Breach of Restraints of Trade in South African Law: Consequences for Employers and Employees

Restraints of trade are common clauses in employment contracts in South Africa designed to protect an employer's legitimate business interests. These restraints are meant to prevent employees from engaging in certain activities, such as competing with their former employer or soliciting clients, after leaving their job. However, breaches of these restraints can occur, and it's essential for both employers and employees to understand what constitutes a breach and the potential consequences in a South African law context.

What Constitutes a Breach of Restraints of Trade?

A breach of restraints of trade occurs when an employee violates the terms of the restraint clause outlined in their employment contract. While specific terms may vary, common breaches include:

1. Non-Compete Violations: This is one of the most frequent breaches. It occurs when an employee starts a competing business or joins a competitor while still bound by the non-compete clause. This can include starting a similar business, joining a rival company or engaging in activities that directly compete with the former employer.

2. Solicitation of Clients: If an employee contacts or solicits clients or customers of their former employer, this can be considered a breach of restraint. Such actions can result in legal action if not allowed according to the employment contract.

3. Disclosure of Confidential Information: If an employee shares or uses confidential company information, trade secrets, or proprietary data for personal gain or to benefit a new employer, it constitutes a breach of restraints of trade.

4. Time and Geographic Violations: Restraint clauses often specify time and geographic limitations. Breaching these restrictions, such as working within a restricted area or during the restricted period, is a breach of the agreement.

Potential Consequences for Employees

When an employee breaches a restraint of trade agreement in South Africa, they may face various consequences, including:

1. Legal Action: Employers can take legal action against the breaching employee. They may seek injunctive relief to stop the employee from continuing the prohibited activity and claim damages for any harm suffered.

2. Enforcement of Restraint Terms: Courts in South Africa generally respect the terms of restraint clauses unless they are unreasonable or overly restrictive. An employee may be forced to abide by the original restraint terms.

3. Monetary Penalties: Breaching employees may be liable for financial penalties as specified in the employment contract or determined by a court. These penalties can be significant, depending on the severity of the breach.

Potential Consequences for Employers

While the consequences for employers vary depending on the circumstances, they may include:

1. Loss of Business: If an employee breaches a restraint and competes with the former employer, it can result in loss of clients, revenue and market share.

2. Legal Costs: Pursuing legal action against a breaching employee can be expensive and time-consuming for employers.

3. Enforceability Challenges: Courts may refuse to enforce restraint clauses if they are found to be overly broad or unreasonable. Employers should draft these clauses carefully to ensure their enforceability.

Conclusion

Understanding what constitutes a breach of restraints of trade and the potential consequences for both employers and employees is crucial in the South African employment landscape. Employers should draft restraint clauses carefully to protect their legitimate interests, while employees should be aware of their contractual obligations and the potential consequences of non-compliance. Seeking legal advice when dealing with restraint clauses and breaches is advisable for both parties to ensure their rights and interests are protected within the bounds of South African law.

If you would like to find out more, schedule a consultation today with one of our office’s expert labour law attorneys.