I guess there are some arguments that cannot be settled with hard and fast rules - one of these is the good old Restraint of Trade clause in employment contracts.Firstly, it must be noted that restraint of trade agreements are not regulated by Labour Law. These agreements are regulated by the Law of Contract. The circumstances surrounding every restraint of trade clause are different - simply because the employers are involved in different industries, and have different assets, trade secrets etc that need to be protected.
Therefore, no hard and fast rules can be laid down - as indeed is the case with many aspects of the employment relationship - circumstances are different, and each case must be examined separately.
In a recent matter involving a restraint of trade agreement – Dayandren Reddy (appellant) and Siemans Telecommunications (Pty) Ltd (respondent). The essence of the agreement was that the appellant was prohibited from taking up employment with his employer's competitor. The appellant was employed by Siemens, and upon his resignation from that company he took up employment with a competitor – Ericsson.
His restraint agreement with Siemens prohibited him from doing this for a period of 1 year after leaving the employment of Siemens. In the agreement, the appellant undertook not to disclose trade secrets and confidential information belonging to Siemens.
In interdicting Reddy - the appellant - from taking up employment with Ericsson, the court held that it was not necessarily to find that Reddy would actually use the trade secrets and confidential information in his newly employment - but that it was sufficient if he could do so. The court held that the restraint was aimed at preventing a person with the knowledge of confidential technologies, obtain as a result of these employment, from using them to the detriment of the employer.
That really is the essence or purpose of any restraint of trade agreement. It was common cause that Siemens and Ericsson are competitors. The appellant stated that the training he underwent while employed by Siemens would be of no use to Ericsson and that his employment with Ericsson would not involve any of Siemens customers in South Africa, and in fact that he would not be working with any of Siemens customers in South Africa, and that therefore the restraint agreement was unreasonable.
The court held that a restraint of trade agreement is enforceable unless it is shown to be unreasonable - and the onus of showing that it is unreasonable rests upon the person alleging it. It was stated that two principal policy considerations must be considered in determining the reasonableness of a restraint, the first being that of public interest, which requires that parties should comply with their contractual obligations.
The second is that all persons should, in the interests of society, be productive and be permitted to engage in trade and commerce or the professions, in order to earn a living. Questions that should be asked when considering the reasonableness of a restraint are firstly does the one party have an interest that deserves protection of the termination of the employment, and if so, is that interest threatened by the other party?
It was found that the agreement did not preclude Reddy from making use of his own skills and abilities which are ' a part of himself.' The restraint placed a limit on Reddy from being employed by a competitor. Therefore, it was found, that Reddy is restrained only in the choice of his employer for a limited period. The restraint did not prevent him from obtaining employment - it only restrained his choice of employer.
The restraint did not affect his employment elsewhere and did not prevent him from engaging in the employment he was trained for. Therefore, the restraint did in fact have limited restrictions. It was found that Reddy is in possession of confidential information in respect of which the risk of disclosure by his employment with a competitor was obvious. The judgement stated that it is not that the mere possession of knowledge is sufficient to enforce a restraint of trade, but that Reddy would be employed in a concern which carries on the same business as his previous employer, and he would be employed in a position similar to the one he occupied with Siemens.
It stated further that it was obvious that his loyalty would be to his new employers, and it is sufficient that he has the opportunity to disclose confidential information at his disposal - he does not actually have to disclose it, it is sufficient that he has the opportunity to do so. The fact that the opportunity exists poses a risk to Siemens, and the intention of the restraint was to relieve Siemens of precisely this risk of disclosure.
The court found that in the circumstances, the restraint was neither unreasonable nor contrary to public policy. The restraint was upheld. From the above, it can be seen just how complex these matters can be. Employers should be aware that a restraint agreement is not a simple thing to compile - and it just as this restraint decision went against the appellant, it could just as easily have gone the other way.
Employers would be wise to consult an attorney who is expert in these matters, in order to ensure, as far as possible, that any restraint clause in contracts of employment will stand up when tested in Court.
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