When a senior advisor or executive walks out the door, especially to join a competitor, your restraint of trade clause is often the only thing standing between you and serious commercial damage. Here is what recent South African case law tells us about what works, what does not and what you need to do now.

The starting point in South African law is that a restraint of trade clause in an employment contract is valid and binding. It is not automatically contrary to public policy simply because it restricts competition. Restraints of trade are treated as enforceable agreements, and it is the employee seeking to escape the restraint who bears the onus of proving that enforcement would be unreasonable.

The test for reasonableness, as developed by case law, asks whether there is a protectable interest, whether that interest is genuinely threatened, whether the employer's interest outweighs the employee's right to earn a living and whether there is a broader public policy consideration. Courts also frequently ask whether the restraint goes further than is strictly necessary to protect that interest. This requires consideration of the duration, geographic scope and breadth of prohibited activities.

In financial services, there are generally two protectable interests: your relationships, the client connections, internal talent management and goodwill built up over years, and your confidential information, client data, pricing, business strategies and anything else that would give a competitor an unfair advantage if disclosed.

Where an employee has built close, personal relationships with the employer's clients, using the employer's time, resources and opportunities, to the point where those clients are likely to follow the employee to a competitor, those trade connections constitute a protectable interest. Evidence that clients have actually moved is powerful, but the employer need not wait for harm to materialise: a well-grounded apprehension that connections will be exploited is sufficient. Adviceworx (Pty) Ltd v Roux and Others provides a vivid illustration. The court found that 820 clients had already migrated to the competitor within weeks of the employees' departure, with a further 433 having partially terminated their mandates. This concrete evidence of actual harm, combined with evidence of data copying and deletion of records, was central to the court's decision to grant final enforcement of the restraint.

Turning to confidential information, the second protectable interest, bare assertions that information is "confidential" will not suffice. The courts require specific evidence of what the particular information is, why it is confidential and how the employee had access to it. In both Merchant West Specialised Finance (Pty) Ltd v Le Grange and Another and Cut-N-Weld Supplies (Pty) Limited v Britz and Another, employers lost their enforcement applications because they could not provide this level of factual detail. Equally, in Fidelity Services Group (Pty) Ltd and Another v Goveia and Another, the court found that the employee's general knowledge of profit margins and client relationships constituted "life skills" rather than protectable proprietary interests.

Across these cases, the critical distinction is between information that genuinely belongs to the employer's business and general skills, experience and industry know-how that the employee has accumulated and is entitled to use. Courts will not enforce a restraint designed to prevent an employee from using the latter.

A common misunderstanding is that an employee who joins a competitor automatically breaches their restraint. What matters is what the employee will do in the new role. Courts look carefully at whether the employee's new responsibilities genuinely threaten the employer's protectable interests or whether they will be working in an entirely different area of the competitor's business that poses no real risk.

In FX Group (Pty) Ltd v Steyn, enforcement was refused even though the new employer was a direct competitor in some product lines, because the employee's new role related to a product division in which the former employer had no involvement at all.

Employers often argue that a restraint should not be enforced because the employee was dismissed or resigned in response to an intolerable working environment. However, the circumstances surrounding termination are ordinarily irrelevant to whether a restraint should be enforced. The only recognised exception is where the employer hired and dismissed the employee fraudulently and solely for the purpose of triggering and imposing the restraint. The restraint exists to protect business interests after employment ends, not to punish the employee, as confirmed in Backsports (Pty) Ltd v Motlhanke and Another.

South African law does not require separate compensation for a restraint of trade as the employee's overall remuneration is sufficient consideration. Nevertheless, dedicated restraint payments are common in senior and financial services roles and offer practical advantages. 

In Adviceworx, specific "non-compete and performance incentive" payments linked to client book value reinforced the protectable interest claimed. As confirmed in Nu Angle Aesthetics (Pty) Ltd v Taylor and another, such payments make it difficult for employees to argue financial hardship. However, compensation alone does not guarantee enforcement where the employer's interests were not genuinely threatened.

One of the most practically important lessons from the recent case law is the risk that a broadly worded settlement agreement can inadvertently extinguish an employer's restraint rights. The Labour Appeal Court addressed this directly in Wheelwright v CP De Leeuw Johannesburg (Pty) Ltd, holding that a settlement agreement using "full and final settlement" language covering "all claims … whether from contract, delict, operation of law, equity, fairness or otherwise" had the effect of extinguishing the employer's right to enforce the restraint. Accordingly, where an employer settles a CCMA or Labour Court dispute but wishes to preserve its restraint rights, the settlement agreement must contain an explicit carve-out to that effect. The failure to include such a carve-out can mean the permanent loss of the employer's most important post-employment protection.

A further drafting risk concerns severability. Where a restraint goes further than is reasonably necessary, a court may read down the restraint and sever the objectionable portion in order to enforce what remains, but only where the offending words are clearly separable. Accordingly, employers who draft deliberately broad restraints on the assumption that a court will read them down are taking a significant risk.

A restraint of trade clause is only as effective as the thinking that went into drafting it and the quality of the evidence available to support it. South African courts have demonstrated, across a range of recent decisions spanning the Labour Court, Labour Appeal Court and High Court, that they will enforce well-constructed restraints against genuine competitive threats, but they will not rescue poorly drafted clauses or bare evidentiary assertions. The time to invest in getting this right is before the key person resigns, not after.

Written by Dhevarsha Ramjettan, Partner & Thobile Ndaba, Associate at Webber Wentzel