While no consensus has been reached about how or when restraint of trade clauses in employment agreements are enforceable, most employers are in the habit of including these clauses as a hedge against future problems.

An agreement to limit one’s own ability to conduct trade is known as a restraint of trade. These provisions are typically seen in employment contracts in which an employee agrees not to compete with his or her employer. Besides traditional restrictive covenants, other provisions of this type are common in different agreements, for example, a sale of business where the seller agrees not to carry on a similar business in competition with the purchaser, and in partnership agreements, in which each partner agrees not to compete with the partnership during and/or after leaving the partnership.

According to Magna Alloys and Research (SA) (PTY) Ltd v Ellis [1984] 2 All SA 583 (A), restraint of trade provisions are legitimate unless the person wishing to break them can prove that they go against public policy and therefore cannot be enforced.

The Magna Alloys case created the following standard, which requires investigation into whether or not restraints of trade agreements are contrary to public policy, a very unclear concept by nature. In the latter case of Basson v Chilwan and Others [1993] 2 All SA 373 (A), the court established guidelines for determining whether or not an agreement violates public policy, which are

• Does the other party have an interest deserving of protection either before or after the relevant contract has been terminated?

in short, does that protectable interest benefit from not being hampered by a restrained party’s freedoms being eliminated?

• To begin with, it must be established whether the Protectable Interest of the one seeking to uphold the restraining agreement outweighs the interest of the restrained party.

is there anything else that I should think about to help me decide whether to uphold or reject the restraint?

• Would the restraint restrict any liberties for the party forgoing his or her own?

To say the least, according to the Basson case, the answers to the first three questions above need to be affirmative, and the answer to the last question needs to be negative, for a restraint of trade to be reasonable and not contrary to public policy, and as such, enforceable against the restrained party.

The answer to the last question would be unenforceable if the first three questions are answered in the negative and the first three questions are answered in the affirmative. In some circumstances, the court may find that a restraint of trade provision has gone too far but isn’t unreasonable or contrary to public policy. The court may then order a partial enforcement of the restraint. By partially enforcing a restraint, a court would restrict its scope either to a closer proximity than the one originally included in the restraint, or to a shorter period than the one originally set

To find out if a restraint would be reasonable, you have to determine what constitutes a Protectable Interest. Parties argue whether they can argue they have the right to do something in the courts, or they have an argument to show a dispute exists. In court, only disputes that concern Protectable Interests are accepted. However, it’s worth noting that a more in-depth analysis in Advtech Resourcing (Pty) Ltd t/a The Communicate Personnel Group v Kuhn and another [2007] 4 All SA 1368 (C) leads to the following conclusions

a Trade Secret is any information capable of application in trade or industry provided that it is known to only a certain number of people but not to the public and is of economic value. As an example, technical processes, chemical formulae, computer software, price lists, credit records and business conversations all qualify as Trade Secrets.

– However, even though an employer might have provided training and skill development to an employee, that doesn’t necessarily mean that he or she owns the skill developed. employees who primarily use their own skills and knowledge are not restrained from doing so when they leave their jobs.

confidential information has monetary value.

a customer’s goodwill or trade connections can form the basis of a protectable interest.

Another issue that must be looked at is that of who bears the burden of proof in restraint cases. Most past judgements take the approach in Magna Alloys, which holds that the party who alleges that the restraint is contrary to public policy bears the burden of proving the unreasonableness of such restraint. Recently, it has been said that those whose job it is to enforce the restraint law must provide proof before saying a person is not allowed to pursue his or her chosen trade. As is stands, a person is not prevented from choosing his or her trade or profession. In a new, free and democratic system, this person has a right to do whatever they please as long as it is legal. Certain commentators say that it doesn’t matter who bears the onus of proof because the guidelines from the Basson judgment are final.

Accordingly, these provisions in agreements are both legal and enforceable, so long as they are reasonable and not contrary to public policy. Beyond this, despite being a common way to do business, it’s not easy to predict what the courts will decide when faced with the details of an individual restraint. If you’re interested in having an order of restraints to protect your trade or business, make sure you review the terms of the order, as well as negotiate on any aspects that may make the order harmful to your ability to carry on with your work.