Articles

By Professor Paul Benjamin - Cheadle Thompson and Haysom Inc.

[21 September 2016]The Labour Court hears an increasing number of applications to enforce restraint of trade agreements. In these cases, employers seek to prevent employees from taking up employment with a competitor because they possess confidential information or access to their customers.  There is a growing body of reported and unreported judgements on the topic but very decisions from the Labour Appeal Court. The reason for this is that by the time an appeal can be heard, the period of the restraint is generally over and the issue will have become academic.

Labour Court judges are required by the rules of precedent to follow the 1984 Appellate Division decision, Magna Alloys, which held that contracts in restraint of trade are not contrary to public policy.  That was one of the number of cases in which the judges of our highest court at the time sought to rid our law of the “pernicious” influence of English law and restore it to its Roman Dutch glory. The judgment contains no discussion of whether the English approach in which the employer must establish that a restraint is fair and reasonable is appropriate in a contemporary economy.  Despite its dated origins, the Magna Alloys approach has

survived into our constitutional era. 

As a result, an employee wishing to resist the enforcement of a restraint clause must prove that its enforcement is unreasonable and contrary to public policy.This is a considerable burden for an employee who may have limited knowledge of the workings of the employer’s business. 

Standard form restraint clauses have made their way into a large number of employment contracts. Typically,they are drafted in obscure and impenetrable language that is all but impossible for a layperson to understand and very difficult for most lawyers. Broadly speaking, their effect is to prevent employees from taking employment with competitors of their employer, or setting up a business in competition with the employer, for a two or three-year period.

In onecase, an employer went to court to prevent a computer salesperson earning around R 6000 per month from being employed virtually anywhere else in the IT sector for a period of three years.  The court, quite correctly, refused to enforce this agreement.  Most judges of the Labour Court are careful not to allow broad restraint provisions to be placed employees inappropriately.

However, the damage of this doctrine is likely to be done in numerous cases that do not come to court. How many employees do not take the risk of moving to a better position with another employer in the same sector or using their skills to set up their own business because of the fear that a restraint clause, signed many years ago when starting work, will be used against them?

International studies show that the enforcement of restraint agreements negatively effects the mobility of employees and that this has negative economic and productivity consequences.  It also has significant anti-competitive effects and is out of keeping with the role of competition law as a central plank of economic regulation. Many of the world’s most dynamic economies, including California, make it extremely difficult for employers to enforce restraint agreements.

What is the way forward?  It will in all probability require intervention by the Constitutional Court to change our law to place the onus appropriately on employers to show a restraint is reasonable.   As yet, they have not received the appropriate case. Legislative intervention may also be useful.  Consideration should be given to including a provision in the BCEA prohibiting employers from placing restraints on lower-paid employees or requiring employers to pay employees during any period in which they seek to exercise a restraint. Restraint of trade is one of the many trending labour law issues that will be discussed 27th Current Labour Law Seminars, taking place in Johannesburg, Cape Town and Durban between 8 and 11 November 2016. To book, contact Sabine Dhevaraj on 031-303 9852 or email This email address is being protected from spambots. You need JavaScript enabled to view it.

About the Author

Professor Paul Benjamin has been at the cutting edge of labour law practice and policy for over three decades. He has worked at the Legal Resources Centre and the Centre for Applied Legal Studies and has been a director of Cheadle Thompson & Haysom Inc. Attorneys since 1986. Paul’s work combines practice with academia and he has been a Professor at both UCT and Wits. He has written and researched extensively on labour law and is ranked by the National Research Foundation as an ‘internationally acclaimed researcher’.Paul represented COSATU during the drafting of the Labour Relations Act 66 of 1995 and was subsequently the principal drafter of the Basic Conditions of Employment Act, 75 of 1997.  He continues to work closely with the Department of Labour. He has drafted laws on a range of issue including occupational health and safety, skills development, environmental regulation, special economic zones and black economic empowerment. He works closely with the CCMA and has assisted it in developing rules, guidelines and policies. 

He has a BA LLB from UCT and an LLM from Warwick University in the UK and has been an acting Judge of the Labour Court.

About the 2016 Current Labour Law Seminar

The 27th Current Labour Law Seminar takes place between 8 and 11 November 2016 and is presented by Chris Todd, Shamima Gaibie, Paul Benjamin (Johannesburg) and Halton Cheadle (Cape Town and Durban only).Panellists Professors Halton Cheadle and Paul Benjamin, Shamima Gabie and Chris Todd will provide insight into the country’s changing labour law landscape, helping delegates navigate ongoing change and transition in the labour law landscape. Halton Cheadle and Paul Benjamin respectively played key roles in the original drafting of the Labour Relations Act and in developing recent amendments to employment laws.  Their insight and perspective on the year’s cases will be invaluable to practitioners, employers and trade unions.  Shamima Gaibie is a senior director at Cheadle Thompson & Haysom and guest lecturer in law at the University of the Witwatersrand and has advised players from all sectors of the economy on labour law issues.  Together with Chris Todd, head of employment at Bowman's, all of the presenters have served periods as acting judges of the Labour Court, have written extensively on labour law issues, and are seasoned public speakers in the field.