Restraint of trade clauses in employment contracts are inherently complex and must be evaluated on a case-by-case basis. South African courts have provided guidance through various rulings, shedding light on when such clauses may be deemed enforceable. The Supreme Court of Appeal (SCA) ruled in 2007 that a restraint of trade is reasonable when an employee has received significant proprietary training from the employer, as there’s a legitimate risk of confidential information being disclosed to a competitor. However, in 2008, the SCA held that a restraint was unenforceable where the employee had not acquired any confidential information and was not leaving with anything they didn’t bring to the role.
The enforceability of restraint of trade agreements involves balancing the constitutional right to work, as protected by South Africa’s Bill of Rights, with the legal principle that contracts should be upheld to ensure certainty in commercial dealings. A valid restraint must be specific and not overly broad or vague, as these factors could render it against public policy and, therefore, unenforceable. Courts apply the Basson test to determine enforceability, which assesses whether there’s a protectable interest, whether that interest is threatened, and whether the restraint is reasonable in terms of its scope and duration.
Key cases such as Basson v Chilwan and Magna Alloys and Research (SA) (Pty) Ltd v Ellis further illuminate the court’s approach. The Basson test, in particular, examines whether the employer’s interest in protecting trade secrets and confidential information outweighs the employee’s right to work and earn a living. Moreover, in Nel v Ndaba (1999), the court held that clients have the freedom to choose with whom they do business. This implies that if clients voluntarily choose to follow an ex-employee to a new business without any solicitation, enforcing a restraint might be unreasonable.
Ultimately, public policy in South Africa encourages fair competition and supports the right to work, as enshrined in Section 22 of the Constitution. However, this right can be reasonably limited by a restraint of trade if it serves a justifiable purpose. In disputes over restraint clauses, the specific circumstances, including whether clients were solicited or moved voluntarily, will heavily influence the court’s decision. Each case must be carefully considered, as the potential for litigation and its associated costs remains a significant factor for all parties involved.
Should you have a question relating to the field where restraints of trade may be prominent, and would like further certainty into your matter, leave a comment on our article and we will be in contact with you to discuss your matter further, and ensure that you are not left vulnerable.