Are restraints of trade legal? Can they be enforced? Should I be worried about signing a restraint? Or is it true that a restraint of trade isn’t worth the paper it’s written on? The short answer is: restraints of trade are indeed legal.
Restraints are a common employment requirement and form an integral part of many employment contracts. Without a restraint in place, any employee who has access to key confidential information could cause serious damage to the business if s/he decided to leave and join (or startup) the opposition. But it is of critical importance that the restraint of trade has been properly worded if it is to stand up to the Courts’ scrutiny. South African law recognises the employer’s right to enforce restraints of trade in order to protect legitimate proprietary interests. But these interests must be balanced against the employee’s right to work and to earn a living.
When a restraint of trade is brought before the court, the judge will decide whether the document is reasonable and whether it’s in line with public policy. The court will consider Section 22 of the Constitution, which guarantees every person “the right to choose their trade, occupation or profession freely”, and will also determine whether the employer has legitimate interests that need to be protected.
The most common mistake that employers tend to make when they draft a restraint of trade is to make it as widely worded as possible. This could be a fatal error leading to disaster if the restraint is challenged. Because if the judge thinks that the restraint unfairly erodes the employee’s right to engage in their trade, the judge could limit the terms, or even declare the entire document to be totally unenforceable. So when drafting a restraint of trade, make sure that it is narrowly drafted in terms of the activities that are protected, the geographical area to which the restraint applies, and the time period during which the restraint will be enforceable.
In Summary: When hiring a new employee, consider including a Restraint of Trade as part of their employment documents. But ensure that it is reasonable and carefully drafted.
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.