The enforceability of Restraint of Trade Contracts

The enforceability of Restraint of Trade Contracts

Introduction:

A restraint of trade refers to a contractual agreement between and employer and employee in which the employee undertakes and agrees that he / she will not, after the termination of the current employment contract, become employed by any competitor of his / her current employer.

The leading case law in this regard is Experian South Africa (Pty) Ltd v Haynes, Andrew Micheal and TransUnion Credit Bureau (Pty) Ltd, in which the Honourable Judge Mbha stated that "..a party seeking to enforce a contract in restraint of trade is required only to invoke the restraint agreement and prove breach thereof. Thereupon, a party who seeks to avoid the restraint, bears the onlus to demonstrate on a balance of probabilities, that the restraint agreement is unenforceable because it is unreasonable..."

From the perspective of the Employer:

It is clear from the aforesaid that the reasonableness of the restraint of trade must be determined in relation to the length of time for which it will operate, the geographical area which it will cover and the scope / extent of the restraint.

The test for reasonableness, as applied by the Court, is the following:

  1. Is there an interest of the one party which is deserving of protection at the determination of the agreement?
  2. Is such interest being prejudiced by the other party?
  3. If so, does such interest so weigh up qualitatively and quantitatively against the interest of the latter party that the latter should not be economically inactive and unproductive?
  4. Is there another facet of public policy having nothing to do with the relationship between the parties but which requires that the restraint should either be maintained or rejected?

As an employer it is important to take cognisance of the above when including a restraint of trade in your employment contract as it will affect the enforceability thereof. It is not a requirement that you, as the employer, demonstrate and prove that the employee is mala fides before you may invoke the restraint. The employer merely needs to invoke the restraint.

From the perspective of the Employee:

If you are the Respondent in an application where your ex-employer seeks to enforce the restraint, it is important to know that the onus is on you to prove that it will be unreasonable to enforce it and / or that it is contrary to the public interest.

As the employee you may raise the defence, inter alia, that the ex-employer does not have a protectable interest in that the alleged confidential information is in the public domain and / or is of no economic value.

Conclusion:

When considering the enforceability of a restraint of trade agreement, consideration is given to two legal principles, namely:

Agreements entered into freely should be honoured versus a person should be able to operate freely in the commercial and professional world.

The merits and facts of each individual case will at the end of the day be considered by our Courts in the adjudication thereof.

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