In the recent case of SMD Technologies (Pty) Ltd v Tavares and Another ([2024] ZALCJHB 546), the Labour Court upheld the enforceability of restraint of trade agreements in South African employment law.
The court emphasised that these restraints must be reasonable and must protect legitimate business interests. It can be noted that the Labour Court upholds enforceability where there is evidence of a protectable interest and no violation of public policy.
Background of the case
SMD Technologies (SMD) employed Tavares as a Key Account Manager from December 2019 until her resignation in September 2024. During her tenure, she accessed confidential information and managed key client relationships. After resigning, she joined Syntech Distribution (Syntech), a direct competitor of SMD.
SMD sought to enforce the restraint of trade agreement that Tavares had signed. The agreement prohibited her from engaging in competitive activities for a specific period after leaving the company. SMD approached the Labour Court to obtain an interdict preventing Tavares from continuing her employment with Syntech.
The Labour Court considered several pivotal and material factors.
Was there a protectable interest?
The court acknowledged that SMD had a legitimate interest in protecting its confidential information and customer connections. Tavares had substantial access to both during her employment.
As Key Account Manager, she handled sales and managed major accounts, including Makro, Game, Builders Warehouse, Buco and Vodacom. These customers significantly contributed to SMD’s revenue.
Tavares served as the main point of contact for these clients. Her role strengthened the business relationship, retained top clients, and nurtured those connections over time. She also travelled nationally to new store openings for these key customers.
The court stated:
In deciding whether a protectable interest has been infringed upon, it is not necessary to show that there has been actual harm to the employer. It is about the risk created for the employer. All that must be shown is that the employee indeed had a close working relationship with customers and that it is likely that the employee is in a position to convince these customers to take their business elsewhere. In sum, is the employee in a position to act to the detriment of the erstwhile employer?
Reasonableness of the restraint
The Labour Court found the restraint’s duration and scope to be reasonable. The 12-month period sufficiently protected SMD’s business interests without unreasonably limiting Tavares’s right to earn a living.
Public policy considerations
The court reiterated the principle from Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A). It confirmed that restraint of trade agreements are generally enforceable unless proven unreasonable or contrary to public policy. Tavares failed to prove that the restraint was unjust or overly restrictive of her economic freedom.
Labour Court upholds enforceability once more by granting the interdict SMD requested. Tavares was restrained from working for Syntech for the duration specified in her restraint agreement.
The judiciary’s position on restraint of trade agreements
This judgment reinforces the judiciary’s position on restraint of trade agreements. The Labour Court upholds the enforceability of such agreements where they protect legitimate business interests and are fair in scope and duration.
Employers should draft these agreements with care. They must balance the protection of business interests with constitutional rights to freedom of trade and occupation. Employees must understand that signing such agreements comes with binding obligations and serious legal consequences if breached.
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