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To protect their businesses from competition from ex-employees, many employers now require employees to sign restraint of trade agreements together with their letters of appointment.
Employers need to acquaint themselves with the extent to which these are enforceable.
While every restraint agreement is enforceable, as with any agreement, restraint of trade agreements are unenforceable if they are contrary to good morals – that is, against public policy.
The onus lies on the person being restrained to show that the restraint is both unreasonable, and against public policy.
In determining whether a restraint is contrary to public policy, a court will look at the facts and circumstances at the time that the restrainer is attempting to enforce the agreement and weigh up two main considerations:
l public interest requires, in general, that parties should comply with their contractual obligations, even if these are unreasonable or unfair; and
l all persons should, in the interests of society, be permitted as far as possible to engage in commerce or professions; it is detrimental to society if an unreasonable fetter is placed on one’s freedom of trade or one’s freedom to pursue a profession.
Factors the court will consider in determining whether a restraint is contrary to public policy include:
l the duration of the restraint;
l the area in which it applies;
l whether a restraint payment was paid to the restrainee;
l whether the restrainee still has the ability to earn a living; and
l the “proprietary” interest or capital asset that the restrainer seeks to protect.
In our law, a restraint is only valid if there is a proprietary interest which justifies protection. These are usually trade secrets, know-how, pricing or customer connections. Our courts have held that the mere prevention of competition is not a proprietary interest which justifies a restraint. In other words, a restraint intended to prevent an employee from using his personal skills and knowledge in the service of a competitor is unenforceable.
Although restraints remain enforceable, the decisions of our courts suggest that they should be crafted in a far narrower and more specific manner than in the past, failing which they will be rejected and held to be against public policy.
The company’s interests sought to be protected will also be weighed up against the limitation placed on a person’s freedom to trade.
The enforceability of a restraint clause is limited by considerations of public policy if the restraint prevents an employee from earning a living because he is prohibited from working in his field of expertise or from using his skill in the industry in which he is qualified.
Where an employee’s ability to earn an income is taken away, a court is likely to take into account the payment of a consideration and the amount of that consideration in determining whether the restraint is contrary to public policy.
In KBC Health and Safety and Security (Pty) Ltd v Van Zyl, a dismissed employee took up employment with a group of companies from which her former employer outsourced certain services.
The former employer sought to restrain the ex-employee from taking up the employment.
The court dismissed the application. It interpreted the relationship between the former employer and the company as one where the interest of the former employer was already protected by means of the outsourcing contract. It found that it would go against public interest to deny the individual being restrained from the opportunity to secure employment.
The Van Zyl case shows that even where the employee’s conduct does infringe on the employer’s protectable interest, the courts apply a value judgment and, where the interests are evenly balanced, the courts may well lean in favour of the employee.
l Amanda Arumugam is an associate in the Employment Department at Bowman Gilfillan