Restraint of trade – an enforceable contract clause, or a bullying tactic?
While restraint of trade agreements can serve legitimate purposes, it’s not unheard of for employers to misuse them.
Many employers rely on a restraint of trade to protect their business interests when an employee leaves the company. But, given that the constitution affords everyone the right to engage in their chosen profession and utilise their skills to earn a livelihood, are these agreements legally binding, or simply a bullying tactic aimed at intentionally limiting an employee’s future job prospects?
“Non-compete clauses are usually included in employment contracts with employees who have access to sensitive intellectual property,” explains Nicol Myburgh, Head: HCM Business Unit at CRS Technologies. “Specifically intended to limit competition, they typically include provisions that restrict employees from engaging in certain activities within a specified timeframe and geographic area after they have left the company. This could be anything from working for a direct competitor, to soliciting the employer’s clients or employees, and disclosing confidential information.”
But to what extent can an employer restrain a former employee, especially where the employee only has the skills necessary to perform the job which they are restrained from performing?
Restraint of trade agreements are regulated by the Contract Law, says Myburgh, which stipulates that they must be reasonable in terms of their duration, geographic scope, and the activities restricted. “In other words, the intent is to safeguard the employer’s interests while respecting the rights of the employee.”
“While restraint of trade agreements can serve legitimate purposes, it’s not unheard of for employers to misuse them,” he adds. “Employers often hold greater bargaining power compared to individual employees, especially in situations where the employee relies heavily on the job for income or has limited alternative employment options.
“Employers may exploit this power dynamic and pressure employees to accept unfavourable restraints without proper negotiation or consideration. They may draft overly broad or unreasonable restraints, and even threaten employees with legal action if they breach the agreement.”
Consider an instance where the employee is a software developer. Imposing a restraint that prohibits them from engaging in the entire IT industry would be considered unreasonable, but an agreement that restricts their employment solely within the employer’s specific business niche, such as computer game design, may be regarded as reasonable.
Employers therefore have a responsibility to ensure that restraints of trade are reasonable, fair and compliant with applicable laws, Myburgh points out.
“Misusing these agreements as a bullying tactic is certainly unethical and in some instances, may even be unlawful. This being said, if an employee wishes to be released from a restraint, the onus lies with them to show that the restraint is unreasonable and contrary to public policy.
“Consequently, it is critical to always review any contractual agreement with your employer carefully before signing. Feel free to raise concerns and/or negotiate terms that are more equitable, and do not hesitate to seek legal counsel if you believe you are being subjected to unfair or abusive treatment,” Myburgh concludes.