restraint of trade

Date: Jun 30, 2010

restraint of trade

Date: Jul 2, 2010

DONT SIGN ANYTHING!! You can absolutely refuse. A restraint of trade is signed at the START of your employment contract NOT AT THE END. You can absolutely refuse to sign and they can do nothing about it. If they even attempt to sue you, your defense is that you have not signed a Restraint of Trade,a nd that they maliciously tried to force you to sign one at the END of your employment contract. They are trying to create a NEW contract with you at the end of your employment. DONT SIGN ANYTHING. You are ending your empoyment contract with them, not starting a new one.

Date: May 12, 2015

Hello, this is an old thread but I kinda have a similar problem. I worked for company, then got promoted and got given 10% shares. When I left after 3 years, they had me sign a sale of shares agreement and within it stated: not allowed to compete within sales transaction. I am now producing a product similar to what I used to.. What are my rights, as this is my only source or income..

Date: May 12, 2015

Look at the terms of the deed of sale of shares. It might not necessarily relate to restraint of trade, but rather only to the purchase and sale of shares in that company.

Furthermore, an actual restraint of trade cannot operate in perpetuity. It must be limited in terms of scope, location and duration.

LP

Date: May 12, 2015

I see, it is for 2 years, however, they seem to be distraught over the fact that I worked for them, now opening my own business doing something similar. They supposedly feel that I have taken recipes from them to make my own success, but it was my job to develop recipes... So I developed my own for my new company.. Would I be in troube since ive signed an agreement that also states that company information is to be kept secret? ( in very short words that is)

Date: May 12, 2015

Your concern essentially boils down to the law of contract, it is my view that 1. Interpretation of the contract will be of fundumental inportance; 2. It is my opinion that the courts has a very wide interpretation (opinions) on the concept of restrain of trade. For example in a case that played out in the high court Gauteng the employer argued that the employee had a straint of trade that he neglected and\or refused to adhere to (current situation with you) and that the employee "stole" trade secrets from the employer as well as information regarding clients and tenders that was supposed to be those of the employer, subsequently the employer applied on an ex parte (one party only) basis to court in order to obtain an anton piller order ( this is to seize and search premissis for documentation relating to the employers's concerns...... Now I am not saying that it will happen to you, however to your question " can I get into trouble" it is my opinion that you can if the documentation is correctly drafted and depending on the judge... My advise rather will be to have the documentation send for a opinion in order to make sure, also remember that these matters cvan be resolved by means of mediation. On the other hand I can speak out of exsperience, my wife got pulled into litigation because of a similar straint of trade early this year, we succeeded in our argument that the restrain was indeed signed wit due regard of the content thereof but as result of the employer's unilatral changes to the conditions of employment they have repudiated a legal binding contract to wich my wife had two options 1. Accept the repudiation and claim damages or 2. Reject the repudiation and demand spesific performance, we argued the 1. Point and therefore by means of the employers's male fida (not in good faith) actions, the straint of trade seized to exsits. From the above it is clear that the courts have 2 wide apart interpretations of a restrain of trade whereas the merits of the matter wil most probably dictate the outcome of a particular matter. Restrain of trade is a common law principle and not tride law, meaning it is not carved in stone. Hope this help. Please mind my spelling the buttons are close to each other and I do not have a lot of time. Take care Rautenbach & Associates.

Date: May 12, 2015

Amazing reply! Thank you so much! Your wisdom has set me on the right tracks and im ever grateful!!

Date: May 13, 2015

keeping to the subject of restraints. I have been made an official offer from a competitor to my current company that sells the same software and servicesI currently sell. They said that they will send me the official contract of employment as soon as my current company waive the current restraint. I had a look at my restraint and it does not stipulate a specific region or time, but it does stipulate I cannot work for a competitor Selling the same products and services. Both these companies are a partner of an OEM software company. Can this restraint still be enforced And how can I proceed?

thank you so much in advance.

Date: May 13, 2015

It must be limited in terms of scope, location and duration.

A retrain of trade must have its elements to be binding such as:

Location: - It must say that you are prohibited to perform in a location example Gauteng - Pretoria Lynwood;

Duration (Time Limit) for example 2 months/years/days

Scope (what are you restrained from doing) selling the same product at a competitor (although they are partners they compete?)

Your restrain simply say that you may not work at a competitor doing what you do, it is unreasonable unjust and unfair.

I still would suggest to have this contract referred to a professional for an opinion.

Mostly restrain of trades can be mediated, I would suggest to reach consensus with your employer, go to the employer and tell them that you have another offer that you would like to take and provide/show them the offer as well as its entitlements, explain to the employer that the restrain of trade is unreasonable and that you would rather refraim from clients that do business with the current employer, reach consensus on this matter before you take action.

I know this is going to be a long reply but here we go I would like to show you to sides hereof firstly please find a article published by Labour Guide hereunder, my quick search pinpointed this article more or less in line with your current trade:

"The Restraint of Trade Argument rolls on …

I guess there are some arguments that cannot be settled with hard and fast rules - one of these is the good old Restraint of Trade clause in employment contracts.Firstly, it must be noted that restraint of trade agreements are not regulated by Labour Law. These agreements are regulated by the Law of Contract. The circumstances surrounding every restraint of trade clause are different - simply because the employers are involved in different industries, and have different assets, trade secrets etc that need to be protected.

Therefore, no hard and fast rules can be laid down - as indeed is the case with many aspects of the employment relationship - circumstances are different, and each case must be examined separately.

In a recent matter involving a restraint of trade agreement – Dayandren Reddy (appellant) and Siemans Telecommunications (Pty) Ltd (respondent). The essence of the agreement was that the appellant was prohibited from taking up employment with his employer's competitor. The appellant was employed by Siemens, and upon his resignation from that company he took up employment with a competitor – Ericsson.

His restraint agreement with Siemens prohibited him from doing this for a period of 1 year after leaving the employment of Siemens. In the agreement, the appellant undertook not to disclose trade secrets and confidential information belonging to Siemens.

In interdicting Reddy - the appellant - from taking up employment with Ericsson, the court held that it was not necessarily to find that Reddy would actually use the trade secrets and confidential information in his newly employment - but that it was sufficient if he could do so. The court held that the restraint was aimed at preventing a person with the knowledge of confidential technologies, obtain as a result of these employment, from using them to the detriment of the employer.

That really is the essence or purpose of any restraint of trade agreement. It was common cause that Siemens and Ericsson are competitors. The appellant stated that the training he underwent while employed by Siemens would be of no use to Ericsson and that his employment with Ericsson would not involve any of Siemens customers in South Africa, and in fact that he would not be working with any of Siemens customers in South Africa, and that therefore the restraint agreement was unreasonable.

The court held that a restraint of trade agreement is enforceable unless it is shown to be unreasonable - and the onus of showing that it is unreasonable rests upon the person alleging it. It was stated that two principal policy considerations must be considered in determining the reasonableness of a restraint, the first being that of public interest, which requires that parties should comply with their contractual obligations.

The second is that all persons should, in the interests of society, be productive and be permitted to engage in trade and commerce or the professions, in order to earn a living. Questions that should be asked when considering the reasonableness of a restraint are firstly does the one party have an interest that deserves protection of the termination of the employment, and if so, is that interest threatened by the other party?

It was found that the agreement did not preclude Reddy from making use of his own skills and abilities which are ' a part of himself.' The restraint placed a limit on Reddy from being employed by a competitor. Therefore, it was found, that Reddy is restrained only in the choice of his employer for a limited period. The restraint did not prevent him from obtaining employment - it only restrained his choice of employer.

The restraint did not affect his employment elsewhere and did not prevent him from engaging in the employment he was trained for. Therefore, the restraint did in fact have limited restrictions. It was found that Reddy is in possession of confidential information in respect of which the risk of disclosure by his employment with a competitor was obvious. The judgement stated that it is not that the mere possession of knowledge is sufficient to enforce a restraint of trade, but that Reddy would be employed in a concern which carries on the same business as his previous employer, and he would be employed in a position similar to the one he occupied with Siemens.

It stated further that it was obvious that his loyalty would be to his new employers, and it is sufficient that he has the opportunity to disclose confidential information at his disposal - he does not actually have to disclose it, it is sufficient that he has the opportunity to do so. The fact that the opportunity exists poses a risk to Siemens, and the intention of the restraint was to relieve Siemens of precisely this risk of disclosure.

The court found that in the circumstances, the restraint was neither unreasonable nor contrary to public policy. The restraint was upheld. From the above, it can be seen just how complex these matters can be. Employers should be aware that a restraint agreement is not a simple thing to compile - and it just as this restraint decision went against the appellant, it could just as easily have gone the other way."

TO Follow..................

Date: May 13, 2015

2/2 continue.......

Now lets look at the underneath:

"SA companies finding it harder to enforce restraint of trade agreements

With restraint of trade agreements on employees in South Africa becoming increasingly difficult to enforce, it is vital that companies pay careful attention to issues such as scope and duration of these contracts as well as their application in order to maximise their chances of a successful court ruling.

According to Brian Patterson, joint Head of the Johannesburg Employment Law Department at ENS (Edward Nathan Sonnenbergs), local judges have become less willing to enforce restraint of trade contracts in circumstances that are not meritorious.

“Issues such as the duration and scope of the restraint are increasingly areas of concern for the courts, and in order to enforce these, one has to ensure they go no further than what is reasonably required to protect the company’s proprietary interests.

He says that whilst in the past an acceptable duration for a restraint of trade agreement might have been three to five years, the courts are now more likely to enforce 12-24 months, as they are reluctant to believe there is a competitive advantage requiring protection after that.

According to Patterson, the scope of the restraint is also a major factor for the courts. “For example, most judges are unlikely to find in favour of a Gauteng focused company trying to enforce a restraint of trade agreement over an employee who has gone to work for a competitor in the Western Cape.”

“The fairer and shorter the restraint of trade conditions are, the more likely it is to obtain a favourable ruling. The reality is that if companies go too far in the restraint, a judge may simply find it unenforceable in totality rather than to use a blue pen and adjust the duration and scope. Therefore it is vital that these agreements are limited to no more than what it is absolutely necessary,” he says.

He adds that even if companies have the best drafted restraint of trade agreement in the world, the courts will look at whether it is in the public policy to allow this restraint to be enforced. “People must be allowed to work and if the employee is able to show that enforcing the restraint is contrary to public policy, such as when the old employer is simply sterilizing competition, it is likely that the ruling will be in the employee’s favour.”

Despite these challenges, Patterson says restraint of trade agreements remain extremely important for businesses, particularly given the skills shortages that exist in certain industries such as financial services, IT and other technical sectors, as well as the relatively small size of the South African market.

According to Patterson, as much as offering incentives such as share options are viable options, companies still need other ways to prevent employees from moving to competitors where the competitor will receive an unfair advantage. “From an employer’s perspective, it is not about preventing employees from going to work for a competitor on a level playing field. Rather, the Justification for enforcing a restraint of trade agreement is often because the departing employee has an “inside track” on issues such as pricing methodology, technology, customer information, and marketing strategy, which can be a huge advantage for their new employer,” he says.

Other reasons justifying enforcement include the goodwill that the employee may be taking from relationships built when working for the company, or information about a technological advantage or new process that they would be able to provide to their new employer. “For these reasons, it is important that restraint of trade contracts justify why the individual has information that the company would have a protectable proprietary interest in,” says Patterson. Accordingly careful drafting and appropriate application are critical to ensuring the successful enforcement of a restraint of trade.

-ends-

By EPic Communications"

Once again this proof the wide interpretation of this concept, I did research caselaw, especially with my wife's matter, I can honestly tell you that this concept can go either way so much cases there is that support this concept so much cases reject the concept. but it is my believe that your restraint, if in that exact wording with nothing else, will not pass muster as reasonable.

Hope this help

Rautenbach & Associates

Date: May 17, 2015

Thank ypu for the information and the articles. Will be having a meciation session with my employer this week.

Date: May 20, 2015

Hello
i make product X
i have signed this in the sale of shares agreement when i left company as shareholder and head of production. i now find myself making product X but with different ingredients to be more healthier. i am now told to halt my work and do something else but i have no other form of income and pretty much screwed. Do i have any rights? at all? this is what signed (exerpt):

RESTRAINT The Seller shall not, for a period of two years from Closing of the Sale Transaction enter into any venture which will be competing with the Company by reason of the Sale Transaction.
FULL AND FINAL SETTLEMENTThe implementation of the Sale Transaction shall be in full and final settlement of any and all claims of any of the parties against each other or in relation to each other, the cause of action of which arose prior to the Signature Date howsoever arising.
ARBITRATIONAny dispute between the parties in regard to any matter arising out of this agreement or its interpretation or their respective rights and obligations under this agreement or its cancellation or any matter arising out of its cancellation, shall be submitted to and decided by arbitration.
There shall be one arbitrator who shall be, if the question in issue is:
primarily an accounting matter, an independent chartered accountant of not less than 15 years’ standing;
primarily a legal matter, a practising attorney or advocate of not less than 15 years’ standing;
primarily a technical matter, a suitably qualified person; and
any other matter, a suitably qualified person.
The appointment of the arbitrator shall be agreed upon between the parties, but failing agreement between them within a period of 10 Business Days after the arbitration has been demanded, any of the parties shall be entitled to request the chairperson for the time being of the Arbitration Foundation of South Africa (“AFSA”) to make the appointment and, in making his appointment, to have regard to the nature of the dispute.
Subject to the other provisions of this RESTRAINT, each arbitration shall be held in Cape Town in accordance with the provisions of the Arbitration Act, 1965, as amended.
The decision of the arbitrator shall be final and binding on the parties, and may be made an order of any Court of competent jurisdiction. Each of the parties hereby submits itself to the non-exclusive jurisdiction of the Western Cape High Court should any other parties wish to make the arbitrator’s decision an order of that court.
Notwithstanding the provisions of this RESTRAINT, each party shall have the right to seek an interdict from any court of competent jurisdiction where such relief is justified in law.

BREACH
If either of the Seller on the one hand, or the Purchaser on the other hand (“Defaulting party”) commits any breach of this agreement and fails to remedy such breach within 7 Business Days (“Notice Period”) of written notice requiring the breach to be remedied, then the party giving the notice (“Aggrieved party”) will be entitled, either to: enforce specific performance of the terms hereof; or cancel this agreement, and recover such damages as it may have sustained.
The Defaulting party shall be liable for all costs and expenses (calculated on an attorney and own client scale) incurred as a result of or in connection with the default.

Date: May 20, 2015

I don't think you have a problem at all, my reasoning explained here under namely:

from previous posts and in particular this post I deduce that they want to halt you based on the restrain of trade ONLY is this correct?

Lets look at the restrain of trade and pull it apart:

RESTRAINT The Seller shall not, for a period of two years from Closing of the Sale Transaction enter into any venture which will be competing with the Company by reason of the Sale Transaction.

Remember a restrain of trade has 3 elements: SCOPE, DURATION and LOCATION

SCOPE: may not enter into any venture which will be competing with the company;

DURATION: for a time period of 2 years

LOCATION: not specified.

Now lets look at reasonableness:

Scope: unreasonable this preclude you from entering into any venture be it your own or work for another company

Duration: 2 years unreasonable since you can not be expected not to generate income for two years at any institution that is inline with your profession

Location: unreasonable this includes the whole of South - Africa.

So what does this restrain say? It says that you may not perform your duties inline with your profession for a duration of two years in South Africa. in my view, I would like to say to the employer Good Luck in court, you are going to need it.

The restrain lack elements are unreasonable and not enforceable.

in a more technical argument this restrain of trade refer to a specific sale transaction that is not defined (I assume that this refer to the agreement at hand) however I would need the entire agreement to continue herewith.

The argument can be made that you are not competing with the employer since you don't target their clients, the product is not the same and you established your own market, their counter argument will be that you indeed compete since you have targeted potential clients of the employer and are manufacturing a similar product, what else can they say?, surly they are not the first company to market this product and therefore can not proof any damages or potential damages since there must be other companies that could have just as easily received the income, but because it is you, you are therefore competing? no change in hell that a court will accept this argument to be valid and reasonable in my view.

In essence we will first need to argue the lawfulness and reasonableness of the Restrain even before we get to the above argument/s

This is the problem with "blanket" restrain of trades it is to wide with so many places to pierce it from.

What can they do? well they can try and obtain an interdict against you from operating, the possibility exit that they can probably obtain a rule nisi (interim order) but really do not believe that they will succeed in an final order.

You have stated that you this is the only source of income and therefore you don't want to take a change of expensive litigation opposing interdicts in the High Court, invoke your right in terms of the contract, Arbitrate this matter!

"ARBITRATION Any dispute between the parties in regard to any matter arising out of this agreement or its interpretation or their respective rights and obligations under this agreement or its cancellation or any matter arising out of its cancellation, shall be submitted to and decided by arbitration.

There shall be one arbitrator who shall be, if the question in issue is:
primarily an accounting matter, an independent chartered accountant of not less than 15 years’ standing;
primarily a legal matter, a practising attorney or advocate of not less than 15 years’ standing;
primarily a technical matter, a suitably qualified person; and
any other matter, a suitably qualified person.

The appointment of the arbitrator shall be agreed upon between the parties, but failing agreement between them within a period of 10 Business Days after the arbitration has been demanded, any of the parties shall be entitled to request the chairperson for the time being of the Arbitration Foundation of South Africa (“AFSA”) to make the appointment and, in making his appointment, to have regard to the nature of the dispute.

Subject to the other provisions of this RESTRAINT, each arbitration shall be held in Cape Town in accordance with the provisions of the Arbitration Act, 1965, as amended.

The decision of the arbitrator shall be final and binding on the parties, and may be made an order of any Court of competent jurisdiction. Each of the parties hereby submits itself to the non-exclusive jurisdiction of the Western Cape High Court should any other parties wish to make the arbitrator’s decision an order of that court.
Notwithstanding the provisions of this RESTRAINT, each party shall have the right to seek an interdict from any court of competent jurisdiction where such relief is justified in law."

You have an opportunity to put this to bed once and for all, this is your "escape route"

firstly I would have send the agreement for interpretation [in limine "It means simply preliminary." A motion in limine is a motion that is tabled by one of the parties at the very beginning of the legal (this case arbitration) procedures and seeks to pull the rug out from under the feet of the other party".]

thereafter I would have filed a motion for cancellation of a specif clause - strain of trade and argue the matter, this might save you a lot of money and finally put it to bed.

They need to present to the Arbitrator that they want you to stop, the arbitrator must hear you and make a ruling - call it their in limine motion or application, remember a arbitrator cannot interdict you but can make a reasonable assumption and recommendation to suit all parties.

Should you want help with any of this kindly inform me, I will be willing to assist>

hope this help

Rautenbach & Associates

Date: May 21, 2015

Thank you for your swift reply. 1. Am I the defaulting party in this matter which means I need to pay for all this? Surely I am not seeint th agreement was signed by me and I should've asked for interpretation before signing? 2. Would I be able to dexline an arbitrator if the opposition party chose one? (fearful of friends in higher places you see) 3. How much would an exercise like this cost me, as I have barely enough to pay rent (ballpark)

Date: May 21, 2015

Your question is fair, however it is a question that need thorough attention in order to answer.......It is impossible to say that you defaulted, by the looks of the restrain alone, we can probably get you off on that point should their actions be based only on that facts........ This case need to be worked out......... Costs are always a factor win or lose you never recover funds in totality....... Costs arguments can limit tributes to costs and so on..........the problem is that we will not guarantee succession, it is not in our hands to make a decision but rather in the hands of an arbitrator.......your contract (or extracts) does not say that you need to pay for the arbitrator, it says if a dispute arise the matter must be arbitrated, contract benefits the party that did not draft it.......... Technical arguments such as security costs must be explored since they cater for costs, meaning a legal entity v natural person, must place costs in advance for when they loose (loosely translated) that however needs to be evaluated against the arbitration act and so on........ It can be that this matter resolve itself when we address letters to their attorneys and in such way mediate the matter before arbitration....... This depends on you, I know that we do something make exceptions to payment and allow down payment but depend on the merits in totality of this matter............ Let's do this, E-mail the contract to me, let the guys take a look at it in totality and we take it from their, If you want we can contact the employer and find out what their views are thereafter advise you on how to proceed...... At this stage I will ask you our costs that should not be more than 500 as soon as we know what they have, what their intentions are we can proceed...... Hey relax if worst come to worst we will help you apply to the law society in order to get a pro bono attorney and if need be the bar association for a probono adv. Their is ways but to answer your question we need to advise based on the entire merits........ Hope this help. Rautenbach & Associates

Date: May 21, 2015

Your case is also based not only on the contract but your working conditions, did they infringe basic rights that lead to your resignation, the motives of the employer any other factors that might be relevant, the contract signing what was time limits was it done under duress, the company name and reputation, ownership of intellectual property, job descriptions and many more. Remember whatever they can do, we can counter and proceed with a thousand other strategies, however, this goes both ways.... Regards R&A

Date: May 21, 2015

Lets proceed my good man. Your email is werner.Labourlaw@gmail.com?

Date: May 21, 2015

Yes it is my E-mail, my conditions are that once we have assited you, you post back on this forum how you exsperienced our services, my idee is not to make money out of this forum but to get my name out there and establish my creditbility Please rember this. R&A

Date: May 21, 2015

Ofcourse. Already I think your reputation for helping people is amazing.

Date: May 27, 2015

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