Once regarded as unlawful for being against public policy and therefore unenforceable, restraint of trade clauses are now a common feature in employment contracts.
The High Court of South Africa, Gauteng Division, Pretoria, was recently called upon to enforce a restraint of trade agreement between the applicant and the first respondent, its erstwhile employee, as well as the second respondent, who is the new employer of the first respondent.
The first respondent was employed by the applicant as a sales representative. Both the applicant and the second respondent sell wood products such as chipboard, melamine boards, and related products. The first respondent was prohibited, in terms of a restraint of trade agreement with the applicant, from working as a sales representative for a competitor for twelve months following the termination of her employment. The first respondent left the applicant's employment on 29 August 2022 and took up employment with the second respondent as a sales representative on 1 September 2022.
The first respondent did not dispute entering into the restraint of trade agreement but challenged its enforceability on several grounds, including that the applicant and the second respondent are not competitors and that the applicant had not demonstrated any protectable interest.
In demonstrating that the applicant and the second respondent were competitors, the applicant provided evidence that the second respondent had approached one of its medium-sized customers to buy products from the second respondent. To further bolster the argument, the applicant could have detailed how and where it competes with the second respondent by specifying the products they both sell, the sales methods they use, and the list of customers they both vie for.
Turning to the issue of proprietary interest, while there is no closed list, two main categories exist that can be protected by a restraint of trade, namely trade connections (e.g., customers) and trade secrets (e.g., confidential information). In the case concerned, the court found that the respondents breached both categories of proprietary interests which the applicant had sought to protect and consequently found that the applicant was entitled to the relief it sought against the respondents.
While not featuring in the case, an applicant may also seek an interdict to protect its confidential information in circumstances where another party is attempting to use the confidential information as a “springboard”. Springboarding involves bypassing the initial stages of developing a technique, process, equipment, or product by leveraging the results of someone else’s work as the foundation. However, as found in Waste Products Utilisation (Pty) Ltd v Wilkes and Another, the duration of an interdict granted to prevent springboarding may be limited to the length of the advantage or the time saved as a result of using confidential information.
In summary, while restraint of trade clauses were once viewed as unlawful, they have become an integral part of modern employment contracts, especially in competitive industries like the financial services sector, where employees often have access to confidential information such as client information, product pricing, revenue projections, and strategic partnerships. The enforcement of such clauses will hinge on their reasonableness, which is measured against key principles that our courts have developed over the years.
For further reading, see the article by Jac Marais on effective restraints of trade and the added protection offered by a penalty clause, which can be accessed here.
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