A restraint of trade clause is a contractual provision commonly included in employment agreements, restricting an employee from working for a competitor or launching a competing business for a certain period and within a defined area once their employment ends.
These clauses are designed to protect a company’s confidential resources and strategic advantage, such as trade secrets, client relationships, intellectual property, and business goodwill. While South Africans have a constitutional right to choose their trade or profession freely, courts have consistently recognised that this right can be lawfully limited where it is justified.
Enforceability of Restraints: Balancing Rights and Interests
Restraint of trade clauses are presumed to be valid in South African law. If an employee believes a restraint is excessive or unfair, the burden falls on the employee to prove that the clause is unreasonable and against public policy.
Courts will assess:
- Whether the employer’s interests (e.g., proprietary information or client connections) warrant protection;
- Whether enforcing the restraint would unfairly limit the employee’s ability to earn a living;
- The duration and geographic reach of the restraint, both of which must be proportionate to the interest being protected;
- Whether the restraint exists solely to eliminate competition, which is not a legitimate purpose;
- The employee’s role in the company, restraints are more likely to be enforceable against senior staff with access to sensitive information.
Factors such as whether the employee was pressured into signing, or whether they were aware of the restraint at the time, also influence a court’s decision.
Seniority and Access to Confidential Information
Not all employees should be subject to a restraint of trade. Businesses are encouraged to use such clauses selectively, particularly for executives, managers, or specialised staff who work closely with confidential systems, customer databases, or business strategy.
A recent case illustrates this point. In a dispute involving Vodacom, a former senior executive resigned and intended to join a competing telecommunications company shortly thereafter. Vodacom approached the court to enforce a six-month notice period followed by a six-month restraint, arguing the employee had knowledge of commercially sensitive strategy with a lasting competitive value. The court agreed, holding that the employee’s level of insight into Vodacom’s operations justified the restriction, and ordered him to refrain from joining the competitor for a year.
Legal Remedies for Breach of Restraint
When a former employee joins a rival company in violation of a restraint, the original employer may:
- Seek an urgent interdict preventing the employee from continuing in their new role; or
- Claim damages for any loss caused, relying on the common law principle of delict.
These remedies also apply where an ex-employee starts their own competing venture in breach of a valid restraint clause.
Implied and Tacit Acceptance
It is generally accepted that an employee must have agreed, either expressly or tacitly, to be bound by a restraint. However, courts have found that continued employment in the face of a written restraint clause may amount to tacit consent, even if the clause was not explicitly renegotiated. Clear written agreements remain best practice to prevent ambiguity and litigation.
Unfair Dismissal and Restraints: A Grey Area
An unresolved issue in South African jurisprudence is the impact of unfair dismissal on restraint enforceability. In one matter, a court upheld the restraint despite the employee being unfairly dismissed, relying on the clause’s wording which applied regardless of how the employment relationship ended.
Conversely, another judgment found the restraint unenforceable because the clause explicitly excluded its application in cases of unfair dismissal. This highlights the importance of precise drafting and forethought when including such clauses in employment contracts.
Final Thoughts
Restraint of trade agreements must be tailored to the specific role, level of access, and commercial risk posed by the employee. While enforceable in principle, their validity depends on several factors, including fairness, reasonableness, and public interest considerations.
There is no universal formula. Each case is fact-sensitive, and businesses should seek legal advice to draft enforceable, proportionate restraint clauses and to act quickly when enforcing them.
