2 days ago
South Africa: Restraint of trade agreements, blanket ban backfires in Labour Court
It's not uncommon for businesses to want to stop former employees from joining a competitor. But just having a restraint-of-trade clause in a contract doesn't mean it will hold up in court. A recent Labour Court case shows how these clauses can backfire, especially when there's no clear evidence that the business is at risk.
What happened?
MSA Outsourcing Solutions, a company that supplies remote staff to international clients, tried to stop two former employees from working at a competitor, Exclusive Prep. The employees, who had been service agents, were now working in senior roles at the new company. MSA claimed they could hurt its business by taking clients or using confidential information.
MSA asked the court to urgently stop them from working at Exclusive Prep or contacting MSA clients or staff. But the court wasn't convinced.
What the court said
The judge dismissed the case and ordered MSA to pay the legal costs. Here's why:
- The employees weren't senior enough. They didn't have access to sensitive strategy or client data. They were service agents, not decision-makers.
- There was no proof of wrongdoing. MSA didn't show that the employees had taken confidential information or poached clients.
- The restraint was too broad. It tried to stop them from working in the whole of South Africa for a full year. That wasn't seen as reasonable.
- Competition isn't always unfair. People are allowed to use the skills they've gained in a job. You can't stop someone from earning a living just because they're now working for someone else.
Read the full judgment here
What this means for HR and legal teams
This case is a good reminder that restraint-of-trade clauses aren't a catch-all. If you want to protect your business, you need to:
- Be specific. Restrict only what's truly sensitive, like client lists, pricing models, or strategic plans. And only for people who actually had access to that information.
- Keep evidence. If you're going to rely on a restraint, make sure you can show what kind of information the employee had, and why it matters.
- Act quickly. If you wait too long to raise a concern, it's harder to prove the issue is urgent.
- Don't overreach. Blanket bans rarely work. Tailor your clauses to the role, the risk, and the region.
Ensure your contracts stand up in court
It's tempting to treat restraint clauses like a safety net. But they only work if they're fair, focused, and backed by evidence. If your business is serious about protecting itself, make sure your contracts and internal processes are doing the real work. If you're unsure whether your current contracts would stand up in court – or you're facing a potential risk, it's important to seek advice to review and update your contracts.
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