This week’s reader is a fitter and turner for a major company and he signed a restraint of trade as part of his contract of employment.
He recently received a better offer from a rival company and would like to know if he could be held to the restraint that he had signed, which prohibits him from working for a similar company in South Africa for twenty-four months after leaving his current employer – for whatever reason.
With restraint of trade cases, the odds are usually more or less fifty-fifty and the outcome rests solely on the merits of each case. One should seek legal advice before signing a restraint agreement and – as in the reader’s case who has signed a restraint of trade –before accepting new employment and resigning from one’s current position.
If the employee received any money from his employer to “buy” his restraint, the restraint will most likely be enforceable; unless it can be proven that the restraint is against public interest.
The rule of thumb is to reimburse the employee for the period that the company would like to restrain him. Companies use several mechanisms to remunerate or “buy” a restraint of trade.
For example, a company may choose to pay a lump sum to the employee. In other instances an amount is added onto the monthly salary.
Restraint litigation could be very costly and may range between R20 000 and R100 000. It is often the case that the employee takes on a big company that has enough resources to contest the case without taking much financial strain.
Another factor to bear in mind is time. If the company does not bring an urgent application to enforce a restraint, it will serve no purpose to litigate after the restraint period has lapsed.
Restraint of trade periods usually vary between six and twelve months and in some cases even up to twenty-four.
If legal recourse is taken, the court is required to make a value judgement – with two principal policy considerations in mind – when determining the reasonableness of a restraint.
The first is that the public interest requires that parties should comply with their contractual obligations. The second is that all persons should – in the interest of society – be productive and be permitted to engage in trade and commerce or professions.
The reader’s restraint would be unenforceable if it prevents him, after termination of his employment, from partaking in trade or commerce without a corresponding interest of the other party deserving protection. Such a restraint is not in the public interest.
The reader could give a written undertaking to his current employer wherein he states that he will not divulge any trade secrets. It will then be up to the employer to accept or reject this undertaking and to decide whether or not they will take the matter to court.
Up to five questions need to be asked when considering the reasonableness of a restraint. For instance, does the one party have an interest that deserves protection after terminating the agreement and, if it is the case, is that interest threatened by the other party?
In one of my cases, an ex-employee was contractually restrained due to the fact that she knew the company’s pricing structures.
Although these structures were changed shortly after she left the company, the court upheld the restraint, even though she was no longer privy to the information that initially formed the basis of her restraint. It is clear that this ex-employee could no longer have posed any threat to her former employer.
To have appealed this case would have served no purpose as only two months of the restraint period were left after the litigation and the appeal would have taken much longer.
According to the reader’s restraint, he is unable to work for a similar company in South Africa for twenty-four months after leaving his current employer.
The court may find this unreasonable and re-set and enforce new geographical boundaries. The court may for instance rule that the reader may not work for a similar company in the same province, and that the restraint cannot be upheld in other provinces.
When the restraint of trade forms part of the employment contract, as is the case with the reader (as opposed to a standalone restraint of trade contract), the information contained therein is often not sufficient to enforce the restraint.
A longer, more detailed restraint of trade agreement (often up to eight pages) will more likely be very difficult to contest.
I strongly advise everybody to seek legal advice before signing a restraint of trade agreement or a contract of employment containing such a clause.
Send your labour and other workplace related questions to firstname.lastname@example.org.
Wikus van Rensburg is a well-respected labour law attorney in Port Elizabeth in Nelson Mandela Bay.
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