Restraint of trade agreements following dismissal or retrenchment
Restraint of trade agreements (referred to as “agreement” below) is becoming more frequent among employers in all labour markets. These agreements protect the interests of the employer, but they usually are detrimental to the employee.
To begin with, it is important to point out that these agreements do not form part of labour law but rather fall under contract law. Consequently, in any dispute the fairness and enforceability of the agreement will be considered rather than the process leading up to the agreement (reasons for termination of service).
Courts tend to determine whether the agreements are fair. In the appeal court case of Magna Alloys and Research SA (Pty) Ltd v Ellis it was found that an agreement will be valid unless it can be proved that the agreement is unfair. The court laid down the following principles:
- Agreements that are not in the public interest cannot be enforced, and an agreement that curtails a person’s freedom of trade is not in the public interest and therefore is unenforceable if enforcing the agreement would harm the public interest.
- It is in the public interest that agreements entered into freely have to be adhered to, but it is also in the public interest that everyone should have freedom of trade. It will not be in public interest where restriction on a person’s freedom of trade is unfair.
- The question of whether an agreement is enforceable therefore depends on the question of whether enforcing the agreement will be in the public interest.
In Ball v Bambalela Bolts (Pty) Ltd and Another it was also determined that the fairness of an agreement depends on a value assessment between the responsibilities of parties to adhere to their contractual obligations as opposed to the right of a person to be able to freely decide what occupation to follow. The agreement will be enforceable only if the employer has a protectable right that should be protected by law. The employer cannot use an agreement simply to prevent the employee competing with him.
In the appeal court case of Labournet (Pty) Ltd v Jankielsohn and Another the court found that by considering the facts, the enforceability of the agreement would have penalised the employee (which should not be the purpose of the agreement) and the employee would have further been prejudiced financially, especially in the current weak economy. The court stated that the employer did not submit any evidence that there was a protectable interest. This in spite of an agreement that stipulated that the enforceability of the agreement was valid notwithstanding the way the relationship between the employer and the employee would be terminated.
The general opinion is that the courts focus on the fairness and the enforceability of agreements and not on the way the relationship between employer and employee was terminated.
Where the employee cannot prove that the agreement was invalid or unenforceable by applying the above principles, the agreement will be enforceable in spite of the way the relationship between the employer and the employee was terminated.