Restraint of Trade

The new Labour Court Rules, which will be effective from 17 July 2024, have, amongst others, introduced Rule 39, which specifically aims to regulate proceedings relating to the enforcement of Restraints of Trade. This inclusion clearly demonstrates that not only are Restraints of Trade prevalent in the contractual relationships between employer and employee, but they also regularly form the subject of litigation.

At its core, a Restraint of Trade agreement is intended to protect the interests of a business from employees or former employees who are privy to its trade secrets, methodologies and client connections. A Restraint of Trade agreement seeks to prevent employees from unfairly competing with their former employers when they are no longer employed by such employer through making use of confidential information or trade secrets.

This protection is generally achieved by the employee being prevented from being employed by a competitor or forming a competing business in an agreed geographical area for an agreed period of time.

When a business seeks to enforce a Restraint of Trade, the application is generally brought on an urgent basis and the party bringing such an application to Court would be required to prove that:

• the application is urgent by referring to the duration for which the Restraint of Trade is binding as well as other factors that may render the matter urgent;
• the party against whom the restrained is sought to be enforced did in fact commit a breach of the terms of the Restraint of Trade; 
• the interest that the company is seeking to protect with the restraint is worthy of protection, i.e., there is a protectable interest; and
• the restraints or limitations sought to be imposed on the former employee are reasonable and necessary in order to protect the protectable interest of the business and do not limit the employee more than what is required to achieve the objects of the Restraint of Trade.

It is also of cardinal importance that the company seeking to enforce a restraint relies upon the correct document and be certain of the specific restraint that it is seeking to enforce.

Recently, the Labour Court considered a case where two Restraints of Trade documents were signed in Planet Fitness (Pty) Ltd v Buirski & Another – (2023) 44 ILJ 819 (LC). In this case, the employee was dismissed by Planet Fitness and immediately took up employment at Virgin Active, which is a direct competitor. Planet Fitness brought an urgent application to enforce the restraint signed by the employee when he commenced employment. The restraint prohibited the employee from taking up employment with a competing business for a period of 6 months within the Republic of South Africa. During his tenure at Planet Fitness the employee signed 2 Restraint of Trade agreements with the employer; in 2014, when he commenced employment and in 2021, following a promotion. As such the parties had concluded 2 restraints of trade, being 2014 and 2021 (the 2021 restraint essentially superseding the 2014 restraint). In its application, Planet Fitness annexed the 2014 Restraint of Trade and failed to produce the latest and applicable 2021 Restraint of Trade. Planet Fitness argued that the contents of the Restraints of Trade are similar.

The Labour Court highlighted that since restraints pertains to a severe infringement of employee’s constitutional rights (in terms of section 22 of the Constitution of the republic of South Africa), employers should not approach a court and hope to justify a limitation of a constitutional right on the back of erroneous documents.

The Court accordingly found that the Applicant failed to prove the restraint covenant it seeks to enforce in that the correct restraint was not before Court and thus, Planet Fitness was not entitled to the relief it sought.

It is clear from the above that precision and attention to detail is key when bringing applications to enforce Restraints of Trade. MBA Incorporated is well suited, qualified and able to assist your organisation with this complex area of law.