At the time of entering into an employment relationship, the last thing on an employee’s or employer’s mind is the relationship ending. As an employer your priority is to protect your intellectual property, trade secrets, reputation and good will. The challenge however lies where an employee has the desire to move on to your competitor. While as an employer you understand that employees will come and go, how can you protect your proprietary rights if and when they leave.

In the circumstances where your employee has agreed to a restraint of trade with you, this provision will only protect your proprietary interests in the event that you pursue it through a court. In the watershed case Magna Alloys and Research (SA) (Pty) Ltd v Ellis ¹ the Appellate Division rejected the traditional English law approach to contracts in restraint of trade, namely that such contracts are prima facie void or unenforceable.  The aforesaid case reinstated the common law principle that a restraint on competition is in principle enforceable and it will only be unenforceable (not invalid or void) if it is contrary to public policy or the public interest. 

The onus of proving that a restraint of trade is contrary to the public interest and accordingly unenforceable, lies on the employee wishing to get out the restraint of trade and this burden of proof is not easily discharged. ² The court will have to balance two considerations, namely: that the parties should comply with their contractual obligations and all persons should be free to enter the business or professional world. The reasonableness of a restraint is judged on the basis of the broad interests of the community on the one hand and the interests of the contracting parties on the other.

Accordingly, a restraint of trade provision is in principle enforceable and the enforcer of the restraint is required to prove that the restraint of trade provision was agreed to and that the restraint provision has objectively been breached. Of utmost importance is the weighing up of the limitation of the restrained party’s rights and interests and those of the old employer.

However, while the restraint of trade may be enforceable in principal and the enforcer may be able to demonstrate a clear right and an interest that deserves protection, the geographical and time limitations are the factors which turn the courts to favour the employee, as these are often unreasonable³. It is therefore a worthwhile consideration when drafting these clauses to be mindful of what is reasonable to both parties. Our clients have used, for example restraints of trade for the geographical area within a 5/10/15km radius from the workplace for a period of 6 (six) months. This will always have to be considered with due regard to inter alia the nature of the business and the area of where the employer conducts its business.

Without derogating from the generality of the aforegoing, it is established in common law that it is unlawful for an employee to take an employer's confidential information or documents (including client/customer details) and use it to compete with their employer. In the event that the restraint of trade agreement does not provide the protection you require, this is always a consideration.

Written and prepared by Lauren Hastie, BOUWER KOBELI MORABE

Please do not hesitate to contact us on +27 11 788-0083 should you have any further enquiries or email enquiries@bkm.co.za.

Notes:
1 1984 (4) SA 874 (A).
2 Kemp, Sacs & Nell Real Estate (Edms) Bpk v Soll 1986 1 SA 673 (O) 685-689.
3 The Labour Court in Continuous Oxygen Suppliers (Pty) Ltd t/a Vital Aire v Meintjes & another (at 629).