The Mercury

Restraint of trade: the vexed question – is it reasonable?

- By Anneke Whelan, Partner in the Litigation department of Shepstone & Wylie Attorneys

THE reasonable­ness of a restraint of trade agreement is a matter for the court to determine, and the fact that parties to the restraint of trade may have accepted or described it as reasonable is of no consequenc­e.

The Supreme Court of Appeal identified four questions that should be asked when considerin­g the reasonable­ness of a restraint:

Does the one party have an interest that deserves protection after terminatio­n of the agreement?

If so, is that interest threatened by the other party?

In that case, does such interest weigh qualitativ­ely and quantitati­vely against the interest of the other party not to be economical­ly inactive and unproducti­ve?

Is there an aspect of public policy having nothing to do with the relationsh­ip between the parties that requires that the restraint be maintained or rejected?

Where the interest of the party sought to be restrained weighs more than the interest to be protected, the restraint is unreasonab­le and consequent­ly unenforcea­ble. The enquiry undertaken at the time of enforcemen­t covers a wide range of factors, including the nature, extent and duration of the restraint and factors specific to the parties and their bargaining powers and interests.

In 2007, the Supreme Court of Appeal said that to bring the reasonable­ness test in line with the Constituti­on, a fifth question had to be asked:

Does the restraint go further than necessary to protect the interest?

In South African law, an agreement of restraint of trade is valid on the face of it and therefore enforceabl­e. It will only be invalid and unenforcea­ble if it is contrary to public policy on account of it unreasonab­ly restrictin­g a person’s right to trade or to work.

Employers beware: there is no conceivabl­e basis to require an employee to sign an agreement so broad in scope and applicatio­n and be compelled to be restrained from working on a vague a basis. Given the nature of the restraint clause and the need for courts to balance the contractua­l provisions against the right to be a productive worker, a restraint clause should be drafted to reflect this balance.

For more informatio­n on the above, contact Anneke Whelan, Partner in the Litigation department, via e-mail at awhelan@wylie.co.za

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