Restraint of Trade Agreements – When can they be enforced?

Source: Lara Chidrawi, consultant:

Restraint of Trade Agreements are valid until shown to be against public policy and therefore unreasonable and unenforceable.  The employee bears the onus to prove the unreasonableness of the restraint.

The test to deteremine the reasonableness or otherwise of a restraint was set out in Basson v Chilwan and Others 1993 SA 742 (A)

  • Does the employer have an interest worthy of protection after termination of the agreement?
  • If so, is that interest threatened by the employee?
  • Does such interest weigh qualitatively and quantitatively against the interest of the employee not to be economically inactive and unproductive?
  • Is there an aspect of public policy having nothing to do with the relationship between the parties that requires that the restraint be maintained or rejected?

If the employee’s interests outweigh those of the employer’s, then the enforcement of the restraint would be unreasonable.

In Kwik Kopy (SA) (Pty) Ltd v van Haarlem and Another 1999 (1) SA 472 (W) a further factor to be considered is whether the restraint goes further than necessary to protect the employer’s proprietary interests.

An employer’s proprietary interests can be classified as confidential information and trade connections (e.g. relations with customers and suppliers).

Confidential information is information of the employer which is not in the public domain and capable of application in trade and industry, is known by a restricted number of people and of economic value to the employer.

Trade connections are the relationships with customers, potential customers and suppliers.  The employee must have built up a particular relationship with the trade connection so that when he leaves the employ of the employer, he can easily induce the trade connection to follow him.

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