What is a restraint of trade?
A restraint of trade is a clause, usually in an employment contract, that limits what an employee may do after leaving, such as working for a competitor, starting a competing business or approaching the employer’s clients, within a set area and period. In South Africa it is governed by the common law as developed by the courts, not by a specific statute.
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Schedule a strategy callHow courts decide whether it is enforceable
Since Magna Alloys and Research v Ellis (1984), a restraint is valid and enforceable unless it is unreasonable, which makes it contrary to public policy. The employee who wants to escape it must show that it is unreasonable.
In Basson v Chilwan (1993), the Appellate Division set out the questions courts ask. Does the employer have an interest that deserves protection after the employment ends? Is that interest threatened by the employee? Does it outweigh the employee’s interest in being economically active and productive? And is there another public policy reason to enforce the restraint or not? The Supreme Court of Appeal confirmed in Reddy v Siemens Telecommunications (2006) that this approach is consistent with the right to choose a trade, occupation or profession in section 22 of the Constitution.
What counts as a protectable interest
Courts protect two main kinds of interest: confidential information, such as trade secrets, pricing and business plans, and the customer connections an employee builds while working for the employer. A restraint that only stops someone from competing, without protecting such an interest, is unreasonable. Courts also check that the area and period are no wider than needed, and they can enforce a restraint in part, for example for a shorter period or a smaller area.
Unlike several European countries, South Africa does not require the employer to pay the employee during the restraint period. A restraint should be in writing and fit the role: a junior employee with no access to clients or confidential information is unlikely to be bound by a wide restraint. Employers usually enforce one by applying to court for an interdict.
Restraints when you hire through an EOR
With TopSource as your Employer of Record in South Africa, we agree with you which protections the role needs, such as confidentiality, non-solicitation of clients or a restraint of trade, and draft them into the employment contract with the reasonableness test in mind.
Frequently asked questions
Are restraints of trade enforceable in South Africa?
Yes, unless they are unreasonable. The employee has to show that the restraint is unreasonable, and the court decides when the employer seeks to enforce it.
How long can a restraint of trade last?
There is no fixed maximum. A court looks at whether the period and area are reasonable for the interest being protected, such as how long confidential information stays useful or client relationships stay with the employee.
Does an employer have to pay for a restraint of trade in South Africa?
No. South African law does not require payment during the restraint period. Whether a restraint is enforceable depends on whether it is reasonable.
Related terms in South Africa
- Temporary Employment Services (South Africa)
- Section 198B Fixed-Term Rule (South Africa)
- BCEA Earnings Threshold (South Africa)
- Retrenchment (South Africa)
- Family Responsibility Leave (South Africa)
- Sick Leave Cycle (South Africa)
- Employment Equity Act Reporting (South Africa)
- B-BBEE Scorecard (South Africa)
- Critical Skills Work Visa (South Africa)
- POPIA and Employee Data (South Africa)
- EMP201 Monthly Return (South Africa)