What is the effect of a restraint of trade clause when a business is sold?

A client asked if she is bound by the restraint of trade undertaking contained in her employment contract when her employer sold the business as a going concern. She is now working for the new buyer on the same terms as her old contract.

Section 197 of the Labour Relations Act, 1995 (“LRA”) protects employment where a business transfer occurs. In terms of section 197 and section 197B(1)(b), a “transfer” means the transfer of a business by one employer (the old employer) to another employer (the new employer) as a going concern.

In the case of Slo-Jo Innovation (Pty) Ltd v Beedle and another [2023] (LC), the court had to decide if Beedle was in breach of a restraint of trade clause. Slo-Jo Trading employed her as a sales representative in 2007. Her employment contract contained a restraint of trade clause. In 2018, she was transferred to Slo-Jo Innovation. She was employed on the same terms and conditions she had with Slo-Jo Trading.

Beedle subsequently resigned from the Applicant and took up employment with a direct competitor of Slo-Jo Trading and Slo-Jo Innovation.

The Labour Court found that Beedle’s contract of employment had transferred from Slo-Jo Trading to Slo-Jo Innovation in terms of section 197 of the LRA and that she was thus bound by the restraint of trade. It agreed that if the ‘new employer’ has a proprietary interest worthy of protection it may seek to enforce the provisions of such a restraint.

The Court held that a “contract of employment is transferable under the provisions of section 197 of the LRA, including all the terms agreed to between the parties, not only those that are more favourable than the provisions of the BCEA”. Furthermore, the effect of section 197(2)(b) of the LRA is that “if the obligation was in existence at the time of the transfer, it continued in force beyond the transfer”.

Click to view our Website Disclaimer

Leave a Reply

Your email address will not be published. Required fields are marked *