How the Restraint of Trade Clause Affects Employment Contracts in South Africa

Understanding restraint of trade in South Africa is essential for both employer and employee, as many employment contracts in South Africa contain this clause. Simply seeing it as a standard part of the employment contract is a big mistake for the prospective employee.

 

How Does Restraint of Trade in South Africa Affect the Employee?

The clause protects the interests of the employer by limiting the employee in accepting future business opportunities or employment that can be deemed damaging to the interests of the current employer. This is, for instance, where the employee accepts employment at a direct competitor of the current employer, while the employee has access to trade secrets or confidential information.

 

When Can the Restraint of Trade Clause Not Be Enforced in South Africa?

If the employee can prove that the clause was not understood correctly when the employee signed the contract, then it can be deemed not valid. If the clause is too broad and against public interest, it can also be unenforceable. If it is shown to be unreasonable, then it can be deemed unenforceable, but only if it is not in the public interest to enforce it. The courts hold that the persons signing a contract with a restraint of trade clause in South Africa must be willing to make good on their obligations regarding the contract. This obligation must be considered against the right to trade freely and the employee’s right to be employed in their profession, which they have chosen, for it not to be enforceable.

 

How Does One Determine if This Clause is Reasonable?

The reasonableness and thus enforceability of the clause is reviewed based on various factors. For one, it must be determined whether one party to the contract has the right to protection when the employment is terminated. If the party indeed has an interest and right to protection, is the right of the party threatened by the action of the other party to the contract? The interest must be weighed against the other party’s right to be employed in the profession of choice and the right to work freely.

The clause is generally aimed at the protection of the intellectual property assets of the employer. The clause restricts the employee in the work that can be performed in competition of the current employer for a specific time and geographical area. Interests that are protected include customer lists, confidential information, business secrets, and more.

The employer does not have a legal right to such a restraint in South Africa, unless the employee agrees to it by signing the contract containing the clause. To this end, it is imperative that the clause be worded in understandable terms. The employee must understand the limits of the clause, the implications of such, the duration, and geographical limitations.

The employer must ensure that the clause is not too restrictive, is not too broad, and is enforceable. To this end, it is important to seek legal guidance in wording the clause. The employee must be able to show the clause is unreasonable and not in public interest should the person want to be released from the obligation to perform according to the contract requirements.

The above is very important for the prospective employee. If an employment contract has such a clause and the prospective employee is not sure what it means or does not agree with it, the person should either not sign the agreement or request the removal of the clause. As an alternative, rewording it to ensure reasonability may be needed. If the clause limits the employee’s ability to make a living, the interest of the employer to be protected is not significant, and the duration of the limitation is unreasonable, then it is recommended that the employee seek legal guidance before signing the contract.

It becomes clear that the restraint of trade clause in South Africa should not be taken lightly by either party. It is best to seek legal guidance in setting up the employment contract that includes such a clause. It is also in the best interest of an employee to seek legal guidance regarding the right to be released from such a restraint of trade.

To this end, call us at 011 234 2125 for guidance regarding restrictive clauses in employment contracts.

 


NB: this article is for information purposes only and does not constitute legal advice. You are advised to consult with us before using/relying on this information.