How enforceable is that restraint of trade really?
Category Seymore du Toit & Basson
"We recently interviewed a software engineer for a position at our company. In the interview it came to light that the engineer had just left the employ of one of our main competitors and that he was bound by a restraint of trade in terms of his previous employment agreement with the company. We really want to appoint him because of his skills but are wary of the restraint. Is there any way around this?"
To answer this question, it is firstly necessary to unpack the reasons why an employer would have a restraint of trade provision included in an employment agreement. The predominant reason is to prohibit employees whose employment has been terminated from disclosing confidential and valuable information which they obtained by virtue of their employment, to competing parties. Restraints also seek to protect a company's client base, customer relations as well as supplier connections and avoid having those exposed or passed on to a competitor. Lastly, restraints can also be used to prevent a direct competitor from employing a person who has been trained and skilled by his previous employer and so protecting the investment made in the employee by the company.
Immediately though it raises questions about the freedom of employment of a person bound by a restraint of trade and whether such is legally enforceable.
Under South African law, a restraint of trade is valid and enforceable, except when its enforcement would be contrary to public policy, in which case such a restraint of trade will not be upheld, either fully or in part.
Another question relates to how a restraint of trade clause is enforced? Usually, what happens is that when the employer in whose favour the restraint has been created becomes aware that the employee who is subject to the restraint is seeking employment in breach of the restraint provisions, will inform the employee of the provisions of the restraint and request them to desist from breaching the restraint. This employer may also go a step further and inform the potential new employer that the employee is subject to a restraint and the employer should desist from appointing such employee.
Should the employee ignore the request, the previous employer can opt to approach a competent court for an order enforcing the provisions of the restraint. Typically, this will be in the form of an interdict prohibiting the employee from taking up employment in breach of the restraint. However, in this application the employee will have to demonstrate the unreasonableness of the restraint in order to avoid the enforcement thereof.
Should the court find in favour of the employer and uphold the restraint of trade, the employee will not be able to take up the employment as it would be in breach of the court order. Likewise, for the potential employer wishing to appoint the employee, there could be risk in being interdicted by the ex-employer if he/she can prove the relevant elements for unlawful competition.
It would therefore be important for your company to have your attorneys assess the restraint of trade and determine whether the previous employer would be able to enforce it and consider the potential risks for your company, should you decide to employ him. Then at least you can make an informed decision on the way forward.
Source: Seymore du Toit & Basson Inc.