Effective Enforcement of Restraint of Trade Agreements in the Labour Relations Sphere

3 April 2025

In a competitive business environment, employers often rely on restraint of trade agreements to safeguard their proprietary interests, confidential information, and client relationships. These agreements can play a crucial role in protecting an employer’s business. However, it is of paramount importance that these agreements are properly structured and enforced. Challenges may arise in ensuring that such agreements are both legally enforceable and practical, requiring employers to carefully consider their position to balance their interests with the rights of employees.

The operation of restraint of trade agreements

From the employer’s perspective, a restraint of trade agreement is a proactive measure designed to prevent employees from leveraging sensitive business information for personal or competitive gain. An example of this would be an employee with access to a company’s trade secrets, client lists, or strategic plans, which could significantly harm the business if they joined a competitor or started their own venture. By imposing reasonable restrictions on post-employment activities, employers aim to mitigate such risks and protect their competitive edge.

Restraint of trade agreements provide several strategic advantages to employers, which include:

1. Protection of proprietary information - These agreements serve as a deterrent, discouraging employees from disclosing sensitive business information to competitors;
2. Preservation of client relationships - Employers can prevent former employees from poaching clients or customers, ensuring business continuity;
3. Safeguarding investments - When companies invest in the training and development of employees, restraints can help ensure that competitors do not unfairly benefit from this investment.

When properly enforced, these agreements can significantly reduce the risks associated with employee turnover and competition.

Despite their benefits, employers often face challenges in enforcing restraint of trade agreements. Our courts have consistently held that such agreements must strike a balance between the employer’s legitimate business interests and the employee’s constitutional right to fair labour practices and freedom to trade. Courts will also scrutinise whether the terms of the agreement are reasonable, both in terms of duration and geographic scope. For example, an overly restrictive agreement that effectively prevents an employee from earning a livelihood is unlikely to be upheld. Employers may also find it difficult to prove that the restraint is necessary to protect a legitimate business interest, particularly if the information the employee is alleged to have accessed is not deemed proprietary or confidential. Additionally, there is a growing trend of employees challenging these agreements on the grounds that they were unfairly imposed or signed under duress. Employers must therefore ensure that restraint agreements are clearly communicated, voluntarily signed, and reasonable in their terms.

The enforceability of restraint of trade agreements in South Africa hinges on its reasonableness. In the landmark case of Basson v Chilwan and Others 1993 (3) SA 742 (A), the court laid down the key factors for determining the validity of a restraint:

• Is there an interest of the employer deserving of protection?
• Is the employee’s post-employment conduct likely to harm this interest?
• Does the restraint go further than necessary to protect the employer’s interest?
• Does the restraint unduly prejudice the employee?

Employers seeking to enforce a restraint agreement must demonstrate the necessity and proportionality of the restrictions imposed. Failure to do so may result in the agreement being declared unenforceable.

To maximise the effectiveness of restraint of trade agreements while minimising legal risks, employers are advised to:

1. Tailor agreements to specific roles. “Blanket” restraint agreements applied across all employees may be viewed as overly broad. Customising agreements based on the role and level of access to sensitive information strengthens their enforceability.
2. Define reasonable scope and duration - restraints should only apply to regions, industries, and time frames directly relevant to the employer’s legitimate interests.
3. Engage in transparent negotiations. It’s very important to clearly explain the rationale or reasoning for the agreement to employees can help reduce disputes and improve compliance.
4. Regularly reviews of these agreements are also very important as businesses evolve, and so do the roles and responsibilities of employees. Reviewing and updating restraint agreements ensures their relevance and enforceability.

For employers, restraint of trade agreements remains a powerful tool to protect business interests and mitigate competitive risks. However, their effectiveness hinges on careful drafting, clear communication, and adherence to legal principles. While these agreements can safeguard proprietary information and client relationships, overly restrictive or improperly applied restraints risk being invalidated by the courts. By striking the right balance between protecting their interests and respecting employees’ rights, employers can ensure that restraint of trade agreements remain a viable and enforceable mechanism within the labour relations framework.