Restraint of Trade Agreements

Strangely, Restraint of Trade Agreements are not regulated in terms of labour legislation, although such agreement is usually form part of the Contract of Employment. The employer will usually require an employee to sign a Restraint of Trade agreement where the employer feels it necessary to restrain the employee party or limit the employee party in his employment activities should he leave the service of the employer.

This requirement would arise where the employer needs to protect his economic interests, trade secrets, secret formulas, price lists, customer database information, and so on. In other words, he needs to take certain action to ensure that such information will not fall into the hands of a competitor, should the employee leave his service and take up employment with a competitor.

Such agreement usually prohibits the employee from taking up employment with a competitor, or supplier, or customer of the employer with in a certain geographical area or with in a certain radius of the employer’s premises, for a certain period of time after the employee leaves the service of the employer.

A Restraint of Trade agreement needs to be reasonable in terms of the protection sought, and the applicable terms and conditions as to the geographical area and time period. Usually, in determining the legality and enforce ability of such an agreement, factors that will be considered include the nature of the restricted activity, the geographical area applicable, the period of time for which the agreement is applicable, and the particular interests which the employer is seeking to protect.

Employees often sign that these agreements at the start of employment, and usually they sign the agreement with at giving proper thought to the matter and without giving proper thought to the consequences of signing such an agreement. Usually, the rationale behind the signing is simply “I signed because I needed the job.”

The problem is that signing such an agreement for such an arbitrary reason will certainly have, in most cases, an adverse effect on the employee’s future employment with other employers, and on the employee’s career advancement. Employees should never sign such agreements without first obtaining professional opinion, by consulting an attorney who specialises in the Law of Contract, to assess the agreement and give a professional opinion.