A restraint of trade is an agreement whereby a person is restricted in his or her freedom to carry on his/her trade, profession, business or other economic activity. A contract in restraint of trade is one that prevents an employee from exercising his or her trade, profession or calling, or engaging in the same business as the employer, for a specified period, and within a specified area after leaving employment.
The objective behind a restraint of trade is to protect the employer’s goodwill, customer connections and trade secrets. This protection remains effective for a specified period, which must be reasonable. There is no true or standardised test as to how courts are inclined to enforce a restraint of trade and it would seem that each case will be decided on its merits.
The Magna Alloys-case is a paramount and vital case regarding restraints.
The court found inter alia the following:
- Restraints of trade are valid and enforceable; and
- Restraints of trade which are contrary to the public policy are unenforceable.
- It is in the public interest that agreements entered into freely should be honoured. It is also generally speaking, in the public policy that everyone should, as far as possible, be able to operate freely in the commercial and professional world. It may be accepted that a restraint of trade which is unreasonable would probably also prejudice the public interest, were the person concerned to be held to it.
- Anyone not wishing to be bound by a restraint of trade which he or she has consented to in an agreement:
- Bears the onus of proving that enforcement of the restraint of contrary to public interest;
- The court should have recourse to the circumstances existing at the time the enforcement is being sought;
- The court is not constrained to hold that the restraint as a whole is enforceable or unenforceable, but also empowered to rule that a part of the restraint is enforceable or unenforceable.