Restraint of Trade (What You Need to Know)

What You Need to Know About Restraint of Trade Agreements in South Africa

Restraint of trade is enforceable in South Africa unless it is contrary to public policy and the terms are unreasonable. The employer can include a restraint of trade clause in the employment contract to protect their propriety interests, such as trade secrets, customer lists, network contacts, and specialised knowledge. If the employee signs the contract and thus agrees to the clause, then it is enforceable. Indeed, it is a right enshrined in Section 23 of the Bill of Rights in the South African Constitution. However, accordingly, it can only be enforced by reasonable means.

Read on below to learn what you need to know about restraint of trade in the employment relationship, whether you are an employee or employer.

Restraint of trade is unreasonable if it is included in the employment contract simply to prevent legitimate competition of a previous employee. An employee has the right to use his or her general knowledge and the skills gained at their employer at another employer if the new employer gains benefits from such an application.

Another important aspect of what you need to know about restraint of trade is that it can only be enforced if the employee agrees. The best time to get the employee’s agreement is with the appointment of the employee by means of an employment contract. If the employer needs to get such an agreement from an existing employee, it is best to do so when the employee is promoted to a position in which new employment terms and conditions apply, such as work hours, salary increases, incentives, obligations, and restraint of trade. That said, it would be rather difficult for the employer to introduce such a restraint if the new position does not imply access to new propriety information.

The way in which the restraint of trade is worded in the employment contract is important, as the court considers the terms and conditions of employment under which the employee has signed and agreed to such restraint. The court considers the rights of the employer to be protected against unfair competition and usage of propriety information, and the right of the employee to work in his or her trade.

The most important case to consider regarding what you need to know about restraint of trade is that of Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 (4) SALJ 874 (A). In the ruling on the case, the court stated that a restraint of trade is not unconstitutional, and for it to be enforceable, it must be signed by the employee. The employee, accordingly, must be able to prove that the restraint is contrary to public policy and is unreasonable, should the employee want to be released from such restraint.

The court considers various factors in determining whether a particular restraint of trade is enforceable, including the time for which it is applicable, the geographical area to which it is limited, and whether or not the employer made a restraint of trade payment to the employee. The court also considers whether or not the employee can still make a living if the employee adheres to the limitations of the restraint agreement. In addition, the court considers the capital asset or the particular propriety interest that is to be protected by the restraint in place.

Should the employee only have the skills gained while working for the employer, it would be rather difficult for the employee to earn an income if the employee adheres to the conditions of the restraint. In such an instance, the enforceability of the restraint is in question.

In addition, what you need to know is that a restraint of trade can apply to the employer’s relationship with its existing and potential customers, trade connections, and suppliers. It can also apply to confidential information which could jeopardise the employer’s competitiveness in its particular industry, should a competitor gain access to such information.

The employer must stipulate the propriety interests to be protected and must show clear indication that it belongs to the employer. Accordingly, unreasonable limitations on a person’s freedom to do business or work are contrary to public interest.

Many more factors come into play regarding restraint of trade. It is important as an employer or employee to learn everything you need to know about it before entering into an agreement regarding such. Seek legal advice on the matter, so as to prevent costly legal and financial pitfalls related to the issue.

Call 011 234 2125 for legal assistance regarding employment contracts in South Africa.


Disclaimer: This article is for information purposes only and does not constitute legal advice. Call on our attorneys for legal advice, rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing – November 2018.

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