In a competitive market, protecting confidential business information and valuable client relationships is essential to long-term success. Accordingly, employers and businesses often incorporate restraint of trade clauses in their agreements. This article explores how these clauses operate under South African and the circumstances in which they may be enforced or set aside.
A common provision in employment contracts and various commercial agreements, a restraint of trade clause enables a contracting party to safeguard the proprietary interests of their business by constraining the other party from conducting certain business activities within a particular geographical area for a specified time period. In this context, ‘proprietary interests’ include confidential information, trade secrets, business relationships, client and customer connections, and the goodwill built up within the business.
While section 23 of the Constitution plainly provides that everyone has the right to freely choose their occupation, trade, or profession freely, restraints of trade are legal and generally enforceable. Indeed, a restraint will only be deemed unenforceable if it is unreasonable. The burden of proving that a restraint is unreasonable rests with the party contesting its legality.
Crucially, a restraint may be deemed unreasonable if it conflicts with public policy or the public interest. In this respect, the key question is whether public policy supports the enforcement or rejection of the restraint. In assessing the reasonableness of a restraint, a court will consider whether the party seeking to enforce the restraint has a legitimate business interest that warrants protection. Additionally, the court will evaluate whether the other party’s conduct is prejudicing that interest, and whether the enforcement of the restraint would significantly impair their ability to earn a livelihood or be economically productive.
In assessing claims of this nature, a court will take into account several factors, including:
- The nature of the proprietary interest being protected;
- The geographical scope and duration of the restraint;
- The contesting party’s right to freely engage in trade;
- Whether the restraint seeks merely to eliminate competition;
- Whether the contesting party was coerced into signing;
- Whether any compensation was offered in return for the restraint; and
- Whether the contesting party was fully aware of the restraint’s terms at the time the agreement was concluded.
If the court finds that enforcing the restraint would unduly restrict their economic activity and potential, it will likely deem the restraint unreasonable and therefore unenforceable. Similarly, if the enforcing party’s interests outweigh the impact on the other, the restraint is likely to be upheld.
Whether you’re seeking to enforce a restraint of trade or challenge one, contact our expert attorneys at commercial@stbb.co.za or labour@stbb.co.za today and let us help you safeguard your interests.
This content is the property of STBB. We encourage the sharing of our content for informational purposes. However, if you wish to copy or reproduce our content on your own platform or website, please ensure that proper credit is given to STBB.
