Mia de Jager, Partner; and Shannon Busacker, Associate; at Adams & Adams
In South Africa, a restraint of trade does not automatically fall away because employment has ended. If the restraint protects a legitimate business interest and is reasonable in duration, area and scope, it may be enforced regardless of whether the employee resigns, is dismissed, is retrenched or retires.
In GNG Pine Products CC and Another v De Beer and Another, the Labour Court recently considered whether a restraint could still bind a retired branch manager. Mr De Beer had managed GNG’s Polokwane branch for almost 18 years and helped build a customer base of about 460 active customers. His restraint applied for two years after termination “for any cause” and barred him from competing in the coffin, casket and dome industry or soliciting GNG’s customers.
Shortly before his retirement, a competing business was registered in his sons’ names and operated from his home address. Although he denied involvement, the Court found that the arrangement was “nothing more than camouflage” and that his “fingerprints” were “all over” the competing business.
The Court confirmed that restraints are valid and generally enforceable unless the employee shows that enforcement would be unreasonable. The phrase “for any cause” meant that the restraint survived the end of employment, including retirement.
A restraint will usually be enforceable only where it protects a legitimate interest, such as confidential information, trade connections, customer relationships or goodwill. It must also go no further than reasonably necessary to protect that interest.
The Court did not enforce the restraint exactly as drafted. It narrowed the period and area to what was justified by the facts, showing that an overly wide restraint may still be enforced in a limited, reasonable form.
Why this matters
- How employment ends does not matter. A reasonable restraint may still apply after resignation, dismissal, retrenchment or retirement.
- Courts look at substance over form. An employee cannot avoid a restraint simply by acting through family members or related entities.
- Reasonableness remains central. The restraint must protect a real business interest and must not go further than necessary.
For employers, restraint clauses should be specific, up to date and tied to identifiable business interests such as key customers, confidential information or goodwill. They should also reflect the employee’s actual role, area of influence and the risk posed by a competing business.
For employees, retirement or any other form of termination is not, on its own, a way around a restraint.
Before joining or assisting a competing business, it is important to understand whether the restraint remains reasonable and enforceable. Adams & Adams can assist employers and employees with drafting, reviewing and enforcing restraint provisions.
ENDS
