Restraint of trade: is this still enforceable in the current climate?

by | Sep 22, 2021 | Employment law, Publications | 0 comments

In the recent case of Bearings International v Veeradu, an unreported case from the Durban Labour Court, a matter was heard on 18 May 2021, and judgement delivered: 30 June 2021, the judge unpacked the enforceability of restraint trade in a Covid-19 economy.

A restraint of trade clause is a provision in the employment contract that stipulates that an employee is restricted geographically to work in the same industry or competitive environment.

This clause aims to protect the employer’s proprietary interests, for example, confidential information and client details, which may benefit a company’s competitor unlawfully or unfairly.

Facts of the case

In this matter, the Respondent was employed by the Applicant between the years 2015 to 2021. The Respondent acted as a Branch Manager in the Kwa-Zulu Natal division.

In January 2021, the Applicant consulted with the Respondent in Section 189 (1) of the Labour Relations Act 66 of 1995 (“LRA”). As a result, the Respondent requested the Applicant to release him from the restraint of trade contained in his contract that placed a 12-month restriction on the geographic location of his work opportunities. The Applicant rejected this based thereon that the Respondent is a senior employee with access to confidential information and has extensive knowledge of the workings of the business.

A month following the parting of ways, the Respondent visited the Applicant’s place of business and informed it that the Applicant’s competitor, Bearings 2000, now employs him.

Judgement

Considering the application takes longer than 12 months to be heard by a judge in the Labour Court, the restraint (only valid for 12 months) would be moot, the Court heard the application on an urgent basis.

The Court indicated that the “Principle of Reasonableness” would be the top consideration when they need to preside over the restraint of trade clauses. The Court also considers whether an interest is worthy of protection, also known as “Protectable Interest”. In addition, the likelihood of the Respondent will act on this knowledge. Finally, the Court found that the possibility of prejudice was evident in this case, as the Respondent did not illustrate his position not to use the information.

The last component is the quality, and the quantity of the interest weighs. The Court stated that finding a job has become a challenge due to the economic climate, especially pandemic. Due to this fact, the Court found the restraint to be unreasonable and, consequently, unenforceable.

Conclusion

Restraints of trade clauses and electing enforcement is not a straightforward matter. The enforceability of a restraint of trade agreement involves making a value judgment to decide whether or not the restraint is enforceable. The employer should also take into consideration circumstances surrounding the termination of the employment. There are wildly divergent views on the restraint of trade agreements during the Covid-19 era coming from the Labour Court. We will continue to watch the developments in law surrounding the issue and issue updates in due course.

Contact SchoemanLaw for your labour and employment law needs.

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