The dream job

You have been offered what you believe to be ‘the dream job’ and the only thing standing between you, the new corner office, the skinny cappuccinos and a sexy payslip is your signature on the company’s ‘standard’ contract of employment.

After trawling through the lengthy contract containing a cocktail of legal jargon and unpronounceable latin terminology, you stumble across a restraint of trade and some confidentiality provisions kilometres into the contract.

Of course, you don’t worry though, as you recall the conversation with one of colleagues (who has a law degree) and he happened to mention over some beers, that restraint of trade agreements are not enforceable. In addition, your boss appears to be a super friendly person, so what could really go wrong?

You sign the contract and all goes well for a few years, but then the employment magic dies. Whether this is due to career limitations, frustrations with management, being head-hunted by a competitor, needing to venture out on your own, or simply that you just need a change of scenery, you hand in your letter of resignation, excited to commence with the new ‘dream job’ which just happens be at a competitor of the old employer.

Like the antenuptial contract signed before marriage, the employment contract is usually only recovered from the archives when one of the parties to the agreement contemplate terminating the relationship or after one of the parties have already terminated the relationship. This is unfortunately a rookie mistake.

The once super friendly boss has now engaged the services of the most aggressive litigators in Sandton and they bring to your attention that the restraint of trade provision that you had once dismissed as being unenforceable will in fact be enforced by the company, as you are in breach of your undertakings, and the company’s proprietary interests are severely prejudiced as a result of your actions.

You are advised by the company’s attorneys that based on the signed restraint of trade, you are not permitted to work for a competitor (in any capacity) or set up your own business in competition with the company nor are you allowed to poach the other employees of the company (all or some of which you have done). They demand that you resign from the new company, or refrain from competing in the new business, and that you release the poached employees, failing which they will bring urgent court proceedings against you, and claim damages.

Panic sets in as you start to realise the consequences of your imprudent resignation. You now have to scramble to find someone smart to help you manoeuvre through this mess.

The reality about restraint of trade agreements

The hard reality to face when it comes to restraint of trade agreements is that, as a general principle, a restraint of trade agreement is valid and enforceable, unless it is unreasonable and thus contrary to public policy. The employee who has agreed to be bound by the restraint of trade provision will bear the onus of proving that the restraint is unreasonable and contrary to public policy.

In deciding whether a restraint is reasonable or not, the court is required to exercise a value judgment based on all of the relevant facts and circumstances.

In exercising this value judgment, two fundamental (and possibly conflicting) principles must be considered, namely:

• the public interest requires that parties should comply with their contractual obligations (pacta servanda sunt); and
• all persons should, in the interests of society, be productive and be permitted to engage in trade and commerce or their respective professions.

Both of these considerations reflect not only the common-law position but also the relevant constitutional values. In South Africa however, the freedom of contract is the preferred value and as such a restraint of trade agreement will generally be enforceable unless it is contrary to public policy.

When considering the reasonableness of a restraint, an inquiry is undertaken through inter alia reference to the following five questions:

• Does the one party have an interest that deserves protection after termination of the agreement?;
• If so, is that interest threatened by the other party?;
• In that case, does such interest weigh qualitatively and quantitively against the interests of the other party not to be economically inactive and unproductive?; and
• Is there an aspect of public policy having nothing to do with the relationship between the parties that requires the restraint to be maintained or rejected?; and finally
• Does the restraint go further than necessary to protect the interest?

The inquiry, which is undertaken at the time of the enforcement of the restraint, covers a wide field, and includes the nature, extent and the duration of the restraint and further looks at factors peculiar to the parties.

So where the employer’s proprietary interests are worthy of protection and the employee accepts employment with a competitor or sets up a business in direct competition with the employer, the prospects of being cited as a respondent to urgent application proceedings are high. In addition, where a competitor company has employed you, it too is usually cited as a second respondent to the court proceedings as a result of offering you employment in breach of the restraint.

The old employer will facts dependant, but most often be in a position to obtain an interdict against the employee and the new company. This often means that the employee is not only out of a position with his/her old company but furthermore, he/she may not be able to take up employment with the new company. The employee will have to try and find alternative work, that will not infringe on the restraint terms for the duration of the restraint.

Litigation is a costly affair and should be avoided unless the employee has the financial means to challenge the restraint on the basis that it is unreasonable and that it extends beyond what is necessary to protect the employer’s proprietary interests.

Where the only aim of a restraint of trade is to exclude all competition, this will usually be viewed as being against public interest and as such it may be unenforceable. It will of course depend on the facts of each particular case. The employer must have proprietary interests worthy of protection. Where it does not, the restraint can be challenged.

The court does have the discretion to sever parts of the restraint of trade where it is of the view that the restraint goes further than necessary to protect the employer’s interests.

While payment by an employer in consideration of an employee signing a restraint of trade is not mandatory in terms of South African law, certain employers do provide financial consideration to an employee, in an effort to strengthen the employer’s prospects of successfully enforcing the restraint and obtaining an interdict, should the employee breach the terms of the restraint.

As an employee, you must be proactive and you must read through the employment contract and all annexures before you append your signature. Don’t dismiss any restraint of trade provision as being standard or believe the myth that they are unenforceable. Once signed, the only way to get out of a restraint is to hope that your employer does not take any action, however where hope is lost, you will either have to successfully oppose litigation, provide suitable written undertakings to the employer, settle the matter through negotiations or wait patiently for the duration of the restraint period to expire.

Employers in turn should ensure that where restraints are issued, that they are done so for sound commercial reasons that relate to protecting genuine proprietary interests. Not all employee positions in the workplace warrant a restraint of trade and as such, where there is no genuine propriety interest worthy of protection, the court will not come to the employer’s aid.

In the event that you have already signed a restraint of trade agreement and are looking to exit your company, or where you may seek to review your restraint of trade agreements to ensure that the agreements may adequately protect your business, it is important to seek competent legal advice.

Deanne Howes
Howes Incorporated Attorneys
dee@howesinc.co.za
Please note that this article does constitute formal legal advice by Howes Inc to you or your company, as it is a mere outline of the principles applied by the courts. Should you or your company have any queries in relation to a matter of this nature, please contact our office for tailored advice, that is applicable to your/your company’s particular facts and contractual terms.