Draft Restraint of Trade
Section 3.21
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A contract in restraint of trade is one by which a party in some way restricts a person's future liberty to carry on a
trade, business or profession.
An agreement whose sole purpose is to restrain trade is unenforceable.
The history of the courts' attitude to restraints on competition shows considerable variation in approach to the
questions at different times. By the end of the nineteenth century, the English courts had settled on an essential
paradox. The doctrine of freedom of contract (as the legal reflection of free market principles) prevented
intervention in freely agreed contracts. Yet if that contract restricted one party's economic freedom, the courts
would intervene (contrary to the doctrine of freedom of contract) in order to determine whether the extent of the
restraint was reasonable.
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A restraint of trade clause is not void but only prima facie void. That means that the burden of proof lies
on the party seeking to uphold the clause to show that it is valid. If that party fails to discharge the
burden then the clause is void. (Some later cases have preferred the term 'unenforceable' to 'void':
The party seeking to uphold the clause discharges the burden of proof by showing that the restraint is
reasonable in the interests of the parties and in the interests of the public.
In order to show that the clause was reasonable between the parties it had to be shown that the clause
protected a legitimate interest.
Restraint of Trade and Confidentiality Agreement
By :-
__________________________________
EMPLOYEE
Identity Number
(hereinafter referred to as "XYZ")
In favour of :-
__________________________________
ABC (PTY) LTD
Registration Number
(hereinafter referred to as "ABC")
RESTRAINT OF TRADE
Definitions
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The company
means ABC, … (a company / close corporation / sole proprietor)
"XYZ"
means … having identity number ….
"ABC"
means … having registration number …., a company / close
corporation duly incorporated / registered in terms of the
company laws of South Africa, and shall include its successors
in title and assigns in its business and underlying assets.
"Restricted business"
means any business which is the same as that conducted
by the company as inter alia, [describe nature of business, e.g.
pizza suppliers, pizza based restaurateurs, pizza franchisers
and/or pizza business or business which involves the making of
pizza as its primary and/or core activity during the twelve
months preceding the date on which XYZ ceases to be an
employee of ABC (Pty) Ltd];
1.
XYZ is employed at ABC as _______________________ (position).
2. The employment of XYZ by ABC is vital to the future success of ABC.
3. XYZ agrees and acknowledges that during the course of his employment or
association with ABC, he will develop and maintain close personal contact with
many of the clients of ABC, be permitted to establish, on behalf of ABC and for its
benefit, the necessary reports with its clients and have free access to the
confidential information of ABC concerning its financial and marketing operations,
customer lists, special arrangements with customers, technology and know-how,
and generally, methods of carrying on business. (Depending on the nature of the
company's operations, this clause could be verified to address specific matters
which the employee would have access to during the course of his /her
employment).
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4. In the circumstances, while employed as an employee or associate of ABC, he
will maintain close personal contact with existing clients and future clients and
have access to existing and future confidential information of ABC
5. If on the expiry or early termination for any reason of XYZ’s employment or
association with ABC, and if XYZ was to join and become associated with any
competitor of ABC or commence business on his own in competition with ABC, in
the area recorded in clause 9, the benefit of ABC confidential information and its
client collection will inevitably become available to XYZ or to the competitor and
enable XYZ or the competitor to compete unfairly with ABC and cause ABC great
prejudice.
6. The company would suffer substantial damage if XYZ was to operate or be
involved in a business similar to that carried on by ABC within the area referred to
in clause 9 and during the period recorded in clause 8.
7. There is a real possibility of damage being inflicted on ABC and its employees as
a result of an employee or associate attracting away other employees of ABC.
8. In the circumstances and in order to protect the proprietary interests of the
company, its successors-in-title and assigns in its business, and while employed
by ABC and for a period of one / two years after termination of his employment
with ABC, for whatever reason, XYZ irrevocably undertakes in favour of ABC, its
successors-in-title and assigns not :-
8.1 in the area recorded in clause 9
8.1.1 in any capacity whatsoever, including, without limitation, in the
capacity as proprietor, partner, director, shareholder, employee,
independent contractor, consultant, contractor, financier, agent,
representative,
assistant,
principal,
manager,
adviser,
administrator, trustee or beneficiary of a trust, or member of a
close corporation, and/or any like capacity
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8.1.2 directly or indirectly, carry on or be interested or engaged in or
concerned with any business, or be interested in or concerned
with any company, firm, partnership, close corporation, trust,
undertaking or concern which carries on any business, which
competes and/or carries on any restricted business, directly or
indirectly, with the business carried on by ABC at the date that
XYZ ceases to be employed at ABC for any reason whatsoever;
8.2 persuade, induce, incite, solicit, encourage or procure any employee,
consultant, agent, representative, supplier, principal, client, dealer,
financier, trade connection or contractor to vary or terminate its
agreements or arrangements with ABC, leave the employ of ABC, sever,
curtail, restrict or alter its employment, arrangements or business dealings
with ABC in any way or refrain from or discontinue doing business or
continuing its ongoing arrangements on the same basis as previously with
ABC;
8.3 solicit or conduct negotiations or conclude transactions or arrangements
with any party in relation to whose products and services ABC possesses
distribution rights or which has entered into any agency, franchise,
registered user or licence agreement with ABC relating to such products
and services;
8.4 furnish or disclose any information, whether confidential or otherwise, of
or relating to ABC, its management, operations, business activities,
directors,
management,
staff,
agents,
representatives,
suppliers,
principals, customers and trade connections and any of its trade secrets
or know-how or give any advice in regard thereto;
8.5 comment upon, discuss, debate, issue comments or statements, whether
in writing or orally, of or in regard to the operations or business of ABC, its
philosophy, intentions, plans, projections, budgets or its directors,
management, employees, consultants, agents, representatives, suppliers,
trade connections or customers.
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9. The area to which the restraint recorded in this clause applies is [the whole of the
Republic of South Africa / Gauteng / six kilometre radius of ABC's business
premises] and any other countries with whom ABC does business at the time that
XYZ’S employment with ABC is terminated for any reason whatsoever.
10. XYZ acknowledges that :-
10.1
the restraint imposed upon him hereunder are reasonable as to subject
matter, area and duration, and goes no further than is necessary to
reasonably protect the proprietary interests of ABC;
10.2
his experience and capabilities are such that he will be able to obtain
employment or involve himself in any other activity which does not
impinge upon or contravene any of the undertakings given by him in this
agreement and that enforcement of a remedy by way of an interdict will
not prevent him from earning a livelihood and being able to make a full
commitment to such other activities.
11. Notwithstanding the manner in which the above undertakings have been linked
together or grouped grammatically, each of the above undertakings constitute a
separate and independent restraint severable from and independent of each of
the other restraints in regard to all aspects thereof including without limiting the
generality of the aforegoing, in respect of :-
11.1
the company, ABC, its successors-in-title and assigns;
11.2
each of the months falling within the period of the restraint and for the
purposes of severing this undertaking, each magisterial district shall be
regarded as a constituent unit of this period;
11.3
the area to which the restraint applies and for the purposes of severing
this undertaking, each magisterial district shall be regarded as a
constituent unit of this area;
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11.4
every capacity in which XYZ is restrained from acting or competing;
11.5
every activity in which XYZ is restrained from acting or competing;
11.6
each of the products, services and business in which XYZ is restrained
from acting or competing; or
11.7
the types of businesses covered by the restraint.
12. Should any provisions of clause 8 or part thereof be found by any competent
court to be defective or unforceable for any reason whatever, the remaining
provisions of clause 8 shall continue to be of full force and effect.
13. For the purposes of clause 8, the term “successors-in-title and assigns” shall
include without limiting the generality of the aforegoing term, any person, firm,
company, close corporation or association of persons who or which acquires –
13.1
the whole part of the goodwill of the business; or
13.2
by cession the right to enforce the restraints embodied herein.
14. XYZ agrees that the undertakings in clause 8 are given to ABC on its own behalf
and for the benefit of its successors-in-title and assigns.
Accordingly, the
provisions of clause 8 shall be construed as separate stipulations in favour of the
company and its successors-in-title and assigns, which successors-in-title and
assigns shall be capable of accepting the rights conferred by clause 8, at any
time without written notice to that effect to XYZ,
15. The aforegoing provisions of this clause 8 shall not be construed as prohibiting
XYZ from –
15.1
acquiring or holding not more than 5% of the issued ordinary shares in
any company which is for the time being listed on any recognised stock
exchange, even if
such company carries on any business which XYZ
is prohibited from conducting in terms of clause 8;
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16. Should any party be listed on any recognised stock exchange and as such be
required by such stock exchange to disclose any information relating to this
agreement it shall be entitled to do so
17. All private information relating to this agreement shall subject to 16, be kept
strictly confidential and shall not be divulged by any party to a third party without
the prior written consent of the other parties hereto.
SIGNED by ABC at ____________________________ on the _______________ day
of ______________________ 2001.
AS WITNESSES:
1. ______________________________
______________________
2. ______________________________
for and on behalf of :ABC (PTY)LTD
Duly authorised
1
SIGNED by XYZ at __________________________ on the __________________ day
of ________________________ 2001.
AS WITNESSES:
1. ______________________________
______________________
2. ______________________________
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XYZ
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