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  • Writer's pictureRikus Scheepers

Restraint of Trade: hands off our beans!

So you’ve peaked at your job and it’s time to move on to bigger and better things. You have a great offer from the competition, but what about that restraint of trade in your employment contract? Is it enforceable?

A restraint of trade is regulated by the law of contract. This means that you cannot run to the CCMA to enforce a restraint, or to have it declared unenforceable. If you decide to take that next step without being serious about your restraint of trade, you will probably start on the back foot by defending a lawsuit instituted by your previous employer.

So what now? Must you suddenly become a hairdresser after being an accountant for more than half your life? The typical lawyer's answer will be something like “not necessarily” or “technically speaking these restraints are rarely enforced”. I wish it was that simple. Truth be told, it is not.

Let’s open the can of worms by giving you the “what”, “why” and “how” of a restraint of trade.

What is a restraint of trade?

A restraint of trade restricts the work you can do in competition with your previous employer when that employment relationship ends.

This definition is a little vague, but most restraint of trade provisions are.

Basically, your employer has clients and interests that it wants to protect, and it doesn’t want you to take it somewhere else.

But you have given everything to the company, now they want to keep you hostage. Why?

Why do companies ask you to sign a restraint of trade?

Well, most of us put a lot of effort into our work, spend most of our lives doing it, and lose most of our hair thinking about it. But there is another side to the story.

Like John Snow, you knew nothing when you started out. You were just a bastard who could swing a sword. You didn’t know how to ride a dragon, let alone lead an army. You didn’t have Sam’s counsel and you weren’t Lord Commander.

The Night’s Watch spent a lot of time and resources teaching you how to best serve your purpose. You gained invaluable experience; all the while learning its secrets. Now you want to join the Wildlings with those secrets. Luckily the Night’s Watch made you swear an oath of loyalty, which is basically a restraint of trade, but punishable by death.

How does a restraint of trade work?

Now we have to get serious for a bit. The Constitution gives you the right to choose your profession freely, subject to regulation by other laws. A business also has a right to protect its magic beans, being its trade secrets, client-lead details etc. A restraint is there to protect the company’s magic beans. We have to balance your interests with those of your employer to see if a restraint of trade will be enforced.

So, does your right to work outweigh the potential damage your employer could suffer if you leave the company and compete with it yourself, or by working for the competition? The restraint will probably be enforced if it is reasonable to expect you not to work freely in your profession to protect the company's magic beans,

I tried my best to quickly list the elements that you must look at when asking if a restraint of trade is reasonable:

  • The duration of the restraint: are you restrained from working in your profession for all eternity, or are you restrained for 6 months?

  • The geographical area in which you are restrained: Are you restrained from working for a competing company on the moon, or are you restrained from competing with your previous employer in the same town?

  • Can you earn a living without competing with your previous employer? The law does not expect an experienced accountant to suddenly be a hairstylist.

  • Did you receive a restraint payment? if the company pays you not to compete with it, why would you?

When you look at extreme examples, it is clear where the boundaries of reasonableness lie. In normal situations, it won’t be that clear and we will have to unpack the elements and apply them to your situation.

If you are an employee receiving millions from a leading and well-known company, it will be more reasonable to restrain you as you will be able to give its magic beans to a competitor.

If you work for a small company, earn a smaller salary, and do not have access to the company’s magic beans, it will be unreasonable to tell you that you can’t be involved in the bean business elsewhere.

No harm no foul?

You saying that you won’t spill the beans is not enough. Usually, there must only be an opportunity for you to spill the beans, or a threat of you doing it.

Read your employment agreement and don't just assume that a restraint of trade won’t be enforceable against you. You may not spend much time to understand the restraint you sign, but the law presumes that you do.

At least wait until you have had the opportunity to discuss your restraint with us. Don’t let Stockholm syndrome prevent you from growing your own beanstalk, but also don't grow your beanstalk using someone else's beans.

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