Today it is common place to find a restraint of trade in almost every contract of employment you see. It is a mechanism that is being utilised more frequently as the world of commerce becomes ever more competitive.
A restraint of trade generally prevents a party, after termination of employment, from freely working and earning a living in his/her trade or from freely engaging in the same business venture as the former employer. The restraint is generally limited in duration and to a geographical area.
It is trite that in our law we have a constitutional right to freedom of trade, occupation and profession and that for a restraint of trade to steer clear of infringing this right it will need to be reasonable.
Generally, it can be said that when one determines whether a restraint of trade is reasonable, they will have regard to the following: the nature of the activity sought to be restrained, the purpose of the restraint, whether there is a protectable interest, the duration and area of the restraint as well as the bargaining positions of the parties.
However, in a recent case a further hurdle was placed before an employer seeking to restrain an erstwhile employee. In Megafreight Services (Pty) Ltd Bezuidenhout and Another, a 2019 judgment in the Labour Court, it was held that the exceptio non adimpleti contractus could be raised successfully by a former employee wishing to defend herself from being restrained. This means that when an employer tries to enforce the restraint of trade against the former employee, the employee can simply defend him/herself by showing that the employer has not performed in terms of its own obligations under the contract of employment.
A restraint of trade does not exist in isolation and it is usually contained in a contract of employment or an agreement to which there are reciprocal obligations.
The exceptio non adimpleti contractus is a defence that can be raised in the case of a reciprocal contract. The essence is that the party raising the exceptio (exception) can withhold their own performance, for example their undertaking to not join a competitor, and defend the claim of the employer which seeks to restrain them from taking up employment with the competitor until the employer has fulfilled all of its obligations under the contract of employment.
In the Megafreight Services case, the employer who sought to restrain the erstwhile employee, had failed to pay to the employee commission in terms of the contract of employment between the employee and the employer. The court found that given the above the employer did not have a clear right to the relief and therefore dismissed the application.
The court stated that: “As long as something remains which has to be performed by the applicant (the employer), the respondent (the employee) may raise the exceptio non adempleti contractus as a defence to any attempt by the applicant to enforce the restraint”.
Therefore, any employer seeking to enforce a restraint should be mindful of their obligations under the contract in which the restraint is couched and ensure that there are no reciprocal obligations that will derail any attempt at a successful restraint.
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