Understand job contract before signing
The high unemployment rate has pushed many job seekers to accept any job. They rarely read the fine print in modern employment contracts.
But they should. In recent times it has become common for employment contracts to contain restraint of trade and confidentiality clauses. Unwittingly, employees sign agreements that remain enforceable long after the employment relationship ends.
So what is restraint of trade, and is it fair in the current economic and job climate? The purpose of a restraint of trade clause is to prevent former employees from competing with their previous employers.
They are general contracts governed by common law, and essentially restrict freedom of trade in a specified area, profession and period. These clauses have been around for some time but have become extremely popular in the current volatile skills market.
If you are dismissed, retrenched, resign or your contract terminated for any reason whatsoever, including a mutual separation, restraint of trade clauses generally remain enforceable, even after your employment has ended. To a regular person these clauses often look like standard contract stuff, and may therefore be overlooked when signing contracts. That is, until you find a new job.
Human resources trend reports indicate that 72% of South Africans leave one job to go to another job where they will perform the same or similar duties or functions. The devastation sets in when your previous employer approaches the courts to interdict your new employment on the basis of a restraint of trade agreement. At that point the new employer could be compelled to terminate the employment and/or end any business arrangement.
These clauses have been found to successfully limit, and in some cases completely prevent, employees from partaking in any form of economic activity similar to their previous job. But not always. The courts recently considered the validity of restraint of trade agreements in Oomph Out of Home Media (Pty) Limited v Brien and another (2021). The high court ruled that it would be unreasonable and contrary to public policy to uphold a restraint of trade during the Covid-19 pandemic.
“From March 2020 till the next foreseeable future the economic world has been hard hit by the advent of Covid-19. Many people lost their jobs and unemployment has risen to uncontrollable levels, leaving families destitute ... Finding a job at this time is notoriously difficult. In the circumstances, the restraint should be rejected.”
In my opinion this was a fair judgment that considered the legal, political and economic circumstances of the country and the effects of restraint of trade on ordinary South Africans during a pandemic. However, in Bulldog Abrasives
Southern Africa (Pty) Ltd v Dan Llewellyn Davie and another (2021) the labour court considered the approach adopted in Oomph Out of Home Media and held that the decision was “clearly wrong”. More importantly, the labour court held that “to suggest that enforcing a restraint in a Covid19 situation is contrary to public policy is to stretch the meaning of public policy beyond what it is supposed to be”.
The labour court judgment set aside the principle established in Oomph Out of Home Media. Restraint of trade agreements are therefore valid and remain enforceable. The court also found in CP De Leeuw Johannesburg (Pty) Ltd v Wheelwright (2022) that settlement agreements do not automatically terminate restraint of trade agreements.
The law aside, are restraint of trade agreements the right thing to do? Morally, I believe they should be judged according to the circumstances of each case. Unfortunately, they are often used as a talent retention strategy and serve the sole purpose of limiting employees from exploring other opportunities outside their current employer.
Despite the associated costs, employees may still approach the courts on an urgent basis to contest the validity and reasonableness of such restraint of trade clauses, but prevention is better than cure. Read your contract thoroughly before signing it.