The concept of “restraint of trade” has been an ever-present concept amidst the working world for many years and has resulted in both employees and employers finding themselves in somewhat “sticky” situations because they do not know and understand how to navigate or understand this concept.
An employer can therefore not prevent an employee from seeking work elsewhere which may be in a similar field to the business in which he/she is carrying on business.
What is a restraint of trade?
A restraint of trade is essentially a clause in a contract which restricts an employee from utilising business resources such as trade secrets, client information and specialised skills gained from the particular entity, either directly or indirectly, in order to benefit the employee financially in the same or similar field that his/her current employer is conducting business in.
Usually, a restraint of trade will be agreed upon where the employer’s business activities are in a specialised or niche environment. A restraint of trade will be put in place to protect the employer’s business interests and to prevent an employee from “poaching” clients or valuable information to further his/her own interests in the market.
This, however, is not as straightforward as it may seem.
When and how would you enforce a restraint of trade?
A restraint of trade is a clause that one can find within their employment contract. As with any contractual clause, if the restraint is breached by the employee, the employer will have certain rights and remedies.
Specifically in relation to a restraint of trade clause being breached by an employee, the employer will have a couple options. The employer can cancel/terminate the contract on the basis that the contract has been breached. Thereafter the employer can either accept the breach and claim damages or reject the breach and demand specific performance by way of an interdict which can result in a claim for damages.
If an employer decides to enforce the restraint of trade due to breach of contract, the employer need only allege and prove the agreement and it’s breach by the employee.
The employee will then bare the onus of proving that there was no breach of the employment contract.
What does the court consider when dealing with a restraint of trade?
1. Does the Employer have a Protectable Interest?
The court will essentially consider whether the employer has something worth protecting.
This can be in the form of confidential information, the design of a certain product, formulas or production methods and procedures and price lists, among others
2. Is There Prejudice?
The court will have to distinguish if the employee is prejudicing the employer’s protectable interest.
In this instance, the employer will not need to prove that harm or prejudice has already occurred. All that the employer needs to prove is that there will be serious potential harm to his/her business should the employee trade freely.
3. Is the restraint of trade reasonable?
The court will have to consider the reasonableness of the duration and the geographical area of the restraint, and this will apply to the scope of the business as well.
In South Africa’s constitutional dispensation, section 22 of the Constitution sets out that every citizen has the right to choose their trade, occupation or profession freely, however, this may be regulated by law.
An employer can therefore not prevent an employee from seeking work elsewhere which may be in a similar field to the business in which he/she is carrying on business.
This is, however, the double-edged sword that most court’s end up facing because on the one hand, an employer cannot infringe on an employee’s right to trade freely and on the other hand an employee cannot infringe on the employer’s protectable business interests within their niche field through breach of contract.
This takes us to the last factor the court will have to consider.
4. Is the restraint against public policy?
The court must consider the notion expressed by the maxim pacta servanda sunt which means “contract must be honoured” and therefore stipulates that all parties to a contract should comply with their contractual obligations.
This a fundamental principle in contract law which underpins the commitments made by both parties to a contract. This is why, an employer can enforce a restraint of trade agreement, as the employee is bound by the employment contract and must honour his/her obligations and commitments within the contract.
This maxim creates uncertainty as to how restraints of trades are to be enforced as there are clear differences between the common law approach and the constitutional law approach.
In Closing
This is why, the courts must consider if a restraint of trade is against public policy.
The courts will consider the purpose of the restraint of trade and the question will be asked as to whether the employer has a legitimate protectable business interest and if this not answered in the affirmative and the restraint is merely for the purposes of preventing the employee from practising his/her trade, then the restraint will be considered against public policy and will be enforced.
Employees cannot be restrained from using their own skills, knowledge and experience to further their trade but can be restrained if the employer’s proprietary interests have been directly or indirectly infringed upon.
P.S.
If you have any questions about restraint of trade, or would like to book a consultation with us, please send us an email at info@vhtlaw.co.za, or give us a call at 012 880 3103.
Kerri Bailey
Candidate Legal Practitioner
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