contracts in restraint of trade
10 April 2007

In three recent actions by former employers to enforce agreements in restraint of trade the Supreme Court of Appeal and the High Court have re-examined the common-law approach to the enforcement of such agreements in the light of the constitutional rights and values enshrined in the Bill of Rights. In Reddy v Siemens Telecommunications (Pty) Ltd the Supreme Court of Appeal observed that s 39(2) of the Constitution 1996 requires that when interpreting and developing the common law (in this case the law of contract) a court must promote the spirit and objects of the Bill of Rights. The SCA found that in determining the reasonableness of an agreement in restraint of trade a court must make a value judgment with two principal policy considerations in mind, firstly, that parties should comply with their contractual obligations, and secondly, that it is in the interests of society that all persons should be productive and able to engage in trade and commerce or the professions.  Balancing these two considerations the court found, on the facts, that the restraint was neither unreasonable nor contrary to public policy, and that the former employee should be held to his contractual undertaking.

In North Safety Products (Africa) (Pty) Ltd v Nicolay the High Court similarly considered the constitutional imperatives applicable to a restraint of trade agreement where the former employee had agreed, firstly, not to solicit business or custom for goods of a type similar to those manufactured by his previous employer and, secondly, not to concern himself in any competitive business. The court granted an interdict only in respect of the second part of the agreement, finding that to extend the interdict further would undermine the employee's right to work.

The restraints sought to be imposed in Dickinson Holdings Group (Pty) Ltd & others v Du Plessis & another were very comprehensive and wide-ranging over a three-year period. The High Court noted that contracts in restraint of trade are valid, but that this is subject to whether they are reasonable, not contrary to public policy and whether they are consistent with the requirements of a free, open and democratic society as envisaged in the Constitution 1996. After considering the terms of the restraint clause the court found that it was so wide that it was contrary to public policy and offended against the Constitution.
 
Industrial Law Journal, February preview, Juta