No legislation or
regulation gives an employer a right to this type of protection, and any
restraint must be in writing.
A restraint is a
clause in an employment contract that provides that when an employee resigns,
or his contract ends, he may not perform work at a new employer that competes
with his/her former employer, for a prescribed period and in a specific
geographical area.
The rationale is to
safeguard the previous employer’s protectable proprietary interests, such as
client and customer connections, trade secrets and confidential information.
The proprietary
interests that a restraint agreement can protect are of two kinds. The first
consists of the relationships with customers, potential customers, suppliers,
and others (trade connections). The second consists of all confidential matter that
is useful for the carrying on the business that a competitor may use to gain a
competitive advantage (trade secrets).
To what extent can
an employer restrain a former employee?
If an employee has
no special skills or access to client and customer connections, trade secrets
or confidential information, it would be unfair and unconstitutional to prevent
an employee from taking up work elsewhere to earn a living. An employee
generally has the right to choose a trade, occupation, or profession.
Suppose an employee
only possesses the skills of the job that the restraint prevents him from
performing. In that case, the consideration of the employee’s ability to
continue to earn a living may pose a problem for the enforceability of the
restraint.
Ultimately, the
courts perform a balancing act between the right of the employee to choose his
trade and not to compete unfairly with the former employer at his new
workplace. The court must balance conflicting interests between the employer
and employee considering the public interest.
The courts point
out that “It is in the public interest that agreements entered into freely
should be honoured and that everyone should, as far as possible, be able to
operate freely in the commercial and professional world.”
It will generally
be contrary to the public interest to enforce an unreasonable restriction on a
person’s freedom to trade. However, where the proprietary interest of the
company which needs protection outweighs the employee’s interest in continuing
his trade, such restraint will be reasonable and enforceable.
In Magna Alloys
and Research (SA) (Pty) Ltd v Ellis 1984 (4) SALJ 874 (A), the court
laid down the general principle that, on the face of it, restraint undertakings
are not unconstitutional. Every restraint agreement signed by an employee is assumed
to be lawful and enforceable. The onus lies on the employee if he/she wishes to
be released from the restraint to show that the condition is unreasonable and
contrary to public policy.
In determining
whether a restraint is enforceable, a court will consider, among other
things, the following factors:
the length of time
for which the restraint operates;
the geographical
area to which the restraint applies;
Did the employer
pay the employee a restraint payment;
can the employee
still can earn a living;
the proprietary
interest or capital asset that the employer seeks to protect.
Each matter will
need to be determined on its facts on a case-by-case basis. The
general principle remains that restraint will only be enforceable if:
the employer that is
seeking to enforce the restraint has a legitimate proprietary interest worthy
of protecting,
the restraint is reasonable in as far as the geographical area and duration of the restraint are concerned, and the restraint is evident in its meaning and application.
