Agreements in Restraint of Trade in South African Law: A Closer Look

Agreements in restraint of trade, also known as non-compete agreements, are common in today`s business landscape. These agreements are used by employers to prevent employees from leaving the company and using the skills and knowledge gained during their employment to compete against the employer. However, in South Africa, agreements in restraint of trade are heavily regulated by law.

The purpose of agreements in restraint of trade is to protect the company`s trade secrets, confidential information, and goodwill by preventing competitors from benefiting from the employee`s knowledge and skills. These agreements essentially require the employee to agree not to compete with the company after their employment has ended.

In South Africa, these agreements are regulated by the Competition Act and the common law. The Competition Act defines a restraint of trade as any agreement between two or more parties that prevents, restricts, or lessens competition within any market. The common law, on the other hand, is the principles and rules derived from previous court cases.

Under South African law, agreements in restraint of trade are unenforceable unless they meet certain requirements. One of these requirements is that the agreement must be reasonable. This means that the restraint must be necessary to protect the employer`s legitimate interests and not be wider than necessary to protect those interests.

The reasonableness of the restraint is determined by considering the nature of the employer`s business, the employee`s position, and the duration and scope of the restraint. For example, a non-compete agreement for a salesperson may be reasonable for one year but may not be reasonable for five years.

Another requirement is that the employee must have received proper consideration for the restraint. This means that the employee must have received something of value in exchange for agreeing not to compete with the employer. This could be a bonus, a promotion, or a higher salary.

Agreements in restraint of trade can be challenged by either the employee or a third party. If an agreement is found to be unreasonable, it will be void and unenforceable. This means that the employer will not be able to prevent the employee from competing with them.

In conclusion, agreements in restraint of trade are heavily regulated in South Africa. Employers must ensure that these agreements meet the requirements of reasonableness and proper consideration. Employees should also be aware of their rights and seek legal advice if they believe that their agreement is unreasonable.