{"id":3304,"date":"2021-04-25T19:19:07","date_gmt":"2021-04-25T17:19:07","guid":{"rendered":"https:\/\/dotnewsconnect.co.za\/law\/?p=3304"},"modified":"2021-04-28T10:51:39","modified_gmt":"2021-04-28T08:51:39","slug":"companies-are-restraints-of-trade-valid-in-a-time-of-covid","status":"publish","type":"post","link":"https:\/\/dotnewsconnect.co.za\/law\/2021\/companies-are-restraints-of-trade-valid-in-a-time-of-covid\/","title":{"rendered":"Companies: Are Restraints of Trade Valid in a Time of Covid?"},"content":{"rendered":"\n

\u201cFor him to be forced out of a career of choice to start working in a different field at a time when many businesses are closing down, retrenchments and lay-offs being commonplace and individual[s] doing everything possible to survive and cope with the health and economic devastating effects of the covid 19 pandemic, is plainly unreasonable and contrary to public policy and constitutional values\u201d (extract from judgment below)<\/p><\/blockquote>\n\n\n\n

Consider this unhappy (but not unlikely) scenario: For whatever reason, you part ways with your fellow director\/shareholder (or perhaps a key employee), who goes off immediately to join (or found) the opposition. <\/p>\n\n\n\n

Now you have a major problem \u2013 he\/she was privy to all your trade secrets and confidential information and they are now being used to compete against you. Your business could be crippled.<\/p>\n\n\n\n

Using the time-tested restraint of trade clause<\/h6>\n\n\n\n

An effective and time-tested way of protecting your business from such a risk is to insist on all directors, shareholders and key employees signing restraint of trade agreements from the start. Such restraints are usually included as clauses in employment contracts and\/or (less commonly) in shareholder agreements. <\/p>\n\n\n\n

However, it is vital to word the restraint clause correctly if it is to stand up to legal scrutiny.  Although our law has long recognised the right of businesses to enforce this type of contract so as to protect their \u201cproprietary and protectable interests\u201d, and although in general we are held by the law to the agreements that we conclude, there is always a balance struck with the employee\u2019s constitutional rights to be economically active and to earn a living.<\/p>\n\n\n\n

As the High Court put it recently: \u201cIt is settled law that restraints of trade are valid and binding and, as a matter of principle, enforceable unless, and to the extent that, they are contrary to public policy because they impose an unreasonable restriction on the former employee\u2019s freedom to trade or to work. It is also settled that the onus of establishing that the restraint of trade is unreasonable falls on the former employee.\u201d<\/p>\n\n\n\n

A common mistake \u2013 going \u201ctoo wide\u201d<\/h6>\n\n\n\n

The most common mistake businesses make is to word the restraint of trade too widely (in one or more of type of activity, geographical area or time period). No matter how tempting it may be to do so, that is courting disaster. The wider the clause is, the greater the chances of a court holding it either totally invalid or only partially enforceable. Rather word your clauses tightly and defensibly.<\/p>\n\n\n\n

Two recent High Court decisions illustrate both this principle, and the potential impact of the Covid-19 pandemic on our courts\u2019 approach to the questions of reasonableness and time periods.<\/p>\n\n\n\n

The impact of the pandemic on the \u201creasonableness\u201d test<\/h6>\n\n\n\n