Restraint of trade in the telecommunication space, is it unreasonable?

Restraints of trade are often overlooked in contracts. Very often we sign an agreement but don’t pay attention to the fine print. There have been some interesting court rulings in recent years in the Telecom space that has favoured the employer.

A restraint of trade clause is one that prohibits an employee who leaves the employ of his employer and is restricted from being employed by a competitor for a stipulated period and within a certain geographical area.

This clause has caused much controversy over the years as Section 22 of the Constitution[1] states that “Every citizen has the right to choose their trade, occupation or profession freely. The practice of a trade, occupation or profession may be regulated by law. This right however must be balanced against the sanctity of contracts where both parties to a contract must comply with their contractual obligations.

A landmark case dealing with restraint of trade was Magna Alloys & Research (SA) (Pty) Ltd v Ellis[2] where the court moved away from the English precedent that a restraint is unreasonable and unenforceable and must be proved to be reasonable. Here the court adopted the approach that if the employee alleges the restraint is unreasonable the onus is on him to prove it.

The Telecommunications space is growing rapidly in South Africa and we have various Mobile Network Operators competing with each other. Their intellectual property must be safe guarded and one of the ways in which they do this, is by placing the restraint of trade clauses in contractual agreements with their employees, specifically where the employee is employed at a senior management level.

In Reddy v Siemens Telecommunications (Pty) Ltd[3] the SCA examined the restraint of trade being enforced against the Appellant and considered whether it was reasonable or not, taking into account public policy and the Constitution. The restraint of trade prevented the Appellant from working for its competitor for a period of 12 months and within the Gauteng Province. The Appellant was a senior manager in the business and had signed and agreed to the restraint clause in his employment contract but upon resignation was leaving the Defendant to be employed by the competitor, Ericcson. In coming to its decision to uphold the court a quo’s decision that it was not unreasonable to enforce the restraint of trade, the Supreme Court of Appeal weighed up the following factors:

  • A party complying with its contractual obligations; and
  • A person should, in the interest of society be productive and be permitted to engage in trade and commerce.

A restraint of trade would be unenforceable if it prevented a party, after termination of his employment from partaking in trade or commerce without a corresponding interest of the other party deserving of protection. The court agreed that the restraint was reasonable and that the Appellant was not prevented from working in his field entirely.

Another interesting decision relating to restraint of trade that was heard in the Labour Court was the Vodacom (Pty) Ltd v Motsa & another[4].  The Defendant was an executive at Vodacom who had contractually agreed to be bound to a restraint of trade for 6 months upon his exit as well as to serve a notice period where he could be placed on gardening leave for 6 months. Upon his resignation, he was to be employed by MTN in a senior capacity. In reaching its decision to enforce the restraint of trade, the court said that the employee was a senior employee, who had in depth knowledge of Vodacom’s short and longer-term strategic plans, and that this information would be of benefit to a direct competitor. The court therefore found that the restraint was reasonable and enforceable.

In light of the cases listed about, it would be prudent before signing an employment contract with an employer to ensure that one is fully agreeable with this clause as the courts are slow to interfere in contractual obligations agreed upon between the parties, especially where it is reasonable and does not go against public policy. Moreover, where it is an employee at a very senior level in the business who has access to information that can be utilised by the competitor.

[1] 108 of 1996

[2] 1984 (4) SA 874 (A)

[3]2006 [JOL] 18829 (SCA)

[4]  [2016] ZALC JHB