The Law Desk -When is a restraint of trade considered unreasonable?

Generally restraints of trade agreementsare valid, binding and enforceable unless it's found to be unreasonable. So how does one decide whethera restraint is reasonable or not?

The court will consider the following: whether the one party has an interest thatneeds protection; whether that interest is threatened or being prejudiced; theright of the other party not to be economically inactive and unproductive;whether there is an aspect of public policy that requires that the restraint bemaintained or rejected.

These factors were considered by the LabourAppeal Court in August 2023 when two employees took the restraint of tradewhich they signed with their former employer to the Labour Appeal Court.

They had signed a two-year restraint oftrade prohibiting them from being employed by any of the company's competitorswithin a radius of 50 kilometres from the office or branch where they wereemployed or performed their duties.

They argued that extending the restraint toall other branches or offices where they performed their duties or wereallocated responsibilities was unduly harsh and unreasonable in that itprecludes them from taking up employment anywhere in the Republic.

The Labour Appeal Court had to decidewhether having such a vast territorial reach of restraint and two-year durationwas reasonable in order to protect theformer employer's proprietary interest. The employees argued that the restraintwas unreasonable and against public policy, both in its extent and duration.

The court heard that the employeesestablished close relationships with the company's customers, gained insightsto sensitive information such as pricingstrategies, costing of its products and profit margins and also had access toclient database, marketing material, business strategies and financialinformation.

The Labour Appeal Court upheld theterritorial extent of the restraint as reasonable but said that in the contextof that particular industry, the two-year period of restraint was unreasonablyharsh, that its enforcement would be contrary to public policy and reduced theduration to one year from date of termination.

So essentially the court will seek tostrike a balance between the obligation of parties to comply with the terms oftheir contractual obligations (which it will not lightly interfere with)against the backdrop that all persons should be productive and permitted toengage in trade and commerce or their professions.

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