Contracts in restraint of trade are clauses in employment contracts that restrict an employee’s ability to work for a competitor or start their own business after leaving the company. These agreements aim to protect an employer’s confidential information, trade secrets, and goodwill.
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However, the enforceability of such clauses in South Africa is subject to certain conditions. The courts will only uphold a restraint of trade if it is reasonable and necessary to protect the employer’s legitimate business interests.
Defining the Scope of Restraints of Trade
In South Africa, the enforceability of restraints of trade is governed by common law principles and statutory provisions. Section 19(3) of the Constitution of the Republic of South Africa, 1996 (the Constitution) provides that everyone has the right to freely engage in economic activity, including the right to practice their trade, occupation, or profession.
This constitutional right limits the enforceability of restraints of trade. The courts will consider the following factors when determining the reasonableness of a restraint of trade:
- The duration of the restraint
- The geographical area covered by the restraint
- The scope of the restraint
- The nature of the employer’s business
- The employee’s position and access to confidential information
- Whether the restraint is necessary to protect the employer’s legitimate business interests
Recent Trends and Developments
In recent years, there has been a growing trend towards employers using restraints of trade to protect their businesses from competition. However, the courts have also become more stringent in their approach to enforcing these clauses.
In a landmark case in 2018, the Supreme Court of Appeal (SCA) held that a restraint of trade clause that prevented an employee from working for any competitor in the same industry for a period of two years was unreasonable and unenforceable. The court found that the clause was too broad and that it went beyond what was necessary to protect the employer’s legitimate business interests.
Expert Advice for Business Owners
If you are considering implementing a restraint of trade clause in your employment contracts, it is important to seek legal advice. An experienced employment lawyer can help you to draft a clause that is reasonable and enforceable.
Here are some tips from our experts:
- Keep the restraint of trade clause as narrow as possible
- Limit the duration of the restraint
- Only include a restraint of trade clause if it is necessary to protect your legitimate business interests
- Have your restraint of trade clause reviewed by a lawyer
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Frequently Asked Questions
Q: What is the purpose of a restraint of trade clause?
A: A restraint of trade clause is designed to protect an employer’s confidential information, trade secrets, and goodwill by restricting an employee’s ability to work for a competitor or start their own business after leaving the company.
Q: When will a restraint of trade clause be enforceable?
A: A restraint of trade clause will only be enforceable if it is reasonable and necessary to protect the employer’s legitimate business interests.
Q: What factors will the courts consider when determining the reasonableness of a restraint of trade clause?
A: The courts will consider the duration of the restraint, the geographical area covered by the restraint, the scope of the restraint, the nature of the employer’s business, the employee’s position and access to confidential information, and whether the restraint is necessary to protect the employer’s legitimate business interests.
Is A Restraint Of Trade Enforceable In South Africa
Conclusion
Restraints of trade can be a useful tool for protecting your business, but they must be carefully drafted to be enforceable. If you are considering using a restraint of trade clause in your employment contracts, speak to an experienced employment lawyer for advice.
Are you experiencing challenges with enforcing a restraint of trade against a former employee? Share your thoughts and experiences in the comments below.
