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HR 101 – Restraint of Trade – Part 1

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Please note that this pertains to South African Labour Relations and Best Practice requirements.

There has been a great deal of speculation about “Restraint’s of Trade” in an Employee’s Letter/Contract of Employment.

Here are some of the facts:-

• Our constitution states that we have a right to work.

• The courts will only enforce a “Restraint of Trade” agreement on a case-by-case basis. Each case is looked at specifically and individually.

So the bottom line is that there is no hard and fast rule.

Here’s the story.

Our favourite protagonist, Mike works as a program developer in ABC IT Solutions. Mike has a contract of employment that has a restraint of trade clause that specifies that Mike cannot work for a competitor for a period of 24 months.

Mike, after working for the company for a period of 5 years, is offered a senior position, with a whole lot of additional items in his package, with a competitor (let’s call them XYZ IT Solutions). ABC IT Solutions refused to even discuss matching what was offered to Mike and Mike decided to leave and join XYZ IT Solutions. ABC IT Solutions decided to invoke the Restraint of Trade clause and Mike is presented with documents to appear in court.

Here’s the thing – Mike is changing employment to better himself, he is not changing employment to transfer company skills and to transfer information to his new employer.

In this instance, Mike already had his skills when he joined ABC IT Solutions, therefore his skills and “Know-How” are vested in himself rather than in ABC IT Solutions.

Furthermore, his contract of employment is not specific at all – Mike has not been stopped from working in a specific demographic area or geographic area but rather has been stropped from working anywhere for a period of two years.

XYZ IT Solutions have their own client base and if you have to view the kind of product or service that they sell, their target market is similar but not exactly the same as that of ABC IT Solutions.

Mike’s ability to program software in direct response to the client’s needs and specifications, means that he is not taking any trade secrets or confidential information with him – he is using his own knowledge and Intellectual Property. The knowledge that Mike has is quite generic to the trade, his ability to interpret the client’s request however and his ability to provide software that solves the client’s problems at an affordable price, is unique to himself.

In this case, Mike won his case as the court decided that:

• The restraint of trade was too broad and not specific. To uphold it would mean that Mike would not be able to work in his profession, anywhere in the world, for a period of two years.
• The knowledge and skills that Mike has, are his own and do not, in any way constitute any kind of trade secrets or confidential information that may belong to the Company.
• ABC IT Solutions could not isolate what its Intellectual Property was or even differentiate between what was theirs or what belonged to Mike.

Next time we will look at when a Restraint of Trade was upheld.

Part 2