Restraint of trade – enforceable contract clause or bullying tactic?

While restraint of trade agreements can serve legitimate purposes, it’s not unheard of for employers to misuse them.

Johannesburg, 10 Jul 2023
Nicol Myburgh, Head: HCM Business Unit, CRS Technologies.
Nicol Myburgh, Head: HCM Business Unit, CRS Technologies.

Many employers rely on a restraint of trade to protect their business interests when an employee leaves the company. But, given that the Constitution affords everyone the right to engage in their chosen profession and utilise their skills to earn a livelihood, are these agreements legally binding or simply a bullying tactic aimed at intentionally limiting an employee's future job prospects? 

“Non-compete clauses are usually included in employment contracts with employees who have access to sensitive intellectual property,” explains Nicol Myburgh, Head: HCM Business Unit at CRS Technologies. “Specifically intended to limit competition, they typically include provisions that restrict employees from engaging in certain activities within a specified timeframe and geographic area after they have left the company. This could be anything from working for a direct competitor, to soliciting the employer's clients or employees, and disclosing confidential information.”

But to what extent can an employer restrain a former employee, especially where the employee only has the skills necessary to perform the job which they are restrained from performing?

Restraint of trade agreements are regulated by the Contract Law, says Myburgh, which stipulates that they must be reasonable in terms of their duration, geographic scope and the activities restricted. “In other words, the intent is to safeguard the employer’s interests while respecting the rights of the employee.”

“While restraint of trade agreements can serve legitimate purposes, it’s not unheard of for employers to misuse them,” he adds. “Employers often hold greater bargaining power compared to individual employees, especially in situations where the employee relies heavily on the job for income or has limited alternative employment options.

“Employers may exploit this power dynamic and pressure employees to accept unfavourable restraints without proper negotiation or consideration. They may draft overly broad or unreasonable restraints and even threaten employees with legal action if they breach the agreement.”

Consider an instance where the employee is a software developer. Imposing a restraint that prohibits them from engaging in the entire IT industry would be considered unreasonable, but an agreement that restricts their employment solely within the employer's specific business niche, such as computer game design, may be regarded as reasonable.

Employers therefore have a responsibility to ensure that restraints of trade are reasonable, fair and compliant with applicable laws, Myburgh points out.

“Misusing these agreements as a bullying tactic is certainly unethical and in some instances, may even be unlawful. This being said, if an employee wishes to be released from a restraint, the onus lies with them to show that the restraint is unreasonable and contrary to public policy.

“Consequently, it is critical to always review any contractual agreement with your employer carefully before signing. Feel free to raise concerns and/or negotiate terms that are more equitable, and do not hesitate to seek legal counsel if you believe you are being subjected to unfair or abusive treatment,” Myburgh concludes.

For more information, go to: https://www.crs.co.za/.

CRS Technologies

CRS Technologies is a leading provider of solutions and services to the growing human capital management industry, and an authorised South African distributor of the Engage™ suite of human resource and payroll products.

Following its establishment in 1985, the Johannesburg-based company quickly found its niche in the human resources, people management and payroll sector and soon matured into the specialist of choice for blue chip organisations and SMMEs across the globe.

Today CRS is acknowledged as the most proficient international human resources and payroll company, underpinned by solutions and services that help create workplaces of inspired, engaged and rewarded employees. Our approach to market is about maximising value between employer and employee, integrated with innovative technology that unlocks human potential and grows businesses.

CRS achieves competitive advantage through its commitment to global best practice in human capital management and its drive to transform human resource departments into strategic, value-added business units, be it through bespoke software and services or shared industry insight.

For more info, go to www.crs.co.za

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