Restrictive Covenants in South Africa

1. Definition of Restrictive Covenants

Restraints of trade are prima facie valid and enforceable unless the party seeking to avoid the restraint of trade obligations can show that the restraint of trade was contrary to public interests and as such unreasonable.

At common law, employees may not use their employer’s trade secrets or confidential information for their own benefit or the benefit of a third party without their employer’s consent. If the employer suffers damages as a result of a breach of this obligation, the employee can be held liable for the damages.

Breach of a contractual obligation to protect trade secrets and confidential information may also give rise to a claim for damages. Damages are often hard to prove, and in many instances the more effective legal remedy is to obtain an injunction to prevent the threatened or continued misuse of the information.

2. Types of Restrictive Covenants

a. Non-Compete Clauses

The utilization of a restraint of trade has become a common practice in the South African employment environment and, more particularly, in circumstances where an employee (more often than not, this is a senior employee) is privy to confidential information and matter of the employer (often referred to in South Africa as “trade secrets”) and/or where the employee has developed relationships with, inter alia, the employer’s customers, potential customers and/or suppliers (often referred to in South Africa as “trade connections”).

b. Non-solicitation of customers

Restraints of trade in South Africa often also contain specific provisions in which an employee undertakes that he or she will not, after the termination of his or her employment, inter alia, solicit or entice the employer’s customers and clients to move their business (in respect with the same or similar type of goods or services conducted by the ex-employer) to his or her new business venture or a competitor for a specified period and within a specified geographical territory. The challenge with provisions of this nature is that they are sometimes difficult to enforce due to difficulties in proving the breach of the non-solicitation provisions.

c. Non-solicitation of employees

Restraints of trade in South Africa often also contain specific provisions in which an employee undertakes that he or she will not, after the termination of his or her employment for a specified period after the termination of the ex-employee’s employment and within a specified geographical territory, inter alia, encourage or entice or incite another employee of the ex-employer to terminate employment with the ex-employer.

3. Enforcement of Restrictive Covenants—process and remedies

Like any contract in South Africa, a restraint of trade (non-compete) obligation will generally not be enforceable if its enforcement would be contrary to the public interest. In the case of restraints, if it is unreasonable, its enforcement will generally not be in the public interest. The reasonableness of the restraint is typically judged on two factors: the broad interests of the public and the interests of the contracting parties themselves.

4. Use and Limitations of Garden Leave

There is no statutory regulation of garden leave in South Africa. Garden leave is typically understood in South Africa to be where the employer requires the employee, during his notice period, to stay away from the workplace and not to involve himself in any work for the duration of his notice period, whilst remaining subject to all other employment obligations, including the obligation not to work for another employer.

A failure by the employer to permit the employee to work during a notice period will typically constitute a breach of the employee’s contract. Most employers who wish to be able to impose garden leave on an employee under notice provide for an express right in this regard in the employment contract (or agree on it with the employee at the time that notice is given). Where this is catered for in the contract, it should be enforceable.

For more information, please contact L&E Global.
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