will not compete against the first.
Historical common usage (Webster's 1913): No independent entry; the phrase was understood in its literal sense — a hindrance or limitation placed on the exercise of a trade or occupation.
The Wiktionary definition captures only the employment/non-compete scenario, which is one narrow application. In legal usage, the term encompasses the full spectrum of anti-competitive conduct — from the individual covenant not to compete buried in an employment contract to a multi-firm cartel suppressing prices across an industry. A researcher who reads "restraint of trade" in an older case or treatise must determine which context controls; the same phrase governs both the butcher who sells his shop and agrees not to re-open nearby and the railroad pool that fixes freight rates across a region.
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Common Confusion
RESTRAINT OF TRADE vs. RESTRAINT ON ALIENATION: These are related but distinct doctrines that share vocabulary and occasionally appear together in older sources. Restraint of trade concerns restrictions on a person's freedom to engage in commercial activity. Restraint on alienation concerns restrictions on a property owner's freedom to transfer an interest in property. Bouvier's entries for both doctrines appear in close proximity in historical sources, and the analytical framework — presumptive invalidity subject to a reasonableness test — resembles each other enough to cause conflation. A restriction preventing a married woman from alienating property, or a spendthrift trust clause limiting a beneficiary's ability to transfer an interest, implicates restraint on alienation, not restraint of trade.
RESTRAINT OF TRADE vs. MONOPOLY: In historical sources these terms are used interchangeably with some frequency. Technically, monopoly is the end state (exclusive control of a market); restraint of trade is the conduct or agreement that tends to produce it. The distinction sharpens considerably in modern antitrust doctrine.
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Core Elements
For enforcement of a contractual restraint of trade (non-compete context), courts historically required and modern courts generally require:
1. ANCILLARY RELATIONSHIP: The restraint must be incidental to an otherwise lawful and enforceable agreement — a sale of a business, dissolution of a partnership, or employment relationship. A bare promise to refrain from competing, unsupported by any underlying transaction, is naked and void per se.
2. ADEQUATE CONSIDERATION: The restrained party must receive genuine consideration; the promise not to compete must be bargained for.
3. GEOGRAPHIC REASONABLENESS: The restriction must not extend beyond the area where the protected party has a legitimate competitive interest to defend. Historical courts treated unlimited geographic scope as automatically void.
4. TEMPORAL REASONABLENESS: The duration of the restriction must not exceed what is necessary to protect the legitimate interest. Bouvier's notes that where geographic scope is reasonable, unlimited duration may sometimes be permissible — a position most modern courts would not accept without scrutiny.
5. NO EXCESS BURDEN ON THE PUBLIC: Even a restriction reasonable between the parties is invalid if it imposes disproportionate harm on the public interest in free trade and open competition.
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Recognized Forms
/SUBTYPES
ANCILLARY RESTRAINT: A restriction that is subordinate to a legitimate main transaction and reasonable in scope. Enforceable at common law and under modern doctrine.
NAKED RESTRAINT: A restraint with no legitimate ancillary purpose — its sole object is to suppress competition. Void per se at common law; per se illegal under Sherman Act analysis.
COVENANT NOT TO COMPETE (NON-COMPETE CLAUSE): The most common modern form of contractual restraint of trade, appearing in employment agreements and business sale contracts.
PRICE-FIXING AGREEMENT: A form of restraint of trade among competitors to fix, raise, or stabilize prices; treated as per se illegal under U.S. antitrust law.
TRADE ASSOCIATION RESTRAINT: Collective rules or bylaws of a trade or professional association that restrict members' competitive behavior. Historical sources (including Bouvier's masons and builders' association example) show early judicial engagement with this form.
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Why It Matters in Research
Historical materials use "restraint of trade" fluidly across contexts that modern doctrine treats as separate. Pre-Sherman Act cases applying the common law reasonableness test look structurally similar to post-1890 antitrust cases but operate under different legal frameworks. A researcher reading a late nineteenth-century federal opinion must determine whether the court is applying state common law, the Sherman Act, or both — the vocabulary will not always signal which.
The reasonableness standard itself shifted. Early common law asked only whether the geographic and temporal limits were reasonable between the parties. The Sherman Act era introduced a public welfare dimension that expanded what courts considered relevant. Still later, antitrust doctrine bifurcated into per se rules (for naked restraints like price-fixing) and the rule of reason (for more complex arrangements). Historical dictionaries were written before, during, or early in this transition and do not reflect the full modern framework.
Geographic scope analysis in historical cases is particularly unreliable as precedent. Courts in the nineteenth century regularly held that nationwide or even statewide restrictions were void as too broad; modern courts — working with national and global markets — apply the same nominal standard with very different results.
The Bouvier's entry also conflates restraint of trade with restraint on alienation in its organization, which reflects the broader common law anxiety about restrictions on liberty (whether of person, trade, or property) rather than a doctrinal identity between the two concepts. Researchers should not carry analysis across these categories without checking whether the source is actually addressing the same doctrine.
For employment non-compete research: many states have sharply limited or banned non-compete agreements by statute in recent decades. The common law enforceability analysis in historical sources may have been superseded by state legislation. This corpus does not substitute for current statutory research.
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Historical Dictionary Support
Black's Law Dictionary states the core common law rule directly: a contract is void as in restraint of trade when a person binds himself to abstain everywhere from the exercise of a lawful trade. The emphasis on "everywhere" reflects the geographic scope requirement — unlimited territorial restraint was the paradigm case of an unenforceable agreement.
Rapalje & Lawrence articulates the underlying rationale clearly: such contracts deprive the public of the benefit of the restrained party's services and tend to create monopoly. The citation to Mitchel v. Reynolds (reported in Peere Williams) anchors the doctrine in the foundational English precedent that established the ancillary/naked distinction and the reasonableness test. This framing — policy favoring freedom of trade, rebutted by legitimate business occasion — tracks what Bouvier's calls the presumption of illegality subject to rebuttal.
Bouvier's is the most detailed of the historical sources on this term and is also the most revealing about the state of the law at the turn of the twentieth century. It acknowledges that the presumption of illegality can be overcome by circumstances, identifies good-will sales and partnership agreements as the paradigm cases of legitimate ancillary restraints, and articulates the geographic reasonableness requirement with reference to then-current authority. Notably, Bouvier's also captures the early encounter between restraint of trade doctrine and railroad combination cases — including the reversal of a lower court decision that had tried to preserve existing rate-setting practices as consistent with "public policy." This editorial inclusion reflects the immediate post-Sherman Act uncertainty about how courts would harmonize the statute with prior common law.
What the historical dictionaries collectively miss: the rule of reason/per se distinction that structured twentieth-century antitrust law; the modern blue-penciling doctrine by which courts reform (rather than void) overbroad covenants; and the wave of state legislation limiting or abolishing non-compete enforcement. Researchers using these sources get the foundation but not the superstructure of current law.
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Jurisdictional Note
Enforcement of non-compete agreements varies significantly by state. California, North Dakota, and a growing number of other states refuse to enforce most non-compete clauses on public policy grounds regardless of reasonableness. Other states apply the common law reasonableness test. Still others permit judicial reformation of overbroad clauses. The Federal Trade Commission issued a rule in 2024 seeking to limit non-competes nationally; its enforceability was subject to immediate legal challenge. Antitrust restraint of trade doctrine under the Sherman Act applies federally and preempts state law in interstate commerce.
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Encyclopedia Cross-Reference
contracts_12: Contracts — Legality and Public Policy (Illegal Contracts, Restraint of Trade) | The Law Mind Contracts & Commercial Law Encyclopedia
estates_90: Spendthrift Trusts — Restraints on Alienation and Creditor Access | The Law Mind Trusts, Estates & Probate Encyclopedia
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