“The legal principles, as I understand them, do not confer on me the powers of Father Christmas. I cannot rescue the un-rescuable.” (Quoted in the judgment below)
We all want loyal, competent staff who remain motivated to stay with us in the long term, but the reality is that a degree of employee churn is always inevitable.
Imagine then this scenario – a key employee (someone senior, a specialist, or perhaps even a partner or director) is fired or leaves you. They take with them intimate knowledge of your business. They know all your trade secrets, your pricing processes, your marketing strategies, and all your trade connections. Plus, they’ve built up client relationships and credibility in your industry while employed by you.
If they now decide to start up their own business in opposition to you, or if they take their insider knowledge to your competitors, you have a real problem.
That’s why it’s essential to consider, right up front when you’re hiring someone and drawing up their employment contract, whether you need to protect your business from this sort of unfair competition. That’s where the tried-and-tested restraint of trade clause comes into play. It’s as easy as including one in your employment contract, and making sure that your new hire is fully on board with it. Or is it?
The basic requirements for legal validity
As a starting point, our courts are cautious about curbing anyone’s constitutional right to be economically active and to earn a living.
So, while we are all generally held to the agreements we make, and while restraint clauses have long been recognised in our law as a legitimate way for businesses to protect their interests from unfair competition, our courts are unlikely to enforce restraints unless they are:
- Reasonable: You cannot impose an unreasonable restriction on your former employee’s freedom to trade or to work. Go too wide on time period, geographic area or scope, and your clause could be held wholly or partially void.
- Protective of a legitimate business interest: You must have a real commercial interest in imposing the restraint, you can’t use it just to block competition.
- Not contrary to public policy: There must be no other aspect of public policy weighing against the clause.
Each case will be judged on its own facts and merits, with the court balancing your rights against those of your former employee in a bid to ensure fairness to both of you.
As a starting point, make sure that your clause isn’t “void for vagueness”, or you could end up in the same position as the employer we discuss below.
Too vague to enforce, and no Father Christmas to the rescue
An employer, providing physiotherapy services to two major hospitals in the Umhlanga area of KwaZulu-Natal, employed a senior physiotherapist in January 2023. Eight months later she resigned.
The restraint of trade clause in her agreement was a particularly terse one. Headed “15. Trade Restriction”, it read simply: “2 year 8km restriction in event of termination / expiry of Contract.”
When the employer tried to enforce this clause, the High Court refused, pointing out that it was “lacking in substance” and contained no indication of:
- A definite commencement date for the two-year period
- What the “8 km restriction” referred to
- What exactly was restricted
- What interests it sought to protect
What’s more, it contained no mention of the two particular private hospitals which the ex-employee was not to practice at. The Court refused the employer’s request to “read in” more wording to the clause to remedy its vagueness and lack of detail, quoting from another High Court decision: “the legal principles, as I understand them, do not confer on me the powers of Father Christmas. I cannot rescue the un-rescuable.”
It also warned against the trend for smaller businesses to cut corners by going the “DIY contract” route: “SMME businesses are reluctant to seek advice from attorneys, and less so to employ attorneys to prepare important legal agreements. This pattern, fuelled undoubtedly by the rising cost of legal charges, often results in unforeseen circumstances by the time the matter reaches a litigious stage”.
That’s putting it mildly – defective restraint clauses like this one literally aren’t worth the paper they’re written on. A properly drawn clause is essential, and we’re here to help.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.
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