Restraint of trade during the Covid-19 Pandemic

Covid-19 accounts for a great deal of misfortune in the Business Sector. We are in a time where existing businesses are unable to perform optimally. One of the pressing concerns for employers are facing during the enactment of the Disaster Management Act is whether a Restraint of Trade Agreement would remain enforceable.

A Restraint of Trade Agreement refers to a contractual clause in a Contract of Employment that limits or prohibits an employee from trading in a specific geographical area for a certain period, upon the termination of their contract of employment. The clause intends to protect the employers proprietary interest. Proprietary interest may include trade secrets, confidential information and the companies client base. Restraint of Trade Agreements afford protection to employers from unfair competition in the event an employee, bound to such an agreement, pursues competitive trade, upon the termination of their contract of employment. South African law widely regards Restraint of Trade Agreements as enforceable, however, its validity during the COVID-19 pandemic has been questioned.

In the case of Oomp Out of Home Media (Pty) Ltd v Brien and Another 2021, an employee shareholder resigned from his employment, while bound to a Restraint of Trade Agreement. The employee cited several reasons for his resignation among which was the breakdown of his relationship with a director. He claimed that he had not received his full salary for an extensive period for which he was owed R1.2 million upon his resignation. The employee later became employed by a direct competitor of his previous employer to which his previous employer held that he will disclose confidential information and would give the competitor an unfair advantage thus contravening the employee’s Restraint of Trade Agreement.

The court established several factors relevant to this case;

  • Firstly, that a legitimate Restraint of Trade agreement existed between the parties.
  • Secondly, that the employer was not able to pay the employee as a result of the impact of COVID-19 on the economy.
  • Lastly, that it would be unreasonable to expect the employee to start a new career in a different field when such an employee has a qualification specific to the field he has been operating in for years.

In the Oomp Out of Home Media (Pty) Ltd v Brien and Another 2021, the court ruled that it would be unreasonable to enforce a Restraint of Trade Agreement during the COVID-19 pandemic, therefore the restraint of trade agreement was void.

Interestingly, the court in the case of Prima Interactive (Pty) Ltd v Lemon and others 2021, held that employers have had the same kind of hardship befall them during the pandemic. Furthermore, the court in the Prima Interactive (Pty) Ltd v Lemon and Others 2021 foundthat employers are prejudiced if Restraint of Trade Agreements loses its validity and that proprietary interests of businesses should be protected even if employees struggle to find employment.

In a recent case the court in Bulldog Abrasives Southern Africa (Pty) Ltd v Davie and Another 2021adopted the same approach of van Niekerk J in the case of Prima Interactive (Pty) Ltd v Lemon and others. Moshoana J agreed that the decision to make a Restraint of Trade Agreement null and void during a pandemic is not the correct position and that it is contrary to public policy.

As it stands, Restraint of Trade Agreements remain enforceable even during the COVID-19 pandemic. The weighing up of rights and propriety interest is a necessary step in the judicial process and Restraint of Trade Agreements are protected even during the ongoing pandemic. The proprietary interest of the employer is therefore prioritized provided such a Restraint of Trade Agreements is valid and enforceable.