Restraint of Trade
A restraint of trade is a contractual restriction that limits a person’s ability to compete with a former employer or business partner for a defined period and within a defined area. Its purpose is to protect commercial interests that would be vulnerable if an individual were free to walk away with sensitive information, established client relationships, or specialised operational knowledge.
Restraints appear most often in employment agreements, partnership arrangements, and the sale of businesses. Their enforceability is not automatic; they must be justifiable, narrowly framed, and connected to a real proprietary interest.
What a Restraint of Trade Is Intended to Protect
A restraint is enforceable only when it safeguards a legitimate interest. The law does not allow restraints to shield a business from ordinary competition or to punish former employees. The protected interests must be identifiable, commercially meaningful, and capable of being harmed if misused.
Trade Secrets and Confidential Know-How
These are information assets that are not publicly available, cannot be reverse-engineered, and form part of the business’s competitive advantage. Examples include technical processes, formulae, specialised methods, algorithms, internal pricing models, and strategic development frameworks.
Operational Methods, Tools, and Strategic Plans
Businesses invest heavily in refining their systems, processes, workflow structures, and strategic blueprints. When these insights are gained through involvement in the business, they become part of what the restraint is meant to protect.
Customer Relationships and Commercial Intelligence
Courts distinguish between a simple list of client names (which often carries no protection) and relationship-specific knowledge such as pricing history, decision-making behaviour, purchasing cycles, negotiated concessions, and client sensitivities. This relational capital can give a competitor an immediate advantage if misused.
Proprietary Technology and Internal Assets
Software, tools, templates, and custom-built systems fall under protectable interests when they are unique to the business and not publicly accessible.
The stronger and more clearly defined these categories are, the easier it becomes to justify the restraint.
Components of a Restraint of Trade Clause
A restraint that is vague, overly broad, or ambiguous will rarely survive scrutiny. Courts expect clarity on what exactly is being restricted and why the restriction is necessary.
Restricted Activities
The clause should describe the specific conduct that would place the proprietary interest at risk. This may include competing in a certain sector, working with a specific category of clients, rendering similar services, or exploiting confidential information. Precision here is essential; broad prohibitions are difficult to defend.
Non-Solicitation Measures
Protecting relationships is often as important as restricting direct competition. A non-solicitation clause prevents a former employee or partner from approaching clients, suppliers, or employees in a manner that undermines the business’s established commercial ecosystem.
Geographical Boundaries
The area must reflect the actual market footprint of the business. A nationwide restraint for a regionally focused enterprise will almost always be challenged, while a tightly aligned geographic scope increases enforceability.
Duration of the Restraint
The timeframe must correspond to how long the information or relationships retain commercial sensitivity. For example, industries with long-term client retention may justify longer periods than industries where competitive information becomes outdated quickly.
Clarity, proportionality, and direct linkage to the proprietary interest are what make a restraint defensible.
Enforceability of Restraint of Trade Clauses
Courts in South Africa start from a simple premise: agreements should be honoured unless they are unreasonable. Restraints of trade are not viewed with suspicion by default; they are enforceable unless the restrained party can show that enforcement would be unreasonable or contrary to public policy.
The assessment is highly factual and centres on proportionality — whether the restriction goes further than necessary to protect a legitimate interest.
How Courts Evaluate Reasonableness
Legitimate Proprietary Interest
The business must demonstrate that it has something specific and commercially valuable to protect. This could be confidential information, sensitive commercial insight, or customer relationships cultivated through time and investment. Without this, the restraint collapses.
Nature and Extent of the Restraint
Courts examine what the restriction actually prevents the person from doing. A restraint that blocks an individual from earning a living in their field, without tight justification, is unlikely to stand.
Duration
The timeframe must correlate with how long the protected information or relationships retain economic value. Six months may be entirely reasonable in one industry and wholly inadequate or excessive in another.
Geographic Scope
The protected area must align with the actual market footprint of the business. If the business operates only in Gauteng, a restraint covering all of South Africa or beyond must be justified.
Impact on Earning Capacity
Courts consider whether enforcement would effectively deprive the restrained party of the ability to work. Restricting competition is permitted; restricting livelihood without justification is not.
Public Policy Considerations
Public policy requires both freedom of trade and the enforcement of contracts. Courts weigh these interests, ensuring that neither is undermined by an overreaching clause.
When these factors align, enforcement is highly likely. Where the restraint drifts into punitive or excessive territory, it will fail.
What Constitutes a Breach of Restraint
Breach does not only occur through ovious or deliberate misconduct. A wide range of conduct may trigger enforcement if it conflicts with the clause’s wording and purpose.
Forms of Breach
Direct Competition
Starting, joining, or assisting a competing business in the protected area and timeframe, even if the job title differs, may trigger a breach if the competitive risk is real.
Client Solicitation
Approaching former clients — whether explicitly or subtly — with the intention of moving their business constitutes a clear breach. Courts focus on the effect of the conduct, not just the wording of the approach.
Use or Disclosure of Confidential Information
Misusing commercially sensitive information to benefit a competitor, accelerate market entry, or undermine the former employer breaches the restraint even without proof of actual commercial loss.
Indirect or Facilitated Competition
Assisting a third party to compete, or using an intermediary to approach clients, may be treated as a breach if it achieves the same outcome the restraint was designed to prevent.
Breaching Time or Area Restrictions
Engaging in restricted activities within the prohibited period or geographic zone automatically violates the clause.
Because restraints protect risk rather than proven harm, a business does not need to show financial loss before seeking relief.
Legal Remedies Available for Breach
When a breach occurs, South African law provides several remedies that address both immediate and long-term consequences.
Interdictory Relief (Injunction)
This is the most common and effective remedy. The court orders the restrained party to stop the conduct immediately. Interdicts can be granted urgently where time is of the essence, especially in cases involving client poaching or confidential information.
Contractual Penalties
If the agreement contains a penalty clause, the employer may claim the stipulated amount. Courts enforce these clauses provided they are reasonable and proportionate.
Damages
Where financial loss can be quantified — such as lost clients, reduced revenue, or increased costs — the injured party may claim damages. This remedy often follows an interdict.
Businesses frequently seek multiple remedies simultaneously to protect their interests.
Reasonableness of Time and Geographical Limits
The enforceability of a restraint often turns on the reasonableness of its scope. Restrictions must relate to the legitimate interests being protected — broad, unbounded restraints rarely survive scrutiny.
When Time Limits Are Reasonable
A period is considered reasonable when it corresponds with:
- how long confidential information retains value
- the duration of customer relationship cycles
- the renewal or tender periods typical in the industry
- the time the business needs to stabilise against the risk of competition
Periods between six and twenty-four months are common, though courts assess reasonableness case by case.
When Geographic Limits Are Reasonable
A defined area should reflect:
- where the business actually operates
- where its clients are located
- where the restrained party had influence or access
Courts reject territorial limits that bear no relation to commercial reality.
Reasonableness does not mean minimal; it means justified.
Alternatives to Restraint of Trade
Restraints are not the only mechanism available to protect business interests. Depending on the risk profile, other tools may be more appropriate or may complement a restraint.
Non-Disclosure Agreements (NDAs)
NDAs prevent the use or disclosure of confidential information without restricting employment opportunities. They are useful when the primary risk relates to sensitive data rather than client relationships or direct competition.
Garden Leave
During the notice period, the employee remains employed and is paid but is not allowed to work. This delays entry into a competitor and limits the immediate use of confidential information.
Both tools can support or, in some cases, replace a restraint depending on the circumstances.
VDM Attorneys — Applying Restraint of Trade Principles in Practice
Restraint of trade agreements sit at the intersection of contractual autonomy, commercial protection, and constitutional rights. Their effectiveness depends on careful drafting, clear justification, and proportionate restrictions.
Whether enforcing a restraint, defending against one, or designing a clause for future use, informed guidance ensures that the balance between commercial protection and personal freedom is maintained. Let our experienced commercial litigation attorneys assist.