Restraint of Trade Agreement

RESTRAINT OF TRADE AGREEMENT SOUTH AFRICA

Summary A company that wants to prevent an employee, agent or business associate from conducting competing business activities can use a Restraint of Trade Agreement.

Who should use a Restraint of Trade Agreement? Businesses regularly disclose confidential information to employees, agents or business associates, including exposing people to trade secrets, sensitive business information, valuable contacts and proprietary product information. The use of that confidential and sensitive information against or in competition with the business can cause extensive loss and damage to the company. A written restraint can be used to prevent the employee or business associate from competing with the business.

See also our Non-Disclosure Agreements

What does the restraint say? The Restraint of Trade undertaking consists of: The period of the restraint; The activities that fall under the restraint; The geographical areas that the restraint is applicable to; Recourse in the event of default.

What does the document look like? The template restraint of trade can be printed onto two pages.

What do you need to do to use the agreement?

• Complete the sample restraint agreement as indicated (eg. Fill in names, the restraint period and activities etc)
• Sign the completed agreement, and get the Restrainee to sign as well.

Also viewed: Employee Secrecy Agreement

Restraint Agreement: An Overview

Restraint of trade agreements, also known as non-compete agreements, play a significant role in balancing employer protection and individual rights in the context of employment contracts. These agreements are designed to safeguard an employer’s proprietary interests, such as trade secrets, confidential technologies and confidential information that deserves protection, while ensuring that employees’ rights are respected. The enforceability and reasonableness of such agreements are carefully evaluated by labor courts, taking into account public policy considerations and constitutional values.

Restraint of trade agreements are contractual obligations that aim to restrict an employee’s activities post-employment, particularly in relation to trade and competition. They typically include clauses that prohibit employees from engaging in similar business activities, disclosing trade secrets, or soliciting clients within a specific geographical area and timeframe.

The enforceability of restraint of trade agreements depends on their reasonableness and adherence to labor law principles. The labour court listed the factors to be considered when determining whether a restraint of trade is enforceable. The Labour court and labour law analyze various factors, such as the duration and scope of the agreement, breach thereof, the protectable interest of the employer, and the potential impact on the public interest weigh and any other such interest. The court’s primary concern is to strike a fair balance between protecting the employer’s proprietary interests and ensuring that employees are not unreasonably restrained from pursuing their livelihoods through the restraint clause. Of course each matter will be considered on its own merits and there are no hard and fast rules which apply.

In South African law, the agreements is subject to two principal policy considerations. Firstly, the protection of an employer’s proprietary interests, which are protectable interest such as the employer’s trade secrets, including trade connections, interest threatened, confidential information belonging to the company, and trade secret. Secondly, the preservation of public policy interests, such as promoting competition, economic growth, and the free flow of skills and knowledge. The court weighs these policy considerations to determine the reasonableness and enforceability of the agreement and its trade clauses. (Once a decision is made one may approach the Supreme court of Appeal for further adjudication)

A restraint of trade clause is a provision in the employment contract that stipulates that an employee is restricted geographically to work in the same industry or competitive environment. It also the previous employer by ensuring the employee cannot disclose trade secrets under this trade provision.

When assessing the reasonableness of such an agreement, labor courts take into account the specific circumstances of each case. They consider factors such as the nature of the industry, the employee’s position and responsibilities, the geographical area covered by the agreement, and the duration of the restriction. The court’s analysis involves a value judgment that seeks to balance the competing interests of the employer and the employee, considering the potential impact on both parties and the public interests.

If such an agreement is found to be unreasonable or unenforceable, the court may refuse to uphold it. In such cases, the employee would be free to engage in the restricted activities without facing legal consequences. However, when a valid and enforceable restraint of trade agreement is breached, the employer may seek legal remedies, such as injunctions to prevent further violations, claims for damages resulting from the breach, or other appropriate actions.

Conclusion:

In conclusion, restraint of trade agreements are designed to strike a balance between protecting an employer’s proprietary interests and respecting the rights of employees. Labor courts carefully evaluate these agreements, considering the public interest weighs, constitutional values, and the reasonableness of the restrictions imposed. By doing so, they aim to ensure fairness and equity for all parties involved while upholding the principles of trade law and safeguarding the interests of both employers and employees.

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