Restraint of trade – Friend or foe
In many cases job seekers have landed their dream job only to be presented with a restraint of trade agreement as part of their condition of employment. The agreements are often signed under the false impression that they are not enforceable.
A restraint is specifically designed to protect the interests of the employer, they put this agreement in place to protect their customer relationships and intellectual property. The clause prohibits an employee from engaging with direct competitors or from competing with the business of the employer for a specific time period and within a certain geographical area after the employment contract has been terminated.
It is very important to note that this particular type of clause is regulated by the law of contract and not by the labour law and as such these matters cannot be referred to the CCMA for assistance. The Courts have confirmed that when a person seeks to enforce a restraint they need only invoke the contract and prove a breach of its terms. The respondent would have to prove that the agreement is not enforceable due to it being unreasonable. Public policy is also considered, in other words that a contract has been entered and must be honoured by both parties.
There are four main principles that the courts use to determine if a restraint is reasonable:
- Is there an interest that deserves protection after the termination of an employment contract?
- If so, is this interest being prejudiced by the other party?
- If this prejudice does exist, does the interest weigh up qualitatively and quantitatively against the interest of that part so he/she should not be economically inactive and unproductive? In essence the courts need to determine what would be worse, the employee not having a job at all or the employer's protect-able interest.
- Is there any other aspect of public policy having nothing to do with the relationship between the parties that requires that the restraint be maintained or rejected?
Proprietary interests fall in 2 categories the first being confidential information or trade secrets which if disclosed to or used by a competitor they can gain a competitive advantage. This information must not be public knowledge and only known to a restricted number of people, and must be of economic value to the person who is wanting to protect it. Second, The employers need to protect its trade connections, as the employee would have access to customers or suppliers and would be in a position to draw the trade connections to follow the employee to a new business.
A restraint is generally not enforceable when it is clear that an employee has not acquired any confidential information and had not received any training. Restraints are more often enforced for more senior types of positions which have access to sensitive company information and very often used within the sales environment.
Before signing a restraint of trade it is important to consider the terms of the contract, how long will it last, which geographical areas and business domains it covers, when and how it will be applied and most importantly how will it affect your ability to make a living should you decide to leave.
Chante Mouton, Attorney at Vermeulen Attorneys says that employees must ensure that, when signing a contract of employment which contains a restraint of trade clause, they fully understand what they are signing and the terms they are agreeing to. Mouton says that employers must be vigilant when trying to enforce a restraint, employers need to ensure that the restraint is reasonable and that they have a legitimate protectable interest.