What a Restraint of Trade Is
A restraint of trade is a contractual clause — found in employment agreements, business sale agreements, and partnership agreements — that prohibits a party from competing with the other party for a defined period and within a defined geographic area after their relationship ends. In an employment context, it typically prevents an employee from joining a competitor or starting a competing business for a period after leaving.
Are Restraints Enforceable in South Africa?
South African courts enforce restraints of trade, but only if the restraint is reasonable. The leading case is Magna Alloys and Research (SA) (Pty) Ltd v Ellis (1984), which established that restraints of trade are enforceable unless the party challenging them can show that enforcement would be contrary to public policy because it is unreasonable.
The test is applied at the time enforcement is sought, not at the time the agreement was signed.
The Reasonableness Test
Courts assess reasonableness by weighing:
- The employer's proprietary interest — does the employer have a genuine legitimate interest to protect? Trade secrets, confidential client relationships, and specialised knowledge developed at the employer's expense are legitimate interests. A general desire to prevent competition is not sufficient.
- The duration — how long does the restraint last? Six to twelve months is generally considered reasonable for most employees. Two or three years is more likely to be challenged successfully, particularly for junior employees. Indefinite restraints are almost never enforced.
- The geographic scope — is the area of restriction proportionate to the employer's actual business footprint? A restraint covering all of South Africa for a salesperson who worked only in the Western Cape is likely overbroad.
- The employee's level — a restraint on a senior executive with access to strategic plans and key client relationships is treated differently to one on a junior employee who had no access to confidential information.
When Restraints Are Typically Not Enforced
- The restraint period is excessively long relative to the employee's role
- The geographic area is broader than the employer's actual business operations
- The employee had no meaningful access to confidential information or key client relationships
- The employer retrenched or constructively dismissed the employee (where enforcement would cause hardship disproportionate to any legitimate interest)
- The employer itself has not protected its confidential information seriously
What to Do If You Have Signed a Restraint
Before joining a competitor or starting a competing business:
- Read the restraint carefully — note the duration, geographic area, and the specific activities restricted
- Assess whether you hold information that the employer would have a legitimate interest in protecting
- Consider whether the restraint was reasonable when entered into and whether circumstances have changed
- Consult a labour attorney before taking action — an attorney can assess the enforceability of your specific restraint and advise whether to proceed or negotiate
Do not simply ignore a restraint clause on the assumption that courts never enforce them. South African courts do enforce reasonable restraints, and an interdict preventing you from working in your field can be obtained quickly and at significant cost to you.
If You Are the Employer
Draft restraints that are specific, proportionate, and protect genuine confidential information or client relationships. An overreaching restraint is likely to be struck down entirely or read down significantly. A well-drafted, reasonable restraint is a much more effective protection than a broad one that courts will not enforce.