Considering the economic plight of South Africa and the extremely high unemployment rate, prospective employees are willing to sign almost anything to secure employment and many employment contracts contain a restraint of trade clause which is agreed to without a second thought.
The purpose of a restraint of trade clause, and the subsequent agreement is to protect the interest of the employer in who’s favour it exists. This is to ensure that the employee, upon leaving the employ of the employer, doesn’t use knowledge and expertise gained during his employment to become a direct competitor, for example by procuring his ex-employers clients or by establishing a rival in close proximity to his previous employer.
By its very definition a restraint of Trade clause limits your ability and rights in terms of your freedom to trade, your business, your occupation and your profession. Despite this one can voluntarily restrict certain rights by agreement and a restraint of trade clause is not considered contrary to public policy and is therefore held to be valid if:
- It is reasonably necessary to protect the interest of the person in who’s favour it is imposed.
- It is not unreasonable as to the person who it is against
- It is not unreasonably injurious to the public.
1. Reasonably necessary to protect the interests of the Employer.
When determining this one must look at the specific circumstances of the employer and the interest which the restraint of trade clause is designed to protect.
During his employment an employee may acquire certain knowledge and skills, meet and build relationships with important clients and have access to trade secrets, patents and proprietary design.
Imagine for yourself if an ex-employee opens a rival company and uses everything he learnt from the ex-employer to acquire the ex-employers clients and develop products and services to directly compete with his ex- employer.
It can reasonably be concluded that in certain circumstance there are indeed interest of the employer that must be protected.
2. It is not unreasonable as to the person who it is against
Once it is established that the interest is worthy of protection the reasonability of the clause must be established.
A person may study many years and acquire a skill set that can only be used in a certain field, for example a doctor in the medical industry or a lawyer in the legal industry, it would be totally unreasonable to allow a restraint of trade clause to prevent these individuals from working in their specific field through-out South Africa.
To determine reasonability each case must be looked at on its own merits and there is no hard and fast answer, even if the restraint of trade clause should be found to be the courts may Mero Motu vary a restraint of clause agreement, for example changing its enforceability to a smaller geographical area instead of declaring it totally invalid.
3. It is not unreasonably injurious to the public.
This requirement can be interpreted to mean that it is not against public policy, which can be generally summarized as not contrary to any law, can prevent the enforcement and application of the laws and/ or can possibly cause harm to the general public.
In conclusion it must be noted that under South African Law a restraint of Trade clause is perfectly legal but some employers may overstretch the limits stated above, but it must be noted that should the employee leave the employment of the employer in who’s favour the clause exists and the employer subsequently launches proceeding against the ex-employee the onus will be on the ex-employee to prove that the restraint of trade clause is unreasonable and therefore unenforceable using the above mentioned criteria.
Written by: A.J. Vermaas (B.Com Law, LL.B, LL.M)