In the modern South African business environment, intellectual property, proprietary knowledge, and established client relationships are increasingly vital assets. As businesses invest significant resources into developing internal processes, cultivating customer goodwill, and refining competitive strategies, the risk of losing these assets through employee movement to rival firms has become a growing concern. To mitigate this risk, many employers incorporate restraint of trade clauses into their employment contracts. These clauses seek to limit the activities of former employees for a defined period and within a specific geographical area, typically following the termination of employment. 

While the use of restraint of trade agreements is common, their enforceability under South African law depends on a nuanced balancing of interests. On one hand is the employer’s right to protect proprietary business interests. On the other, the Constitution guarantees every individual the freedom to choose and pursue a trade, occupation or profession. Reconciling these two competing interests is the task of the courts, which approach restraint of trade disputes by evaluating the reasonableness of the restraint in the particular circumstances. 

The Nature and Purpose of Restraint of Trade 

A restraint of trade is a contractual provision, often embedded in an employment agreement, which restricts an employee’s ability to take up employment with a competitor or to start a competing business after leaving their employer. The rationale behind such a provision is not to punish the employee or to eliminate fair competition, but rather to protect the employer’s legitimate business interests. These typically include confidential information, business strategies, customer lists, and the goodwill associated with the business. 

The protection of confidential information and customer relationships is particularly crucial when an employee has occupied a senior position or had access to sensitive commercial information. The law does not, however, permit the use of restraint clauses to merely suppress ordinary competition or to prevent a former employee from using general knowledge and experience gained in the course of employment. 

Legal Framework and the Principle of Enforceability 

In South Africa, restraint of trade agreements are considered enforceable unless they are found to be unreasonable. This principle was firmly established by the Appellate Division in the landmark case of Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A), which reversed earlier decisions that treated such agreements as contrary to public policy. South African law now presumes that contracts, including those containing restraint clauses, are valid and enforceable in accordance with the doctrine of pacta sunt servanda, that agreements freely entered into should be honoured. 

However, this presumption is not absolute. The court will not enforce a restraint clause that unreasonably restricts an employee’s right to engage in economic activity. The burden of proving unreasonableness lies on the employee who challenges the restraint. They must demonstrate that the restraint is not only unfair to them personally but also contrary to public policy. 

Determining Reasonableness: The Basson Framework 

To determine whether a restraint of trade is reasonable and therefore enforceable, the courts follow a structured inquiry. The foundational legal test was laid out in the case of Basson v Chilwan and Others 1993 (3) SA 742 (A). The court must first ask whether the employer has a legitimate proprietary interest worthy of protection after the termination of employment. Such an interest must be more than a general desire to avoid competition; it must relate to confidential information, client relationships, trade secrets, or business methodologies that are unique and not readily available in the public domain. 

Once such an interest is established, the court must determine whether the employee’s post-employment conduct threatens that interest. The assessment will consider the employee’s new role or business, the nature of their previous duties, and the extent of their knowledge of sensitive information. 

Next, the court weighs the interest of the employer against the employee’s right to work and earn a livelihood. If enforcing the restraint would render the employee economically inactive or unproductive without compelling justification, it may be deemed unreasonable. Lastly, the court will evaluate whether the enforcement of the restraint would be against public policy. This includes an assessment of broader societal interests, such as the need to foster competition and ensure that skilled individuals are not unjustly excluded from the marketplace. 

Confidentiality, Client Relationships and Goodwill 

Not every detail known to an employee constitutes a protectable proprietary interest. General skills, knowledge, and experience acquired during the course of employment remain the property of the employee. However, when an employee has had access to non-public, sensitive business information, such as pricing models, customer databases, or internal marketing strategies, that information may warrant protection. 

In certain instances, the employee’s personal relationships with clients may also constitute a protectable interest. The test in such cases is whether the employee has built up sufficient influence over clients to persuade them to leave the employer’s business and follow them to a competitor. This type of relationship, where goodwill is associated more with the individual than the business, poses a significant risk to the employer and justifies a narrowly tailored restraint. 

Restraints in Action: Recent Case Law 

South African courts have considered numerous cases involving restraint of trade disputes, with outcomes largely dependent on the specific facts at hand. Notably, in Vodacom (Pty) Ltd v Motsa & Another 2016 (3) SA 116 (LC), the Labour Court upheld a twelve-month restraint (comprised of six months’ notice and six months’ post-employment restriction) against a senior employee who had access to the company’s strategic business plans. The court found that the employee’s intimate knowledge of both short-term and long-term strategies posed a real and immediate risk to Vodacom if he joined a direct competitor. The restraint was accordingly found to be reasonable and enforceable. 

In contrast, in Sadan v Workforce Staffing (Pty) Ltd, the Labour Appeal Court upheld the geographic scope of a national restraint but found the two-year duration excessive. The employer had failed to provide convincing reasons to justify such a lengthy period. The court accordingly reduced the term of the restraint to one year.  

These cases confirm that restraint clauses are not inherently unenforceable, but their enforceability depends on the nature of the interest protected, the duration of the restraint, and the geographical area covered. The courts have shown a willingness to partially enforce a restraint by modifying its terms to what is considered reasonable in the circumstances. 

Remedies for Breach of Restraint 

If an employee violates a valid restraint of trade clause, the employer may seek judicial remedies. These include applying for an interdict to prevent the continuation of the prohibited conduct or instituting a claim for damages under the common law of delict. An interdict may be granted on an urgent basis if the harm to the employer is imminent or ongoing. 

Alternatively, the employer may pursue a claim for financial loss, particularly where the breach has resulted in the loss of clients or the misuse of confidential information. In some cases, the parties may agree on a restraint of trade payment, either as consideration for the clause or as part of a negotiated settlement that releases the employee from its terms. 

Conclusion 

The enforceability of restraint of trade clauses in South Africa is governed by the principle of reasonableness, balanced against public policy and constitutional rights. While the courts recognise the importance of protecting business interests, they are equally vigilant in ensuring that such protections do not unduly infringe upon an individual’s right to economic activity. 

For employers, restraint clauses should be carefully drafted, tailored to specific roles, and supported by demonstrable protectable interests. For employees, caution and due diligence are essential when entering into contracts that may limit future employment options. 

Ultimately, there is no fixed formula for enforceability. Each case turns on its own facts, and South African courts will continue to approach these disputes with a nuanced and context-sensitive analysis—ensuring that the interests of fairness, commercial necessity, and constitutional freedom are all appropriately upheld. 

Written by Kerri Stewart, Attorney, SchoemanLaw Inc