Restraints of Trade

Written by Francesca Guy

Restraints of trade, also known as non-compete clauses, are commonly used in employment contracts and commercial agreements to protect businesses from competition. However, their enforceability has been the subject of much debate and litigation.

Restraints of trade are regulated by the Competition Act 89 of 1998, which prohibits anti-competitive practices. This means that any restraint of trade clause that has the effect of lessening competition or preventing new businesses from entering the market is considered invalid and unenforceable.

Despite this, restraints of trade can be enforceable in certain circumstances. For example, if the restraint is reasonable and necessary to protect the legitimate business interests of the employer or the parties to a commercial agreement. Legitimate business interests can include confidential information, trade secrets, customer relationships, and goodwill.
In determining whether a restraint of trade is reasonable, the courts will consider a number of factors, including the duration and scope of the restraint, the nature of the business, and the level of skill and expertise of the employee or party subject to the restraint. The courts will also consider the public interest and the potential impact on competition in the relevant market.

It is important to note that even if a restraint of trade clause is found to be reasonable, it will only be enforceable if it is clear and unambiguous. The courts will not enforce a restraint that is vague, overly broad, or uncertain.
Furthermore, restraints of trade must be limited in time and scope. A restraint that prevents an employee or party from working in a particular industry or geographical area indefinitely will be deemed unreasonable and unenforceable. Similarly, a restraint that prohibits an employee or party from working in any capacity for a competitor is likely to be considered overly broad and unenforceable.

In conclusion, restraints of trade are enforceable, but only if they are reasonable, necessary, and limited in time and scope. Businesses must ensure that their restraint of trade clauses are carefully drafted and not in contravention of the Competition Act. Employees and parties subject to restraints of trade must also be aware of their rights and seek legal advice if they believe that their restraint is unreasonable or unfair