Restraint of Trade

Should You Sign a Restraint of Trade Agreement with an Employer?

Restraint of trade entails an agreement wherein the employee agrees not to take employment at a competitor of the employer or to conduct or establish a business that competes with the employer upon the end of the employee’s work contract or termination of employment. Unlike what most people think, restraint of trade is allowed in South Africa, provided that it is reasonable.

As an employee or candidate employee, it may seem rather unfair to be presented with a restraint of trade agreement as part of your employment contract. It may seem as if the employer is distrustful of you right from the start. If it is a highly restrictive restraint of trade agreement, you might want to have a labour lawyer review it and negotiate for more acceptable terms of restraint of trade.

The above said, many businesses in South Africa have such agreements in place with their employees to prevent situations where they continue to lose valuable human resources to their competitors. They may also have restraint of trade agreements in place when they invest considerable amounts of money in the training of employees. Businesses furthermore have such agreements in place to prevent employees from taking intellectual property or customers from the employer upon termination of employment. In essence, these agreements are for the protection of the employer.

The question is thus not whether it is permissible for an employer to expect an employee to sign a restraint of trade agreement upon hiring or promoting the employee. Instead, it should be about whether the agreement is highly restrictive or fair.

One should understand that the restraint of trade is not part of labour law. It forms part of contract law. If a legal dispute develops between you and the employer over the contract, you can therefore not approach the CCMA or the Labour Court for assistance. Also keep in mind that employers are within their right to present restraint of trade agreements to employees. Do not take the signing of such an agreement lightly, as breach of contract comes with various repercussions.

The intention of the restraint of trade agreement should be to prevent theft of intellectual property and clients. It should not be intended as a means to steal your ability to find employment in your area of expertise. If you are presented with such an agreement, consider the length of restraint of trade and whether such is reasonable.

Also consider the geographical area that it covers, in addition to the various business domains in which you will be restricted. You furthermore need to consider under which circumstances the agreement’s terms will apply and how it will affect your ability to earn an income upon termination of the employment contract. Finally, consider what type of intellectual property the employer wants to protect through the restraint of trade agreement.

If the terms are too restrictive, limiting your ability to earn a living in your area of skills after termination of employment, negotiate more favourable terms before signing the agreement. You may, for instance, agree not to work for a competitor in the same town for a period of six months after termination of employment, instead of agreeing to a countrywide restraint of trade for a period of 12 months.

It is not unfair of the employer to want to protect intellectual property and thus ask you not to take valuable information to a competitor. It is, however, unfair to expect that you cannot be a sales representative, surveyor, or writer, etc. for another company when leaving employment. If it limits your ability to operate in your skills field and the employer is inflexible regarding the restraint of trade, it might be better to pass on the opportunity and seek other employment.

Get Legal Advice

As with any other type of contract, it is wise to seek legal guidance before signing it, should you not understand or agree with the terms of the agreement. By getting legal help in this regard, you can avoid costly pitfalls, which could affect your career. Be careful about breaching a restraint of trade agreement. Rather approach the employer and negotiate new terms. Such agreements are complicated and best discussed with experienced attorneys.

Call on us at +27 (0) 11 234 2125 for legal assistance regarding restraint of trade agreements.


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 – June 2018.

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