Economic uncertainty — whether driven by global events, market downturns, or widespread retrenchments — frequently forces workers to seek new income streams, often in the same industries they previously worked in. Inevitably, some employers find themselves in competition with former employees. As a result, restraints of trade dominate the limelight when two competing interests are vying against each other. Whilst workers who have lost jobs desperately seek new streams of income in their fields of qualification and trade, employers face a new reality of increased trade competition at a time of enormous challenges.

This article defines, addresses the purpose, and scrutinises the validity and enforceability of restraint of trade clauses in employment contracts.

What Is a Restraint of Trade Clause?

A restraint of trade provision in an employment contract is one that prevents an employee from engaging in trade activities which are in direct competition with the business interests of the employer, for a certain period of time and within a specified geographical region after the employment relationship is terminated.

The purpose of a restraint of trade provision in an employment contract is to preserve the employer’s goodwill, technical and business know-how, client links and trade secrets for a specified time, which may result in commercial harm to the employer’s business interests if not preserved. Restraints of trade seek to protect the business interests of the employer against unfair competition from existing or ex-employees who have benefited from trade skills, training and acquaintance with customers of, and from the employer.

It is worth mentioning that existing employees are usually bound by a conflict-of-interest provision in their employment contract, which limits their engagement in trade activities outside the business interests of the employer. Following the landmark Lucchini v Mahabeer (2025) judgment, it is important to note that clauses which purport to restrict an employee from merely seeking alternative employment during the employment relationship may be unenforceable as contrary to public policy.

The protection provided by a restraint of trade is maintained, regardless of the manner in which the employment contract is ended, although the surrounding circumstances may be relevant to establish the reasonableness of the restraint. This was the view of the court in Reeves and Another vs Marfield Insurance Brokers CC and Another 1996 (3) SA 766 (A) at 772.

Validity and Enforceability

In order to be enforceable and valid, a restraint of trade clause must be reasonable based on the yardstick of public policy. When assessing the reasonableness of a restraint of trade, the nature, extent of the restraint and the period applicable to such restraint of trade come into question.

Typically, restraint of trade provisions stipulate that an ex-employee shall not engage in activities that are in competition with the business interests of the employer within a specified geographical area and for a specified timeframe. In this way the restraint of trade, the general public policy and the provisions of Section 22 of the Constitution of South Africa, Act 108 of 1996, which provides for an individual’s freedom of trade, are harmonised.

In Magna Alloys and Research SA (Pty) Ltd vs Ellis 1984 (4) SA 874 (A), the Court emphasised two important elements to consider when assessing a restraint of trade provision. Firstly, that agreements freely entered into, including ones with a restraint of trade provision, are prima facie valid and enforceable. However, the Court emphasised that contracts that are contrary to public policy cannot be valid and are therefore unenforceable. This is especially true when the restraint of trade is unreasonable and restricts an ex-employee’s freedom to trade to an extent that is contrary to public policy. The court further highlighted that due consideration should be had to the respective bargaining power of the employer and employee when the employment agreement was entered into. Whether or not a restraint of trade provision is contrary to public policy is assessed on a case-by-case basis.

The Reasonableness Test

In Basson vs Chilwan & Others 1993 (3) SA 742 (A), it was noted that the employer sought to render the employee unproductive and economically inactive by requesting an order that the employee be ordered not to use his skill and expertise within most of Southern Africa for a period of five years. The Court found that such restraint would be unreasonable and unenforceable. The Court emphasised that the following must set the process of inquiry into the reasonableness of a restraining clause:

  • Is there an interest of the employer which is deserving of protection at the termination of the agreement?
  • Is such interest being prejudiced by the ex-employee?
  • If so, does the employer’s interest weigh up qualitatively and quantitatively against the interest of the ex-employee, that the latter should be rendered economically inactive and unproductive?
  • Is there any other facet of public policy (having nothing to do with the relationship between the parties) which requires that the restraint should either be maintained or rejected?
  • Is the nature of the restraint wider than necessary to protect the employer’s interest?

Recent Developments in South African Case Law

South African courts have continued to refine the approach to restraint of trade enforceability. In Sadan and Another v Workforce Staffing (Pty) Ltd (2023), the Labour Appeal Court reduced a two-year nationwide restraint to just one year, sending a clear message that duration must be justified by evidence, not merely by what the employer wishes to impose.

In SGS South Africa (Pty) Ltd v Pillay (2024), the Labour Court held that employers must demonstrate actual harm or a genuine risk to protectable interests — it is not sufficient merely to prove that a breach occurred. This reinforces the importance of employers maintaining clear records of what confidential information employees accessed and which clients they managed.

Courts also increasingly consider whether employers have offered financial compensation or “garden leave” during the restraint period. The absence of any financial provision during the restraint period significantly affects the reasonableness assessment, particularly where the employee faces economic hardship.

Most recently, in Backsports (Pty) Ltd v Motlhanke and Another [2026] 1 BLLR 8 (LAC), the Labour Appeal Court reaffirmed that the reason for the termination of employment — including a dismissal for misconduct — does not in itself affect the enforceability of a restraint of trade. The Court set aside a refusal to grant an interdict and confirmed that an employer does not waive its right to enforce a valid restraint merely by dismissing the employee, provided a protectable interest remains at risk. This modern authority restates the long-standing principle in Reeves and provides welcome certainty for employers enforcing restraints after a dismissal.

For further reading on how restraint of trade clauses affect South African businesses, see our article on the impact of restraint of trade clauses on South African businesses. If you are an employer navigating employee exits, you may also wish to review our guide to labour laws in South Africa and our overview of the Labour Relations Act.

In such challenging times, it is essential that one consults an attorney to get a thorough legal perspective of restraint of trade clauses and their applicability. We are here to advise and assist you. Contact us today for an opinion on the validity and enforceability of a restraint of trade clause.

 

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Updated 23 June 2026 — Added the Labour Appeal Court judgment in Backsports (Pty) Ltd v Motlhanke and Another [2026] 1 BLLR 8 (LAC), confirming that a dismissal does not by itself release an employee from a valid restraint of trade.