Discussion on Restraints of Trade

Topics: Contract, Contract law, Restraint of trade Pages: 7 (2061 words) Published: August 30, 2011
Law of Contract|
A discussion on the Restraint of Trade||


Business owners in an attempt to protect the goodwill of their business will often include “Restraint of trade” provision in employment agreements, sale of business agreements etc. Thus, an agreement, which someone is restricted in his freedom to carry on his trade, profession, business or other economic activity, is generally called an agreement in restraint of trade. Having said that, this paper is directed towards a brief and critical discussion on the concept of restraint of trade in which parties may find themselves. It is based on a given scenario whereby the facts, the legal issues, legal principles, and application of the law to the facts would be discussed in the form of advice to Y jeopardise


The facts to the case are as follows:
X an estate agents company, sought to restrain its former employee Y (who had worked very successfully for X for approximately 3years as an estate agent) from doing business on her own as an estate agent in the city of Windhoek. The restraint clause was in the form of a written contract of employment. The restraint contract prevented Y from being involved in any way whatsoever in an estate agency or any business which was the same or similar to X’s estate agents company. Y was limited as to geographic area within 65 kilometres from Windhoek General Post Office, which also includes six other municipalities for a period of 2 years following the termination of Y’S employment as an employee.

Legal Issues

* Is there a legitimate interest of the employer (X) that deserves protection at the termination of the employment agreement by Y? * Whether the restraint is reasonable or not?
* Whether the use of Y’s general skills and knowledge would be in breach of the restraint of trade agreement, which Y knowingly signed? * Is it legal to have restrain clause in an employment contract? * What is the longest period that it can be applied to?

Legal principles:

From a common law perspective, the employment contract is a contract concluded between two equal parties to their mutual benefit. Here, the employer and employee voluntarily negotiate a contract that regulates their relationship, and this contract sets out their respective rights and duties. Restraints in trade are commonly found in employment contracts whereby employees have a right in protecting themselves against competition from their employees during the employment relationship and after when the employment relationship is terminated for whatever reason. The objective of such a restrictive provision in the contract of employment is to limit the freedom of employees who would otherwise have to leave their employment and start a new business or work for another employer in competition with a former employer. The Appellate Division has described the objects and purpose of a restraint of trade clause as follows:

“The legitimate object of a restraint is to protect the employer’s goodwill and customer connections (or trade secrets) and the restraint accordingly remains effective for a specified period (which must be reasonable) after the employment relationship has come to an end. The need for the protection exists therefore independently of the manner in which the contract of employment is terminated and even if this occurs in consequence of a breach by the employer.” An employee has an obligation in an employment contract to protect confidential information and trade secrets. The employee also has a duty to serve the interests of the employers’ business and a duty to avoid conflicts of interests. Confidential information and trade secrets are dependent upon relevant circumstances. The mere fact that a trader chooses to categorise something secret or confidential does not per se make it so. The information concerned must have the necessary quality of confidence, meaning it must not be something of public...

References: * Deeksha Bhana. 2007. Students guide to the law of contract. Juta & Co. Cape Town, South Africa
* Van der Merwe
[ 9 ]. 1977 (4) 494 ( N) 505F
[ 10 ]
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