A restraint of trade agreement in an employment contract states that on termination of employment, such employee will be restricted from working in a specific industry, for a specified period and in a certain geographical area. The purpose of a restraint of trade agreement is to protect the employer’s business interests to retain its competitive edge (such as trade secrets, confidential information and client base), which a competitor could use to the employer’s detriment.
The laws of contract regulate restraint of trade agreements, and determining whether such agreements are valid in law and binding on the parties will depend on the circumstances of each case. The Courts have held restraint of trade will not be enforceable if it is unreasonable (for example, they will find a restraint whereby an employee may for two years not practice his trade in the whole of SA unreasonable. Restraints for shorter periods of time and/or smaller areas will more likely be found to be reasonable and enforceable.
In deciding whether a restraint of trade agreement is enforceable and reasonable, the courts must weigh first the right of an individual employee to practice his trade and earn a living and, secondly, the right of an employer to protect its propriety business interests from being harmed by an ex-employee. The Court must then strike a correct balance and make a value judgment as to which right must be protected.
A restraint agreement concluded only to limit the employee’s right to practice his trade when the employer suffers no competitive prejudice will be found to be unreasonable and cannot be enforced in law.
To find out how SEESA can help your business visit our website at:
#TeamSEESA