Is restraint of trade enforceable if you are retrenched in South Africa?

South Africa’s third-quarter employment data published in November, showed an unemployment rate of 30.8% and thus falling within the top twenty highest globally.

Statistics South Africa’s data showed that 2.2 million jobs were lost in the second quarter of the year were lost, leaving just 14.4 million employed people in both the formal and informal sectors.

The increase can obviously be attributed to results of lockdown restrictions brought on by Covid-19 and the weak economic status. Companies have been left with little choice but to cut back on their labour force, resulting in an increase in retrenchments experienced most notably in the hotel and leisure, car rental, hospitality and retail industries.

The scramble for jobs has never been more intense, and one significant clause in many an employment contract is frequently causing a few brows to lower.

PJ Veldhuizen, attorney, litigator and mediator, said that the Alternative Dispute Resolution specialists at Gillan and Veldhuizen attorney have seen an increase in disputes over restraint of trade clauses, especially for those employees who have been retrenched.

“Although one would think human compassion would prevail, we have seen some heated cases arise post-lockdown, where employers threaten to institute litigation, applying for the Court to enforce restraint of trade clauses,” said Veldhuizen.

Restraint of trade clauses are included in most employment contracts in order, for example, to restrict an employee from working for a competitor of the employer for a prescribed period of time (commonly 2 years) and, furthermore, the employee is prevented from working for a competitor within the Republic of South Africa for the stipulated period after the termination of employment.

Veldhuizen said that although the position is unclear, perhaps the courts should consider what has happened since the employment contract was entered into, and, in particular, the situation at the time restraint is to be enforced.

Legal commentators are of the opinion that the courts will also consider the situation of the employee due to the Covid-19 pandemic, and should not easily enforce a restraint of trade clause that would prevent an employee from earning a living and keeping a household surviving.

“Once again, this is a perfect opportunity to turn to mediation as the sensible solution,” said Veldhuizen. “Should an employer or employee meet a restraint of trade conflict, the most time-saving and cost-effective option would be to enlist an accredited commercial mediator to assist in resolving the matter swiftly and amicably.

“Perhaps a solution could emerge where an employee wasn’t restrained from competing but was restrained from targeting the existing clients of the employer for a period of time. There are many ways to eat a mango,” he said.


Read: Alexander Forbes lays bare South Africa’s unemployment reality

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Is restraint of trade enforceable if you are retrenched in South Africa?