Employees often sign restraint of trade agreements without regard to the necessary consequences thereof and the effect it could have on their career.

 

What are restraint of trade clauses or restraint of trade agreements?

A restraint of trade clause is a clause or agreement between a buyer and a seller or between and employee or employer that prohibits the seller or the employee from engaging in in a similar business or trade within a specified area and within a specified time period. It is usually included in agreements to protect intellectual property of a business.

How are restraint of trade clauses or agreements regulated?

What is interesting to note is that restraint of trade clauses or agreements are not regulated by labour law but by the law of contract. So if an employee gets into a dispute with an employer regarding a restraint of trade clause such an employee will have no recourse from the CCMA.

In which instances can a restraint of trade be enforced?

In the case of Reddy v Siemens Telecommunications (Pty) Ltd (251/06) [2006] ZASCA 135; 2007 (2) SA 486 (SCA) (30 November 2006) The court held that a restraint of trade agreement is enforceable unless it is shown to be unreasonable. It stated that there are two principal policy considerations which must be considered in determining the reasonableness of a restraint, the first being that of public interest, which requires that parties should comply with their contractual obligations. The second is that all persons should, in the interests of society, be productive and be permitted to engage in trade and commerce or the professions, in order to earn a living.

What does this mean for you as employee?

In the recent labour court judgement in the cases of Absa Insurance and Financial Advisors v Jonker and Another; and Absa Insurance and Financial Advisors v Jonker and Another (Case numbers C741/14, C742/17) the court had to deal with issue of whether or not an employer can interdict and restrain its former employees from taking up employment with a competitor, on the basis of unlawful competition and without relying on a restraint of trade agreement. The respondents were former financial advisors who had resigned and were due to take up employment with a competitor. The employment contracts with the employer contained confidentiality and protection of client information and company provisions but the employment contracts did not expressly contain restraint of trade provisions. The court further had to deal with whether or not an employer can rely on the confidentiality (and protection of proprietary interests) provisions to prevent former employees from poaching and enticing its clients and/or ensuring that confidential information is not used to gain a competitive advantage.

It was found that there was no proof that the respondents actively disclosed confidential information or proprietary interest and that by merely taking up employment with the competition does not amount to unlawful competition.

It is therefore of great importance for employees to seek legal advice before signing restraint of trade agreements, to look at aspects such as how long it is for, the geographical area covered, the circumstances under which it applies, the nature of the commercial interest the employer seeks to protect and how long it will affect your ability to make a living should you leave.