Understanding Restraint of Trade Agreements

A Restraint of Trade agreement is included in the majority of employment contracts in South Africa, yet most parties only enquire about the enforceability of clause at the conclusion of the period of employment. It is of crucial that all parties have a full understanding of the clause and its potentially far-reaching implications.

This presents a challenge to employees, particularly those with specialized knowledge and experience in small industries or those who have settled in a certain city with the intention to start or grow a family.

What is a restraint of trade agreement

A Restraint of Trade agreement (hereinafter referred to as “ROTA”) was defined by Buckley J in the matter of Petrofina (Great Britain) Ltd v Martin 1965 (2) All ER 176 as “a contract in which one party (the employee) agrees with another party (the employer) to limit or restrict his future freedom to trade with another external party, who was not a party to the employer/employee contract”.

The ROTA is used to protect a business’s protectable interest which is its confidential information which gives it a competitive edge. It was found in the L’Oreal South Africa (Pty) Ltd v Shaun Kilpatrick and Another case that employer will have a protectable interest if the employee has an intricate knowledge of the day to day operations and management of the employer’s business as well as strategies that have been implemented or that have been developed and are due to be implemented.

A ROTA is enforced by an application for an interim or final interdict. The requirements which an applicant for a final interdict have to satisfy, as set out in Setlegelo v Setlelogelo are set out in this article.

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