Any decent employment contract, as well as those of independent contractors such as freelancers (“employee” is used here to include them), will contain some form of restraint of trade, especially where the position is a senior one. In industries like media, where intellectual expertise is a key to employability, the future employee may not be keen to sign the agreement but does so to get the job.
Restraints protect the employer at the expense of the employee – they restrict the employee’s freedom of trade in some way. Certain limitations are placed on what an employee can and cannot do during the existence of an employment contract, but here we are concerned with restraints of trade that continue after the contract’s termination.
Such restraints involve two competing elements:
- The constitutionally entrenched right of all persons to be permitted to carry on their trade, occupation or profession. Our courts have held that enforceable restraints do not violate this right.
- The public interest, which requires that parties to a contract should comply with their contractual obligations even if these are unfair. There is no such thing in South African law as a court refusing to enforce a contract merely because it is unfair – a factor related to the employer’s need for some form of protection.
At first glance our courts consider restraints to be enforceable and thus binding on the parties to the agreement. Only once it is shown that the restraint unreasonably restricts the person’s ability to work will a court declare the agreement to be unenforceable, and then only to the extent to which it is unreasonable. As a result, a restraint can be partially enforceable.
Various factors, which are considered in light of the circumstances present at the time that the restraint is in dispute (not when the agreement was negotiated), will be taken into account in assessing whether a restraint is unreasonable. These include the following:
- Whether the restraint protects an interest of the employer that is worthy of protection, such as a trade secret, for example the formulae for making Coca-Cola. If the information is in the public domain, it will not be worthy of such protection. This prevents an employer from using a restraint to protect itself from competition by previous employees, even if the employee learns the business or some aspect of it during the term of employment, such as reporting methods which are standard in the world of journalism.
- Whether the employer’s interest is threatened in some way by the conduct of the employee. If there is no threat, the restraint is unreasonable.
- Whether the interest of the employer outweighs the right of the employee not to be economically inactive and unproductive. (Here we see how the courts try to balance the two competing aspects of restraints).
- Whether the restraint goes further than necessary to protect the interest, such as if it purports to exist in perpetuity. If so, it is unreasonable.
- Whether the bargaining power at the time the agreement was concluded was unequal. This is an exception to the general rule that factors can only be considered at the time the restraint is in dispute.
- Whether there is some aspect of the public interest that dictates, in the circumstances, that the restraint is unreasonable. This gives the courts discretion to declare any restraint unreasonable in certain circumstances.
Of course where none of these factors can be used to establish unreasonableness, the restraint will play an important role for the employer and may even be necessary for the continued existence of the business.
Toni Erling is an attorney with Rosin Wright Rosengarten, a firm specialising in entertainment and media law based in Johannesburg.