Former South African employees who entered into a restraint of trade agreement with their former employer must act cautiously, as the courts take these provisions seriously.
Attorney Helena Strijdom said that the South African courts have generally upheld the employer’s right to restrain a former employee from unfairly competing with them if certain conditions have been met, including the employer showing a protectable interest and an adequately drafted restraint.
The restraint must, however, be reasonable insofar as it protects the employer’s interests and is not against public policy. The onus of proof rests on the one who wants to bypass the restraint agreement.
“This should serve as a warning to employees to take restraint of trade provisions seriously. Where an employer successfully enforces a restraint, the ex-employee can be placed in a precarious position of being unable to execute future plans,” Strijdom said.
“In addition, the employee may face potential claims for damages and accompanying cost orders.”
A two-year restraint was deemed unreasonable in a recent appeal matter before the Labour Appeal Court, Sadan and Another v Workforce Staffing (Pty) Ltd. However, it was still enforced and reduced to one year.
In a separate appeal at the Gauteng High Court, Tax Consulting SA & Xpatweb vs Seboko, the Court said that a one-year restraint was reasonable, with the Court enforcing it against the employee.
Strijdom said that employers and employees are well advised to consider the following regarding restraint of trade:
- A well-considered and business-like restraint of trade can be vital for an employer to protect against the harmful actions of an ex-employee who may want to ride on the back of and effectively “steal” business from the previous employer.
- Restraint provisions limited to the employer’s clients also seem to evoke the approval of the Court. The latter negates the argument that an employee would be left economically inactive.
- There is no place in law for the overly confident views of employees that restraints of trade are not worth the paper they are written on and generally not enforceable.
- This essential legal measure has essentially remained unchanged since the Supreme Court of Appeal judgment in the seminal matter of Magna Alloys vs Ellis decided in 1984 – the person who wants to escape the consequences of restraint must prove the provisions to be unreasonable and against public policy.
- In certain circumstances, a restraint of trade may also be used to protect a group of companies correctly drafted. Where any dispute arises about the interpretation of restraint clauses, the Court will reject an approach as recently proffered by Seboko, that may be “far removed from commercial reality” and “not sensible or business-like”.
Although restraints must be carefully drafted and seek to protect an identifiable protectable interest, employees should not enter them lightly.
Sensible and business-like interpretations of restraint clauses, with reasonable durations, are preferred.
“Finally, when it comes to litigation in restraint of trade matter, an experienced hand is required in determining the approach, whether via the High Court or Labour Court. The urgency of acting as soon as the first hint of smoke from a fire is seen is vital,” Strijdom said.
“Having said that, it should always be considered whether a mediated solution may not deliver a better outcome for all parties concerned.”