Is a Restraint of Trade Agreement Legal?

Mar 18, 2019 | , , , , , , | News

A restraint of trade is an agreement between an employer and an employee, or a provision in an employment contract that restricts an employee from being employed by a competitor of the employer, or establishing a business in competition with the employer following termination of employment.

It is there to protect a business from having its core services stolen from it and thus protects employers’ interests against unfair competition from employees during and after employment has ended. It also protects employers trade secrets, goodwill and business connections and prevents employee from competing with employer in a defined area and for a specified period.

Our law recognises restraint of trade agreements as legal and enforceable. These agreements will only be invalid and unenforceable if they are deemed unreasonable by a Court.

Before you sign a restraint of trade agreement, consult with an attorney if there’s anything that makes you feel uncomfortable. Be very careful if an employer demands unreasonable clauses that go beyond protecting its intellectual property or its relationships with key customers.

One needs to consider the length of the restraint provision and how it will affect his or her livelihood before signing the agreement. To determine if a restraint of trade is enforceable, a Court will look at public interest which requires parties to comply with contractual obligations even if unreasonable or unfair and the right of all persons to be permitted to engage in commerce or the professions of their own choice.

The Court therefore, has to balance competing interests of an employer and those of an employee.
In the Case of Aquatan (Pty) Ltd v Janse Van Vuuren and Another (J838/2017) [2017] ZALCJHB 141; (2017) 38 ILJ 2730 (LC) (4 May 2017) an employer had employed an employee, a qualified civil engineer, in the capacities of contracts manager, executive contract manager and sales manager for a period of 13 years and 5 months with the agreement that he would refrain from being employed by a competitor of the applicant for three years after termination of his employment contract.

The employee resigned and took up employment with a direct competitor of the applicant. The Court had to decide on whether the information the employee acquired was worthy of protection as trade secrets and whether he had such personal knowledge of, and influence over, the customers of the applicant as would enable him to take advantage of the applicant’s trade connections.The Court held that the fact that parties to an agreement choose to describe a restraint as being reasonable, is not itself decisive. The reasonableness or otherwise thereof is a matter for the Court to determine.

In this case the Court dismissed the employers’ claim and found in favour of the employee because the employer as the applicant failed to set out its case that its software was in any way specialised and worthy of protection. On the other hand, the employee discharged the onus by showing that the restraint of trade provisions for three years was excessive, unreasonable and thus unenforceable.

Conclusion
Every citizen has the right to choose a trade, occupation or profession freely and this right is constitutionally protected. However, restraint of trade agreements are legal and enforceable if they are reasonable and not against public policy. Thus, a party may allege that the agreement is against public policy based on the unreasonableness of the restrictions put into place to protect the employer’s interest. The party alleging that a restraint is unreasonable bears the onus of proving this in Court. It is best to consult an attorney before you sign and before you breach a restraint of trade agreement.

 

(This article is provided for informational purposes only and not for the purpose of providing legal advice.)

Author: Angela Vushe

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