Are restraints of trade legal? Can they be enforced? The short answer is: yes. Restraints of trade form an integral part of many employment contracts. Without a restraint, the “main man” in the business, the one with access to key confidential information, could cripple your business as soon as s/he leaves and joins (or starts up) the opposition. If you’re the employer, you would want to know: What makes a restraint enforceable? How do you draft a legal restraint of trade? It is crucial that a restraint is properly worded if it is to stand up to the Courts’ scrutiny. Our law has always recognised the employer’s right to enforce restraints of trade in order to protect its “legitimate proprietary interests.” However, these interests must always be balanced with the employee’s right to work and earn a living.
When a restraint is brought before the Court, it is tested for reasonableness to determine whether it’s in accordance with public policy. The Courts also refer to the provision in Section 22 of the Constitution guaranteeing every person “the right to choose their trade, occupation or profession freely.” In one High Court judgment it was held that the “reasonableness and consonance with public policy has to be the one expected of a free, open and democratic society envisaged in the Constitution”.
The most common mistake that employers make when they require a staff member to sign a restraint of trade is to word the restraint as widely as possible. This fatal error can lead to disaster if the restraint is challenged. The question to ask is: Is the restraint of trade reasonable? If the Court thinks that it unfairly erodes the employee’s right to choose his profession, the Court could dilute it, or even declare it totally unenforceable. When drafting a restraint of trade, make sure that it is reasonable in terms of activity, area and time period. What is a reasonable period for a restraint? There is no single answer to this, as it depends on the employee, the position, the industry, amongst other things. And if in doubt, rather take a more conservative approach.
In short, when hiring a new staff member, consider including a Restraint of Trade. But ensure that it is suitably limited in application.
Please note that this information is supplied for general information and does not constitute legal advice. It is advisable for you to contact a legal practitioner for guidance in respect of your unique requirements.