Legal Matters - Balancing Progress and Protection

How Restraint of Trade Safeguards South Africa's Workforce and Innovation

By Jessie Taylor

In a fast-paced, competitive economy such as South Africa’s, where knowledge and intellectual property often determine an organisation’s value, the concept of restraint of trade remains a cornerstone of contractual employment. Designed to protect businesses from unfair competition and the leakage of proprietary information, restraint of trade clauses continue to be tested against the constitutional right to freedom of employment.

Striking a balance between protecting legitimate business interests and upholding an individual’s right to work is one of the most nuanced tasks within South African labour law. These clauses—widely used in both the public and private sectors— require careful drafting, regular review, and, increasingly, judicial interpretation.

The Legal Foundation Of Restraint of Trade

In essence, a restraint of trade clause is a provision in an employment contract that limits an employee’s ability to compete with their former employer after leaving their job. This can include restrictions on working for a rival, starting a competing business, or soliciting former clients for a specific period and within a specific geographic area.

Historically, such clauses were viewed with scepticism. However, since a landmark in 1984, South African courts have shifted their perspective. The case established the principle that restraint clauses are presumed valid unless proven unreasonable and contrary to public policy.

In other words, employees must now demonstrate why a restraint is unfair or overly restrictive. This reversal of the burden of proof reflects a strong judicial inclination to uphold contractual freedom, but not at the expense of constitutional rights - particularly the right to work as enshrined in the Constitution.

The primary legal test for the validity of a restraint of trade involves four essential considerations:

• Is there a protectable interest?

• This could include confidential information, client connections, trade secrets, or unique business methods.

• Is that interest being prejudiced?

• Would the employee’s new role jeopardise these interests?

• Does the employer’s interest outweigh the employee’s right to work?

• A fair weighing of competing rights.

• Is enforcement contrary to public policy?

• Would enforcing the clause unduly harm the economy or an individual’s career?

These criteria have allowed courts to apply a flexible approach, often adapting to context, such as seniority of the employee, the industry involved, or whether compensation was provided during the restraint period.

A Balancing Act

A common misconception is that any restraint clause is enforceable if signed. In reality, courts scrutinise scope, duration, and geographical limits.

While restraint clauses are more common in private sector contracts - especially in technology, finance, and sales - public sector employers are also increasingly turning to them. Roles involving sensitive data, policy formulation, or technical innovation may warrant restraint provisions to prevent undue political or commercial exploitation after an employee exits.

To ensure a restraint is enforceable, employers— especially in the public sector —should observe the following:

• Be specific: Identify the exact interest being protected. Avoid vague terms like “confidential information” unless such information is clearly defined.

• Set reasonable limits: Timeframes should reflect the sensitivity of the information or relationships involved. Six to twelve months is typical.

• Geographic clarity: Only restrict areas where the employer genuinely conducts business.

• Review regularly: Roles evolve, and so should the clauses that govern them.

• Consider compensating the restraint: While not legally required, paying the employee during the restraint period can strengthen the enforceability of the clause.

From the employee’s perspective, restraint clauses are serious undertakings that should never be signed without understanding their implications.

However, the public sector faces unique challenges. Any restriction must consider transparency and the public interest. Moreover, because taxpayers ultimately fund salaries and public projects, any restraint must be proportionate and serve a defensible policy objective.

Should an employer wish to enforce a restraint, the process usually involves applying to court for an interdict (injunction) to prevent the former employee from engaging in prohibited activities. Importantly, employers must act swiftly when a breach occurs. Delays in enforcement weaken the argument that the restraint protects urgent and valuable interests.

Ultimately, restraint of trade clauses operate at the intersection of contract law, constitutional rights, and labour relations. They remind us that in a democratic society, freedom of contract cannot override the right to dignity and economic participation.

This legal terrain is neither black nor white, and as the economy becomes more complex, restraint of trade litigation is likely to increase. Employers in both the public and private sectors would be wise to treat restraint clauses not just as contractual boilerplate, but as strategic, legally sensitive instruments that require nuance, clarity, and fairness.

Sources: Bowmans Law | DotNews | Labour Guide | Pagel Schulenburg