Clauses in restraint of trade agreements concluded between an employer and an employee often present difficult legal issues to deal with. This complexity is due to the fact that a court, in deciding whether to enforce a restraint provision, has to strike a balance between two equal but competing policy considerations, namely, the sanctity of the contract and the freedom of movement of people in a market economy. In striving to balance the sanctity of contract with the right of freedom to trade, it is necessary to decide which of these two policy considerations should take precedence by having regard to the public interest served by them in the particular circumstances. In the watershed case of Magna Alloys and Research(SA)(Pty) Ltd v Ellis, the Appellate Division decided the sanctity of contract had greater precedent in South African law and that undertakings in restraint of trade were prima facie valid and enforceable, unless the party seeking to avoid its obligations could show that the restraint of trade was contrary to public interest. The second consideration, namely that a person should be free to engage in useful economic activity and to contribute to the welfare of society, tempers the sanctity of contract considerations. Accordingly, the courts have struck down any unreasonable restriction on the freedom to trade where it was regarded as contrary to public interest. In considering the reasonableness and therefore the acceptability of restraint of trade provisions from a public policy perspective, the following five questions need consideration: Is there a legitimate interest of the employer that deserves protection at the termination of the employment agreement? If so, is that legitimate interest being prejudiced by the employee? If the legitimate interest is being prejudiced, does the interest of the employer weigh up, both qualitatively and quantitatively against the interest of the employee not to be economically inactive and unproductive? Is there another facet of public policy having nothing to do with the relationship between the parties but requires that the restraint should either be enforced or rejected? Is the ambit of the restraint of trade in respect of nature, area and duration justifiably necessary to protect the interests of the employer? In enforcing a restraint, the court will consider all the facts of the matter as at the time that the party is seeking to enforce the restraint. If a court finds that the right of the party to be economically active and productive surpasses the interest of the party attempting to enforce the restraint, the court will hold that such restraint is unreasonable and unenforceable. Consideration of the enforceability of restraints is often found to be challenging in view of the answers to the above stated five questions often remaining of a factual nature and subjective, i.e. the view and perceptions of the presiding officer play an important role. A further complexity is the limited early effect which the Constitution of the Republic of South Africa had on dispute resolution pertaining to restraints of trade in the employment context and the prospects of imminent changes to the pre-Constitutional era locus classicus of Magna Alloys and Research (SA)(Pty) Ltd v Ellis.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:nmmu/vital:10203 |
| Date | January 2007 |
| Creators | Luckman, Peter Craig |
| Publisher | Nelson Mandela Metropolitan University, Faculty of Law |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis, Masters, LLM |
| Format | iv, 53 pages, pdf |
| Rights | Nelson Mandela Metropolitan University |
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