Restraint Of Trade - Labour Law Imprisonment?
In it not uncommon to be confronted with a restraint of trade clause in an employment contract when one is offered new employment. As an employee you are usually in a weaker bargaining position to negotiate the terms and conditions of your employment and the questions are do I bind myself to this restraint of trade and what is the implications of accepting the restrictions that comes with the restraint?
An example of a restraint of trade clause would be: The employee agrees not to, during any part of the restraint period, accept employment, for a period of 3 months after termination of employment with the company, with any architectural firm, within a 50 km radius of the premises of the company.
The purpose of a restraint of trade is to protect the employer’s goodwill and customer connections (or trade secrets). The purpose was elaborated on by the Appeal court in Reeves and another v Marfield Insurance Brokers CC and another in that a restraint remains effective for a specified period after the employment relationship has come to an end. A restraint of trade clause usually contains a restriction on the employee to work for a competitor for a period of months or years after the employment relationship has terminated with his/her employer. A restraint of trade should be specific, and should it not be, may found to be against public policy and therefore unenforceable. In terms of common law restraint of trade clauses are only enforceable if they are not in conflict with public policy.
The employee bears the burden to prove that a restraint of trade clause is against public policy. The employer must establish that the restraint of trade clause existed and that it has been breached by the employee.
An employer will invoke a restraint of trade clause when an employee has left the employer’s employment and secures employment with a competitor. The question then is how it is determined whether the employee is in breach of the restraint of trade clause. During 2006 the Supreme Court of Appeal decided on the enforceability of restraint of trade clauses in two separate cases: Automotive Tooling Systems v Wilkens (2006) SCA 128 (RSA) and Reddy v Siemens (2006) SCA 164 (RSA).
In both cases the court turned to skill, expertise and "know how" of the employees and considered whether or not that skill, expertise and "know how" vested in the employer or the employees. The principal that came from the Automotive judgement is that if the employer cannot prove that the skills set that the employer is trying to protect is that of the employer and not part of the employees general stock of skills and knowledge, then the restraint of trade won’t be enforceable. The principal stemming from the Reddy judgement is that the restraint of trade could be enforceable if it seeks to restrict the employee’s choice of new employer rather than using his / her skills or abilities.
From the judgement of Den Braven SA (Pty) Limited v Pillay and another it is clear that the employer must want to protect a proprietary interest and must be able to demonstrate that there indeed is a proprietary interest worth protecting before the restraint of trade will be enforceable.
Other important factors considered when determining the enforceability of a restraint of trade include the duration of the restraint, the nature thereof as well as the area to which the restraint is applicable.
If you are not sure whether to sign a employment agreement which includes a restraint of trade clause, please contact us immediately for advise and assistance.
Me. L Bouwer
(LLB, LLM (labour law))
General Manager: Legal Assistance.