Restraint of Trade ClausesETIENNE LOMBARD2016

Sources

Basson v Chilwan & Others [1993] 3 SA 742

Sunshine Records (Pty) Ltd v Flohing & Others 1990 (4) SA 782 (A)

Magna Alloys & Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A)

The traditional view

Historically the party(employer) seeking to enforce the restraint of trade only had to rely on the contract to enforce the provisions of the contract.

Constitutional Era

In the constitutional era the onus has shifted and the party (employee) that wishes to rely on a restraint of trade clause has to prove that the wrongdoer has forfeited his or her right to constitutional protection.

Onus on the enforcer

The enforcer of the restraint of trade clause now has to show:

breach of contract,

the restraint was reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom.

Public policy In terms of the common law restraints are only enforceable if

they are not in conflict with public policy.

It would be against public policy if the interest the restraint seeks to protect is a legitimate interest, such as confidential information or trade secrets, connections and lists, and the goodwill of the business.

Confidential information

To qualify as confidential information this information must be capable of application in the particular trade or industry.

It must not be public knowledge or public property.

It must be of economic value to the person that wants to protect it.

Note , general information about how to run a business does not become confidential because the enforcer chooses to call it that.

Trade Connections

Employee has close working relationships with customers

Danger that he or she will take them when he or she leaves the business;

Relevant factors are: Duties of the employee;

His/her personality;

Frequency and duration of contact;

Influence over them;

Level of competition;

Nature of the relationship;

Type of products sold;

evidence that customers were lost when he/she left the business.

What have our courts decided in the past?

Parties in a contractual situation are in general in an equal bargaining position.

They can determine for themselves the terms of the contract and agree on what is reasonable.

The court could still decide as to whether the terms are in fact reasonable or not ; unreasonable if damaging to the public interest for a reason not peculiar to the parties.

Employee- employer contracts

The employee has to learn the trade or business.

As long as trade secrets are not the bone of contention.

Exercising an acquired skill and knowledge is reasonable at a competing employer.

Even if acquired at or in the service of the former employer (enforcer).

Courts’ verdicts

The courts in general will take a more favourable view of a restraint in a contract between parties if they were in an equal bargaining position and had the opportunity to decide themselves that the terms were reasonable.

The courts will therefore find it unreasonable to enforce such a restraint of trade clause, deem it unjust and not in public interest, to prevent the employee from earning a living.

Reasonable time decided by the courts

The courts have held in situations where the restraint of trade between contractual parties were enforced that eight months, for instance, is a reasonable period to restrain the employee from competing with his or her erstwhile employer.