RESTRAINTS OF TRADE

RESTRAINTS OF TRADE IN SOUTH AFRICA

BY ANDREW GOLDBERG              08 February 2020

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1. Recently Restraints of Trade (ROT) and the need to enforce or challenge them have come to the fore again.

GoLegal has defined a restraint of trade as “an agreement between an employer and an employee, or a provision in an employment contract that restricts an employee from being employed by a competitor of the employer, or establishing a business in competition with the employer following termination of employment.”

2.  While one must remember that the issue as to the enforceability was decided in the locus classicus case of Magna Alloys and Research (SA) (Pty) Ltd v Ellis which set out that they were enforceable until proven otherwise.

3. The question as to the who bears the onus in South African law where it is sought to enforce an agreement in restraint of trade was settled in Magna Alloys and Research (SA) (Pty) Ltd v Ellis. The onus of proving that enforcement would be against public policy is on the party resisting enforcement, that is the Employee Party or the entity looking to employ the Employee.

4. There are two main ways in which an Employee Party may discharge the onus resting on him/her, namely:

•  To prove that at the time when his employer sought to enforce the restraint, the former employer, had no proprietary interest capable of being protected by the enforcement of the restraint in question;1 or
•  To prove that, at the time such enforcement was sought, the restraint was wider than was reasonably necessary for the legitimate protection of the employer’s proprietary interests.2

5.  If the employee party fails to discharge the onus that he/she bears then the restraint must be enforced.3

6.  Where the Employee Party fails to deal with such issues but seems to rely on issues such as public policy, the constitution and others in seeking to make the contract unenforceable a Judge need not consider same unless it makes the contract itself void ab initio or same make the contract contra bonos mores as a whole. The Employee party needs to challenge the efficacy of the restraint and its parameters or terms, these being the area and the time period of the Contract. She argued that it should not be enforced at all.

7. In Rawlins v Caravan Truck (Pty) Ltd [1992] ZASCA 204; 1993 (1) SA 537 (A) at 541 C-D it was said that unless the employee party discharges the onus to “negative…trade connections” then the restraint would be reasonable and enforceable.4 In other words, if it is established that the Employee Party owns the confidential information as is set out in the restraint then the restraint is necessarily reasonable. There is no need on the entity seeking to enforce the restraint to provide proof that such confidential information has been made public or provided to any party or been made use of in any way. That such information exists in the mind of the Employee Party is enough to make the enforcement of the restraint reasonable.

9. In conclusion we need to look at why restraints were brought into practice. Restraints came about to protect trade secrets from competitors and to maintain the company’s integrity. Without this, the Company itself might have no basis to continue and no hope of achieving its aim of success.

Footnotes:

1.     Digicore Fleet Management v Steyn [2009] 1 All SA 442 (SCA) at para 7 where the SCA held: “[7] It is now trite that provisions in restraint of trade are enforceable unless shown by the person wishing to escape an undertaking to be unreasonable and hence contrary to public policy. It is not necessary to rehash the principles that have been set out by this and other Courts governing agreements in restraint of trade. Suffice it to say that Steyn, in order to escape her contractual undertaking, must show that Digicore has no proprietary interest that is threatened by her working for a competitor of Digicore.”

2.     Arrows Altech Distribution (Pty) Ltd v Byrne [2008] 1 All SA 356 (D) 373b.

3.     Digicore supra.

4.     At para 8.

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