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A restraint of trade is a provision in a contract of employment that (typically) provides that after termination of employment, the employee is restricted in the work he can perform in that he will be restrained from performing similar work in competition with his/her former employer, for a prescribed period of time and in a specific geographical area. These provisions aim to protect the employer’s proprietary interests, such as client and customer connections, trade secrets and confidential information.

The impact of restraint of trade undertakings on former employees of a business is accordingly potentially quite prejudicial and has been argued to prevent restrained persons from exercising their constitutional rights to choose their trade, occupation or profession.

Critical to understanding how the courts will approach any application for a former employee to be restrained from competing with his former employer is to appreciate that there is no legislation or regulation which provides an employer a right to this type of protection. As such, unless the employee agrees in his contract of employment to be bound by a restraint, the employer has no entitlement to try and prevent him from working after termination of the employment relationship, even if this is for a direct competitor, and even if this in fact causes harm or damage to the former employer through loss of business. As such, the manner in which the restraint undertaking is formulated in the contract is critical, as the courts will look very closely at the terms and conditions of these undertakings to determine if they should be enforced. Ultimately, the courts perform a balancing act between the rights of the employer not to be subjected to unfair competition, and the right of the employee to choose his trade.

The leading case dealing with these issues is Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 (4) SALJ 874 (A). The court laid down the general principle that, on the face of it, restraint undertakings are not unconstitutional and every restraint agreement signed by an employee is assumed to be lawful and enforceable, and the onus lies on the employee, if he/she wishes to be released from the restraint, to show that the restraint is unreasonable and contrary to public policy. In determining whether a restraint is enforceable, a court will consider, inter alia, the following factors:

• the length of time for which the restraint operates;
• the geographical area to which the restraint applies;
• whether a restraint payment was paid to the employee;
• whether the employee still has the ability to earn a living;
• the proprietary interest or capital asset that the employer seeks to protect.

Example uses of this document:

This agreement is used when an employee signed a restraint and the employer waives the restraint to an extent.

Agreement contents

Some common issues addressed include:

• outlining the parties to the agreement;
• a detailed restraint description;
• remedies if breached;
• the extent to which the restraint is waived.

Draftsman

This document was written for Agreements.org by a Senior Attorney (Admitted in the High Court) with more than 18 years’ experience. It complies with current South African law.