Legality

Restraint of Trade

  • A clause in employment contracts preventing individuals from performing similar work for specific time periods.

  • Definition: A person agrees to refrain from certain work or activities under defined circumstances.

    • This is rooted in public interest principles balancing an individual's freedom to work versus the interests of the employer.

Public Interest Principles

  • Freedom to contract and trade is protected under section 22 of the Constitution.

  • The courts aim to balance:

    • The interests of the employee being restrained.

    • The legitimate interests of the employer.

Case Example: Checkers

  • Checkers employs top engineers straight from university, develops their skills, and then enforces restraint clauses preventing them from joining competitors.

  • This strategy fosters intellectual property (IP) retention, making it difficult for competitors to replicate their technology and processes.

    • Checkers pays engineers high salaries to ensure loyalty.

Key Considerations for Restraint of Trade

Elements of Legitimacy

  • Legitimate Interest: Does the employer have a legitimate interest requiring protection?

  • Protection of Interest: Is the restraint aimed at genuinely protecting that interest?

Factors Determining Reasonableness

  • Duration: If a restraint exceeds 12 to 24 months, it’s usually deemed unreasonable.

  • Area: Restraints should not be too broad, such as nationwide for a local employee.

  • Scope: Restrictions should be specific, not barring all economic activities.

Personal Experience with Restraint of Trade

  • Anecdote about a personal experience where an 18-month restriction applied to all sport-related work across South Africa.

  • Importance of thoroughly reading contracts, especially regarding publishing and copyright clauses.

Leading Legal Case: Masson Wesselschein

  • Balances legitimate interests against trade freedoms when assessing restraints.

  • The court evaluates constitutional rights under section 22 versus the interests of the restraining party.

Assessing Reasonableness of Restraint

  • When evaluating if a restraint (e.g., 36 months) is reasonable:

    • Apply legitimacy tests to determine if the restraint is in the employer's interest.

    • Examine duration, area, and scope for reasonableness.

Unfair Contracts

  • Definition: Primarily unfair contracts aren't necessarily illegal; they are simply unjust based on given facts.

    • Lack of bargaining power does not alone render a contract unfair.

  • Key case references (e.g., Saxon case) where extremely unfair contracts could be void due to public policy considerations.

Legal Precedents on Contract Fairness

  • Emphasis on the role of good faith in contracts. Contracts should be executed honestly between parties.

  • Notable cases shaping opinions on fairness include:

    • Inversus case regarding the limitations of freedom of contract due to fairness.

    • Evercrest Market case linked to good faith obligations.

Consumer Protection Act

  • Enforces reasonableness and fairness in specific types of contracts (e.g., real estate transactions).

    • Sellers must disclose necessary repairs to prospective buyers.

Contract Validity and Performance

  • If a contract is deemed illegal, performance is void and can be returned:

    • Parties who performed can seek restitution through undue enrichment claims if benefits were passed unjustly.

  • If a contract is unenforceable but not void, restitution may not be claimed back if the benefits have been consumed.

Grounds for Restitution

  • Claims can be pursued if:

    1. One party was not involved in the illegality.

    2. The illegality concerns one party only.

    3. The act conforms to public interest principles.