A restraint of trade clause restricts employees from engaging in activities that compete with their former employer after leaving the company. These clauses aim to protect the employer’s proprietary interests, such as trade secrets, confidential information, and customer relationships, by preventing employees from using sensitive knowledge to the detriment of the business. Courts, however, seek a balance between the employer’s right to safeguard its interests and the employee’s right to pursue economic opportunities freely. 

Types of Restraints in Employment Contracts 

Restraint of trade clauses generally fall into two categories: 

• Non-Compete Restraints: These prevent employees from working for, or establishing, a competing business within a specific geographic area and time period.
• Non-Solicitation Restraints: These prohibit employees from soliciting the employer’s clients, employees, or business connections after termination. 

Both restraints operate to protect the employer from unfair competition, ensuring that employees do not exploit inside knowledge gained during their tenure. 

Protectable Interest of the Employer

A key consideration in enforcing a restraint of trade clause is whether the employer has a legitimate protectable interest. This refers to any proprietary information or business relationships that require safeguarding. Courts examine whether the employee’s departure and subsequent employment with a competitor pose a real threat to these interests. 

In Ball v Bambalela Bolts (Pty) Ltd and Another [2013] 9 BLLR 843 (LAC), the court upheld a restraint due to the employee’s access to confidential business information and breach of confidentiality. The judgment concluded that the restriction was reasonable and necessary to prevent unfair competition. 

Similarly, in Medtronic (Africa) (Pty) Ltd v Van Wyk and Another; Medtronic (Africa) (Pty) Ltd v Potgieter and Another [2017] JOL 36766 (LC), the Labour Court enforced the restraint clause to protect the employer’s relationship with clients. The court emphasized that the sales representatives’ close ties with surgeons constituted a significant protectable interest for the medical equipment supplier. 

These cases illustrate that the enforceability of a restraint depends heavily on whether a legitimate protectable interest exists. Where employers demonstrate that a departing employee’s actions pose a substantial risk to these interests, courts tend to uphold reasonable restrictions to curb unfair competition. 

The Importance of Formal Restraint Clauses

Including a restraint of trade clause in employment contracts is essential for employers seeking to protect their business. Relying solely on confidentiality agreements may not provide sufficient protection. 

The Absa Insurance and Financial Advisors (Pty) Ltd v Jonker and Another [2017] 9 BLLR 867 (LAC) case highlights the significance of written restraint clauses. Absa sought an interdict to prevent employees from leveraging their customer connections at a competitor. However, the court denied the request, as only one employee’s contract contained a restraint of trade provision, while the others had only confidentiality clauses. The court ruled that confidentiality alone did not provide a sufficient legal basis to prevent the use of customer relationships, underscoring the need for explicit restraint clauses. 

The Vodacom Case: Garden Leave and Extended Restraint

The Vodacom (Pty) Ltd v Motsa and Another [2016] JOL 35238 (LC) decision introduced the concept of garden leave in conjunction with restraint of trade. In this case, the employee was subject to a six-month garden leave followed by a six-month restraint of trade. The court enforced these restrictions, recognizing Vodacom’s need to protect its confidential information and commercial strategies. 

The court held that the combined garden leave and restraint of trade were necessary to ensure that the employee’s access to sensitive data would become outdated before joining a competitor. This decision demonstrates how courts may allow extended periods of restraint when the employer’s protectable interest justifies it. 

Conclusion

Employers must carefully identify their protectable interests, such as confidential information or client connections, and ensure that restraint of trade clauses are enforceable. These clauses should be clearly incorporated into employment contracts, as relying on confidentiality agreements alone may not suffice. By structuring restraint clauses within legal limits, employers can secure their proprietary interests and mitigate the risk of unfair competition from departing employees.

Written by Ross Hendriks, Specialist Employment and Labour Law, SchoemanLaw Inc