Introduction to Restraint of Trade
Restraint of trade is a term used in South African law to refer to the prevention or restriction of commercial activities, such as entering into contracts with competitors. It also applies when an employee attempts to use knowledge obtained while working for a particular company against that employer. The concept has been around since Roman times and has evolved over time. As it stands today, restraint of trade agreements can be legally enforced if they are reasonable in scope and purpose.
When Are Restraints Of Trade Enforceable?
The South African courts will only enforce restraints of trade when certain conditions have been met:
- That the agreement was entered into voluntarily;
- That there is an exchange of value between parties;
- That the agreement is not contrary to public policy;
- That the duration and geographical scope are reasonable.
If any one condition isn’t met, then the court may refuse to enforce the agreement. For example, if an employer has imposed unreasonable restrictions on its former employee (in terms of duration or geographical area) then this would most likely render it unenforceable.
When determining whether a restraint clause is reasonable in scope and purpose, Judges consider factors such as length of service, type/level position held by employees and industry practice.
In addition, employers must ensure that their restraint clauses don’t impose too much hardship on their former employees. This means that they should allow them enough freedom (within reason) so that they can find employment elsewhere without difficulty.
Restraints Of Trade And Employee Contracts
Employers generally include restraints-of-trade clauses within employee contracts which prevent employees from using confidential information gained during employment against them after leaving the job. These types of clauses typically last for two years after termination but could go up depending upon seniority or other contractual considerations.
Such provisions usually aim at preventing an employee from engaging in unfair competition – e.g., setting up a rival business or taking clients away from their previous employer – by making use confidential information collected during his/her tenure with said organization .
Employers who wish to include these restrictive covenants must ensure that they comply with all legal requirements as well as satisfy all applicable fairness tests mentioned earlier i n order for them t o be validly enforced . Otherwise , ex-employees can challenge these c lause s i n court resulting i n costly litigation disputes for both parties involved .
To avoid this , employers should work closely w it h experienced labour lawyers t o draft effective yet fair restraints-of-trade claus es which will adequately protect their interests without unduly infringing upon those belonging t o ex -employee s .
A successful outcome requires careful consideration regarding each element within such document – including appropriate definition(s ) , duration limits , geographic limitations etc . Failure t o do so may result i n invalidation later down th e line whic h defeats th e entire purpose behind inclusion thereof once again leading back t o expensive litigations !
