When a senior advisor or executive walks out the door, especially to join a competitor, your restraint of trade clause is often the only thing standing between you and serious commercial damage. Here is what recent South African case law tells us about what works, what does not and what you need to do now.
The starting point in South African law is that a restraint of trade clause in an employment contract is valid and binding. It is not automatically contrary to public policy simply because it restricts competition. Restraints of trade are treated as enforceable agreements. The employee seeking to escape the restraint bears the onus of proving that enforcement would be unreasonable.
Assessing the reasonableness of the restraint
The reasonableness test, as developed by case law, asks whether there is a protectable interest and whether that interest is genuinely threatened. It also asks whether the employer’s interest outweighs the employee’s right to earn a living.
Courts further consider whether a broader public policy consideration applies. They also frequently ask whether the restraint goes further than strictly necessary to protect that interest. This requires consideration of the duration, geographic scope and breadth of prohibited activities.
In financial services, there are generally two protectable interests. The first involves relationships, client connections, internal talent management and goodwill built up over years. The second involves confidential information, client data, pricing, business strategies and anything else that would give a competitor an unfair advantage if disclosed.
Where an employee has built close, personal relationships with the employer’s clients, they may constitute a protectable interest. This applies where the employee used the employer’s time, resources and opportunities to develop those relationships. It also applies where those clients are likely to follow the employee to a competitor. Evidence that clients have actually moved is powerful. However, the employer need not wait for harm to materialise. A well-grounded apprehension that the employee will exploit those connections is sufficient.
Adviceworx (Pty) Ltd vs Roux and Others provides a vivid illustration. The court found that 820 clients had already migrated to the competitor within weeks of the employees’ departure. A further 433 clients had partially terminated their mandates. This concrete evidence of actual harm was central to the court’s decision. Evidence of data copying and the deletion of records also supported the decision to grant final enforcement of the restraint.
Protecting confidential information
Turning to confidential information, the second protectable interest, bare assertions that information is “confidential” will not suffice. Courts require specific evidence of what the particular information is, why it is confidential and how the employee had access to it.
In both Merchant West Specialised Finance (Pty) Ltd vs Le Grange and Another and Cut-N-Weld Supplies (Pty) Limited vs Britz and Another, employers lost their enforcement applications. They could not provide this level of factual detail.
Equally, in Fidelity Services Group (Pty) Ltd and Another vs Goveia and Another, the court found that the employee’s general knowledge of profit margins and client relationships constituted “life skills” rather than protectable proprietary interests.
Across these cases, the critical distinction is between information that genuinely belongs to the employer’s business and general skills, experience and industry know-how. Employees accumulate these skills and are entitled to use them. Courts will not enforce a restraint designed to prevent an employee from using the latter.
A common misunderstanding is that an employee who joins a competitor automatically breaches their restraint. However, what matters is what the employee will do in the new role. Courts look carefully at whether the employee’s new responsibilities genuinely threaten the employer’s protectable interests. They also consider whether the employee will work in an entirely different area of the competitor’s business that poses no real risk.
Joining a competitor does not automatically mean a breach
In FX Group (Pty) Ltd vs Steyn, enforcement was refused even though the new employer was a direct competitor in some product lines. The employee’s new role related to a product division in which the former employer had no involvement at all.
Employers often argue that a restraint should not be enforced because the employee was dismissed or resigned in response to an intolerable working environment. However, the circumstances surrounding termination are ordinarily irrelevant to whether a restraint should be enforced. The only recognised exception arises where the employer hired and dismissed the employee fraudulently and solely to trigger and impose the restraint.
The restraint exists to protect business interests after employment ends, not to punish the employee. The court confirmed this principle in Backsports (Pty) Ltd vs Motlhanke and Another.
South African law does not require separate compensation for a restraint of trade because the employee’s overall remuneration provides sufficient consideration. Nevertheless, dedicated restraint payments are common in senior and financial services roles. They also offer practical advantages.
In Adviceworx, specific “non-compete and performance incentive” payments linked to client book value reinforced the protectable interest claimed. As confirmed in Nu Angle Aesthetics (Pty) Ltd vs Taylor and Another, such payments make it difficult for employees to argue financial hardship. However, compensation alone does not guarantee enforcement where the employer’s interests were not genuinely threatened.
Settlement agreements can affect restraint rights
One of the most practically important lessons from recent case law concerns the risk that a broadly worded settlement agreement can inadvertently extinguish an employer’s restraint rights. The Labour Appeal Court addressed this directly in Wheelwright vs CP De Leeuw Johannesburg (Pty) Ltd.
The court held that a settlement agreement using “full and final settlement” language had the effect of extinguishing the employer’s right to enforce the restraint. The agreement covered “all claims … whether from contract, delict, operation of law, equity, fairness or otherwise“.
Accordingly, where an employer settles a CCMA or Labour Court dispute but wishes to preserve its restraint rights, the settlement agreement must contain an explicit carve-out to that effect. Failing to include such a carve-out can mean the permanent loss of the employer’s most important post-employment protection.
A further drafting risk concerns severability. Where a restraint goes further than reasonably necessary, a court may read down the restraint and sever the objectionable portion. It may then enforce what remains. However, the court can do so only where the offending words are clearly separable.
Accordingly, employers who draft deliberately broad restraints on the assumption that a court will read them down are taking a significant risk. Careful drafting remains essential because restraints of trade must align with the interests they seek to protect.
Drafting for enforceability
A restraint of trade clause is only as effective as the thinking that went into drafting it and the quality of the evidence available to support it. South African courts have demonstrated this across a range of recent decisions. These decisions span the Labour Court, Labour Appeal Court and High Court.
The courts will enforce well-constructed restraints against genuine competitive threats. However, they will not rescue poorly drafted clauses or bare evidentiary assertions. Employers therefore need to identify their protectable interests clearly and support those interests with credible evidence.
The time to invest in getting this right is before the key person resigns, not after. Properly drafted restraints of trade can provide meaningful protection against genuine commercial threats. However, employers must ensure that those restraints remain proportionate, clearly drafted and supported by evidence.
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| Dhevarsha Ramjettan | Partner | mail me | | Thobile Ndaba | Associate | mail me | |
| | Webber Wentzel | | |
