Q1: Can you please explain what a restraint of trade clause is?
A restraint of trade clause is a contractual provision that limits an employee’s ability to engage in certain activities, for a certain period of time, after leaving their employment. These activities typically include working for a competitor, soliciting clients or disclosing confidential information.
Q2: What are the key elements of a valid restraint of trade clause?
In order for a restraint of trade to be enforceable, it must be reasonable in terms of duration, geographic location, and the activities it seeks to restrict. It must protect a legitimate business interest of the employer, such as trade secrets and/or know-how which would be valuable in the hands of a competitor, business connections or client relationships.
Q3: How enforceable are restraint of trade clauses in South Africa?
Restraint of trade clauses are enforceable in South Africa if they are reasonable and necessary to protect the employer’s legitimate interests. Courts will consider factors such as the nature of the employer’s business, the employee’s role, and the impact of the restraint on the employee’s ability to earn a living.
Q4: What steps should employers take to ensure the enforceability of restraint of trade clauses?
Employers should carefully draft restraint of trade clauses to ensure they are reasonable and tailored to the specific circumstances of the employee and the employer’s business – don’t adopt a “one size fits all” approach. It’s also important to regularly review and update these clauses as necessary.
Q5: Can an employer enforce a restraint of trade clause if an employee resigns voluntarily?
Yes, an employer can enforce a restraint of trade clause even if the employee resigns voluntarily. However, the reasonableness of the clause will still be subject to judicial scrutiny.
Q6: What remedies are available to employers if an employee breaches a restraint of trade clause?
An employer can apply to Court for an interdict prohibiting its former employee from breaching the restraint.
In the application, the employer must prove the existence of the restraint and that the employee is in breach. After that, the onus will shift to the employee to prove that the restraint is unreasonable and thus unenforceable.
Q7: Are there any recent legal developments or cases related to restraint of trade that employers should be aware of?
The firm recently acted for a client in enforcing a restraint of trade where the Labour Court upheld a clause in the restraint of trade agreement which provided for the extension of the restraint period in the event of the employee committing a breach. The initial restraint period of 6 months was effectively extended to a year.
Q8: What advice would you give to employers when including restraint of trade clauses in employment contracts?
Employers should seek legal advice when drafting restraint of trade clauses to ensure they are tailored to their specific business needs and will pass the reasonableness test,
The restraint must not go further than is necessary to protect the employer’s interests. The Court will weigh up the employer’s interests against the interests of the employee and the restraint must not restrict an employee from being economically active or productive.