Draft article: awaiting review and approval by Elmoné Smith.
Where restraint of trade clauses appear
Restraints are common in:
- employment contracts, especially in sales, client-facing and specialist roles
- agreements for the sale of a business, where the seller agrees not to compete with the buyer
- partnership, shareholder and franchise agreements
- contractor and consulting agreements
What a restraint usually restricts
Most restraints combine three elements:
- Activity: what you may not do, such as work for a competitor, run a similar business, or solicit clients or staff.
- Area: where the restriction applies, such as a town, a province or the whole country.
- Period: how long it lasts after the agreement ends, such as six months or two years.
How South African courts approach restraints
The leading case is Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A). Since that decision, a restraint has been treated as valid and enforceable unless it is unreasonable and therefore contrary to public policy. In practice, the person who wants to escape the restraint generally has to show that it is unreasonable.
In Basson v Chilwan 1993 (3) SA 742 (A), the court set out questions that are commonly used to assess reasonableness:
- Does the party enforcing the restraint have an interest that deserves protection, such as confidential information or client connections?
- Is that interest threatened by the other party’s conduct?
- If so, does that interest outweigh the other party’s interest in being economically active and productive?
- Is there another aspect of public policy that makes the restraint unreasonable?
A restraint that only stops someone from competing, without protecting a real business interest, is less likely to be enforced. Courts may also enforce a restraint only in part, for example for a shorter period or a smaller area than the clause states.
A restraint is easier to understand and question before you sign than to challenge afterwards.
What to check before you sign
- Exactly which activities are restricted, and how “competitor” or “business” is defined.
- The geographical area, and whether it matches where the business actually operates.
- How long the restraint lasts after the agreement ends.
- Whether it applies to all clients, or only those you dealt with.
- Whether it applies however the agreement ends, including if you are dismissed or the business closes.
- Whether anything is paid or given in return for the restraint.
- Any related confidentiality or penalty clauses.
Questions you might ask the other party
- What business interest is the restraint meant to protect?
- Can the area or period be narrowed to match that interest?
- Can the restraint be limited to clients I actually worked with?
How ESLC can help
ESLC can explain a restraint clause in plain language, show how it fits with the rest of the agreement, and help you prepare questions or points to raise before you sign. If you are already in a dispute about a restraint, you will need a practising attorney, and ESLC can help you organise the documents for that conversation.
Frequently asked questions
Is a restraint of trade enforceable in South Africa?
Generally, yes, unless it is shown to be unreasonable in the circumstances. Whether a particular restraint is reasonable depends on the facts, including the interest being protected, the area and the period.
Can I negotiate a restraint of trade clause?
You can ask. Before signing, it is common to ask for the area, period or restricted activities to be narrowed. The other party does not have to agree, but understanding the clause helps you decide.
This article is general information about South African law and practice. It is not advice on your particular situation. ESLC provides consultancy and support services and does not provide court representation.