Restraint of Trade, what you should know.

Written by: Adv Riaan de Jager

The Legal position of a ROT

This issue falls within the ambit of the law of contract and not labour law. However, the provisions in restraints of trade are enforceable unless shown by the person wishing to escape an undertaking to be unreasonable and hence contrary to public policy. An employee, in order to escape his/her contractual undertaking, must show that the employer has no proprietary interest that is threatened by him/her working for a competitor.

An agreement in restraint of trade is thus enforceable unless it is unreasonable. It is generally accepted that a restraint will be considered to be unreasonable, and thus contrary to public policy, and therefore unenforceable, if it does not protect some legally recognisable interest of the employer but merely seeks to exclude or eliminate competition.

Our courts have created a fourfold test in this respect (see Basson v Chilwan and others 1993 (3) SA 742 (A) at 768F-H) – this is:

(a) Is there an interest of the one party (i.e. the employer) which pursuant to the RoT agreement warrants protection?

(b) Is that interest threatened by the other party (i.e. the employee)?

(c) If so, does that interest weigh qualitatively and quantitatively against the interest of the other so that he or she will be economically inactive and unproductive?

(d) Is there another aspect of public interest that does not affect the parties but does require that the restraint not be invoked?

It is well established that in proceedings pertaining to a restraint of trade, the employee bears the onus to show that a given restraint is unenforceable by virtue of it being contrary to public policy. In ascertaining the question of whether the restraint is contrary to public policy, the employee must show “that the restraint is not at the time reasonably necessary for the legitimate protection of the covenantee’s (i.e. the employer’s) protectable proprietary interests, being his goodwill in the form of trade connection, and his trade secrets.”

Regard should also be had to the duration which the employee was employed by the employer to determine the reasonableness of the restraint of trade, the importance of which lies in the fact that it indicates the extent to which the employee would have had an opportunity to gain influence over any alleged customer base.

The enforceability of a restraint essentially hinges on the nature of the activity that is prevented, the duration of the restraint and the area of operation of the restraint. In particular, the determination of reasonableness is, essentially, a balancing of interests that is to be undertaken at the time of enforcement and includes a consideration of “the nature, extent and duration of the restraint and factors peculiar to the parties and their respective bargaining powers and interests”.

A agreement in RoT which is purposed to merely prevent competition has been held not to be reasonable.