The South African courts have by and large, consistently upheld an employer’s right to restrain an employee form unfairly competing with a former employer where certain conditions have been met. These include the employer being able to show a protectable interest and a properly drafted restraint.
Both the Labour Appeal Court and High Court have recently again reiterated principles of settled law on the matter of restraints of trade. The gist hereof is that a restraint must be reasonable to protect the employer interests and not be against public policy. The onus of proof lies on the one who wants to escape the consequences of the restraint agreement. This should serve as a warning to employees to take restraint of trade provisions seriously. Where an employer successfully enforces a restraint, the ex-employee can be placed in a precarious position of being unable to execute future plans. In addition, the employee may face potential claims for damages and accompanying cost orders.
In a very recent appeal matter before the Labour Appeal Court, Sadan and Another v Workforce Staffing (Pty) Ltd  (JA38/23 JA88/23)  ZALAC 14 (17 August 2023), the Court held that where a 2-year restraint was determined to be unreasonable, it was reduced to 1 year, but still enforced.
In a different appeal to the Full Bench in the High Court of South Africa – Gauteng Local Division, in Tax Consulting SA & Xpatweb vs Seboko (handed down on 13/9/2023), the Court held that a one year period for a restraint was reasonable. Coupled with the limited nature of the restraint, the Court enforced it against the employee.
Employers and employees are well advised to take the following into consideration –
- A well-considered and business-like restraint of trade can be vital for an employer to protect against the harmful actions of an ex-employee who may want to ride on the back of, and effectively “steal” business from the previous employer.
- Restraint provisions limited to clients of the employer, also seem to evoke the approval of the Court. The latter then negates the argument that an employee would be left economically inactive.
- There is no place in law for the overly confident views of employees that restraints of trade are not worth the paper they are written on and generally not enforceable.
- This essential legal measure has essentially remained unchanged since the Supreme Court of Appeal judgment in the seminal matter of Magna Alloys vs Ellis (109/84)  ZASCA decided in 1984 - the person who wants to escape the consequences of a restraint, must prove the provisions to be unreasonable and against public policy.
- A restraint of trade may in certain circumstances also be used protect a group of companies, where correctly drafted. Where any dispute arises about interpretation of restraint clauses, the court will reject an approach as recently proffered by Seboko, that may be “far removed from commercial reality” and “not sensible or business-like”.
While restraints have to be carefully drafted and seek to protect an identifiable protectable interest, they should not be entered into lightly by employees. Importantly, sensible and business–like interpretations of restraint clauses and reasonable periods of duration are to be preferred. Finally, when it comes to litigation in a restraint of trade matter, an experienced hand is required in determining the approach, whether via the High Court or Labour Court. The urgency of acting as soon as the first hint of smoke from a fire is seen, is vital. Having said that, it should always be considered whether a mediated solution may not deliver a better outcome for all parties concerned.
Written by Helena Strijdom for Helena Strijdom Attorneys Pretoria