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Restraint of trade and the enforceability thereof

Under which circumstances would a restraint be enforceable?

In January this year an interesting labour appeal court judgment was delivered dealing with the contentious issue of restraint of trade.[1] Many employment contracts still include a restraint of trade clause, although it is not that common for employers to enforce it.

In short, the restraint deals with the prohibition placed on an employee to take up employment with another employer in the same field of business, for a certain time and in a specific area.

The question that needs to be answered is: under which circumstances would a restraint be enforceable?

In the Labour appeal court matter above, the court established that reasonableness should be the deciding factor when considering the enforceability of a restraint, reasonableness itself being a value judgment. The consideration for reasonableness will be based on two policies, the one being the duty placed on an employee to comply with his/her contractual obligations and the other being the right of the employee to freely choose to practise a trade. If a restraint serves to protect a lawful interest of the employer, it might be seen as reasonable.

Some guidance on factors to consider

In Basson vs Chilwan and Others[2] the Appellate Division asked four questions which provides further guidance on factors to consider when dealing with the enforceability of restraints. They are:

  • Does the person who seeks the restraint have a protectable interest?
  • Is such interest being jeopardised by the party against whom the restraint is sought?
  • How does this interest weigh up against the interest of the other party to be economically active?
  • Is there any other public consideration that requires the restraint to be enforced?

The aim of a restraint of trade

The aim of a restraint is not to punish the employee, but rather to protect the interest of the employer. Often employers claim that a restraint is enforceable based on the fact that they had imparted wisdom and training to the employee. In the Labour appeal court case of January, the court indicated that an employee cannot be prevented from using what is in their head or mind. The court further explains that the employer has no proprietary hold on the employee, his/her knowledge, skills and experience, even if those were acquired at the employer. Enforcing a restraint of trade based on the fact that the employee received training through the employer or gained extensive knowledge is not a reasonable reason to enforce a restraint and will in all probability not withstand the test if challenged in a court of law.

In a number of court cases it was also confirmed that the reasonableness of a restraint will depend on the nature of the activity to which the request for the restraint refers, the reason for the restraint, the duration thereof and the bargaining position of the parties involved.

Where trade secrets and confidential information of an employer are at risk of being disclosed by an employee (previous) to a competitor of the employer, it might be reason enough to seek to enforce a restraint. The same will be true when it becomes evident that the employee is soliciting clients from the employer.

[1] Labournet (PTY) LTD vs Jankielsohn and another 2016 JA48/2016

[2] 1993 (3) SA 742 (A)

About our author: Audrey Cloete obtained her LLB degree from the North-West University Potchefstroom in 2003. She completed her articles with the main focus on Criminal Law and is also an admitted Conveyancer. Audrey joined SERR Synergy in 2015 where she currently works as a Legal Compliance Advisor.