All employers should consider whether or not to include a restraint of trade in an employment contract. Companies normally include a restraint to ensure the financial future of a business. This is done without proper consideration being made to the needs of the company, what a restraint entails, when a restraint is applicable or when and how it is enforced.
What to keep in mind before including a restraint of trade
When considering a restraint of trade the company should first establish why they require such an agreement or policy. Taking into account the industry they are in and the competitive nature of the industry can do this. Are the barriers of entry in the industry high? Will the transfer of a person from company A to B truly affect the competitive nature of the companies? Will the transfer of a person from company A to B merely keep the status quo? This is due to purpose of a restraint is to protect any proprietary information of a company to land in the hands of the competition in order for them to gain a competitive edge.
What does the law say?
Labour law does not regulate the enforcement of a restraint of trade and as such there are no set rules on how it is drafted or what should or should not be included or excluded. It is also only enforceable after the employee left the employ of the company. If the employee left the employ of the company then it is no longer a labour dispute, but a contractual dispute. A company who wishes to enforce such an agreement should approach a civil court and request the enforcement thereof. The employee will then have the onus to prove that such an agreement is unreasonable and should not be enforced.
Some of the factors that would be considered by the courts would be whether the employee received training and confidential knowledge from the company that would lead to a competitive edge being given to the new company (the competition) to the detriment of the employer. The court would also consider the individual’s right to make a living and to practice their trade.
The enforcement of such an agreement is unlikely if the company cannot justify the reasons for attempting to limit the employee’s ability to practice their trade and if the industry or business is not of such a competitive nature that would justify the protection of any proprietary information.
Should you do it – or choose an alternative?
As illustrated, a restraint of trade and the enforcement thereof is a resource intensive exercise that could have the effect of not being enforceable, thus due consideration has to be made if a company wishes to include such an agreement in order for it to be enforced or will the company purely include it to act as a scare tactic to hopefully ward off employees to join the competition. If it is the latter, other agreements could be more suited to the needs of the company, for instance – a confidentiality and non-disclosure agreement could protect the company’s financial interests by still allowing an employee to practice their trade.
When considering the above it is always best to consult with a legal specialist to determine the need for such an agreement and whether it would be enforceable.
ABOUT THE AUTHOR
Darius Brits obtained his LLB degree form the University of Pretoria. He is currently a SEESA Labour Legal Advisor.