Restraints of trade are used in South Africa by employers in an attempt to protect themselves from erstwhile employees using their insider knowledge to undermine them in the market. Or at least that is what they are supposed to do.
These types of agreements or clauses (as they are generally put in employment contracts as standard clauses) aim to restrict an employee after they have left the service of an employer in terms of their potential future employment with direct or indirect competitors, clients or suppliers.The principle governing restraint of trade is that they are generally enforceable if the restraint is reasonable and necessary to protect a legitimate proprietary interest of an employer. Protectable interests are usually in the form of trade secrets, trade connections or confidential information. Admittedly, these terms are rather vague, and the protectable nature of these interests depend heavily on the specific context of the matter, the information that the employee was privy to and how that information could be used to undermine their former employer’s business interests.
Employers must take a reasonable and contextual approach when drafting their employments contracts and when enforcing these restraints of trade. You cannot simply persuade the Courts to enforce a restraint of trade by merely citing the fact that an employee signed an agreement. An employer is obliged to show that they are in fact protecting their legitimate business interests, have done so in good faith and that such protection is necessary and reasonable.
Failure to show this aspect of reasonableness will inevitably lead to the Courts to side with the employee and their constitutional right to freedom of trade to hold that the restraint of trade is unreasonable and unenforceable.
Employers must therefore be wary of applying a mechanical approach to their restraints of trade, both in the agreements signed with the employee and in the enforcement of those agreements in litigation. They must ensure that the interests that they are protecting are unique to their business, warrant protection by the Courts and do not unreasonably curtail the employee’s rights.
Written by Cornel Van Der Westhuizen
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).