Covenants In Restraint Of Trade

Covenants In Restraint Of Trade

At the most basic level, restraint of trade is any activity that prevents another party from conducting business as they would normally do without any restriction. In legal terms, a restraint of trade is an obligation voluntarily undertaken by the employee to refrain from the exercise of freedom of trade in favour of the employer for a certain period.Covenants in restraint of trade are used to protect the employer’s business interests and are usually found in the contracts of those employees who, by virtue of their jobs, could threaten the business if they leave to join competitors or decide to venture in the same line of business themselves thereby becoming a competitor. The law respects the freedom of the employer and employees to enter into these agreements, therefore as a general rule, they are prima facie valid and the onus is on the employee who seeks to resile from it to show that it is nonetheless against public interest and unenforceable. See Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874(A); Book v Davidson 1988(1) ZLR 365(S) at 385D.

In the case of Greendale Hardware and Electrical (Pvt) Ltd v Goodfellow Bangaba SC 15/07 the Supreme Court had the opportunity to deal with pertinent aspects on the subject. The brief facts of the matter were as follows;The appellant company was in the business of retail and wholesale of general hardware, specialized mining and industrial cutting tools and protective clothing from No. 2 Hood Road, Southerton, Harare under the name Mining and Industrial Suppliers. The respondent employee was a former employee of the appellant company. He was engaged as a clerk/counter salesman and was later promoted to the position of external sales representative. Respondent left employment with the appellant and entered the services of an undertaking known as RG Tools Zimbabwe carrying on business from No. 196 Glen Eagles Road, Willowvale, Southerton, Harare. When the appellant and the respondent entered into the contract of employment they acknowledged that, by virtue of his duties, the respondent would become possessed of knowledge of proprietary rights of the appellant in the business carried on. Such proprietary interests included trade secrets and details of trade connections. They also agreed that for the purpose of protecting the proprietary rights against the abuse of their knowledge by the respondent during the period of employment and after he left employment with the appellant, it was necessary for the respondent to undertake a restraint of trade in favour of the employer that for a period of two years after his employment he shall be restrained from being interested either directly or indirectly and whether as a Director, Partner, Owner, Promoter, Principal, Agent, Representative, Shareholder, Financier or Employee in any undertaking involved directly or indirectly in any of the business undertaken by the employer among other things.

As an external sales representative the duties of the respondent involved the promotion and sale of appellant’s products to old and new customers. He would visit customers at their places of business to discuss with and explain to them the qualities of the products sold by the appellant. As a result the respondent acquired knowledge of the names and addresses of the customers. He got to know of their special requirements which the appellant had to meet. The appellant was obviously irked by the respondent’s new venture after leaving employment and sought to enforce the restraint of trade. Unfortunately for the employer the restraint was deemed unreasonable. In dismissing the appeal the court had this to say;

“A restraint of trade which does no more than protect the employer against mere competition from a former employee by preventing him or her from carrying on business similar to that undertaken by him or entering the services of an undertaking carrying on business similar to that undertaken by him in fear that in doing so the employee would exercise the knowledge and skill acquired during employment with him is an unreasonable restraint. So is a restraint of trade which is too wide as to time or place or scope depending, of course, on the nature of the business carried on and the duties of the employee.”

It is therefore pertinent that in crafting clauses in restraint of trade in employment contracts due care be placed on the scope of the restraint clauses to ensure that they are not patently meant to stifle competition and not unnecessarily wide, lest they will be deemed unreasonable and unenforceable by the courts of law.

The contents of this article are for general information purposes only and do not constitute our legal or professional advice. We accept no responsibility for any loss or damage of whatsoever nature which may arise from reliance on any of the information published herein.

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