Restraint of trade clauses are commonly found in employment contracts in South Africa. These clauses are designed to protect the interests of employers by restricting employees from engaging in certain activities after leaving their employment. In this article, we'll explore the concept of restraint of trade in South Africa, including its legal framework and how it impacts employers and employees.

What is a Restraint of Trade?

A restraint of trade limits the ability of an employee to accept future employment which could be to the detriment of their current employer and is used to stop the employer’s proprietary interests from being accessed by the employer’s competitors though past employee’s of an employer.

What Information is Protected by a Restraint?

Any information that can be classified as “proprietary information” that belongs to an employer would be protected by a restraint of trade, this would include trade secrets, confidential information.

Legal Framework of Restraint of Trade in South Africa

Restraint of trade clauses are governed by the common law in South Africa, which means that they are not specifically regulated by legislation. The courts have developed principles to determine the enforceability of restraint of trade clauses. The principles include:

• The clause must be reasonable: The clause must be reasonable in terms of its scope, duration, and geographical area.

• The clause must protect a legitimate interest: The clause must protect a legitimate interest of the employer, such as confidential information or customer relationships.

• The clause must not be contrary to public policy: The clause must not be contrary to public policy or the interests of society.

In principle, restraints of trade are enforceable provided that they comply with certain requirements. The factors that are considered when determining whether a restraint of trade is enforceable are, inter alia, as follows:

• Does one party have an interest that deserves protection after termination of the agreement?

• If so, is that interest threatened by another party?

• Does such interest weigh qualitatively and quantitatively against the interest of the other party not to be economically inactive or unproductive?

• Is there an aspect of public policy having nothing to do with the relationship between the parties that requires that the restraint be maintained or rejected?

Other factors that are also considered by courts in determining the reasonableness of a restraint include, inter alia:

• the length of time for which the restraint operates; and

• the geographical area to which the restraint applies.

Whether a restraint will be enforced by a court turns on whether the restraint is reasonable with reference to the particular facts before the court.

How Restraint of Trade Clauses Impact Employers and Employees

Restraint of trade clauses can impact both employers and employees in several ways:

• Protecting employer interests: Restraint of trade clauses are designed to protect the interests of the employer, such as confidential information, trade secrets, and customer relationships. These clauses can prevent employees from taking advantage of their knowledge of the company's confidential information or relationships with customers.

• Restricting employee mobility: Restraint of trade clauses can restrict the ability of employees to seek alternative employment, particularly in the same industry or geographical area. This can limit the career progression and earning potential of employees.

• Enforceability: The enforceability of restraint of trade clauses depends on their reasonableness and protection of legitimate employer interests. If the clause is too broad or does not protect a legitimate interest, it may not be enforceable.

Are Restraints of Trade Enforceable?

To ensure the enforceability of restraint of trade clauses, employers should consider the following:

• Drafting the clause carefully: Restraint of trade clauses should be drafted carefully to ensure that they are reasonable in terms of their scope, duration, geographical area, and protect legitimate employer interests.

• Negotiating the clause: Employees should have the opportunity to negotiate the restraint of trade clause before signing the employment contract. This can ensure that the clause is reasonable and does not unfairly restrict their future employment opportunities.

• Seeking legal advice: Employers should seek legal advice to ensure that the restraint of trade clause is enforceable and compliant with South African labour laws.

How to Enforce a Restraint of Trade?

Restraint of trades are typically enforced by way of an urgent application to a court of competent jurisdiction.

In the application’s papers, an employer seeking to enforce a restraint of trade is only required to, inter alia, invoke the restraint clause or agreement and prove a breach of its terms. The onus is then on the employee or person subject to the restraint to show that the restraint is not enforceable because it is unreasonable and is against public policy.

What Relief can be Claimed if a Restraint is Breached?

Where an employee breaches a restraint of trade, an employer (albeit an ex-employer) can approach a competent court for an order enforcing the provisions of the restraint by way of an interdict. The employer can prohibit the employee from taking up any employment in breach of the restraint of trade.

How to defend the Enforcement of a Restraint of Trade?

An employee would be required to demonstrate:

• the restraint of trade is unreasonable and is against public policy; and

• that the employer has no protectable interest that requires protection.

The onus rests on the employee to prove unreasonableness arising from a valid restraint of trade in the employment contract.

In conclusion, restraint of trade clauses are an essential part of employment contracts in South Africa. They are designed to protect the interests of employers, but can also restrict the career opportunities of employees. To ensure enforceability, employers should draft the clause carefully, negotiate with employees, and seek legal advice if necessary. Barter McKellar’s labour lawyers have extensive experience in enforcing and defending restraint of trade enforcement applications. If you would like to speak to one of our highly skilled employment attorneys, contact our offices today.