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Labour Law

Understanding Restraints of Trade

Can you restrict what your employees do after they leave your company?

Natasha Moni

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A restraint of trade is an agreement between employer and employee wherein, upon termination of employment and in order to safeguard the employer from unlawful competition, the employee agrees to a restriction of its trading activities.

An employer’s intention to restrict an employee’s trading activities must be clear and unambiguous, as such the agreement must be voluntary, with an understanding of the repercussions that will exist should the contract be breached.

The ambit, area and period of the restraint must be reasonable, justifiable and cannot be against public policy. In other words: To restrain one in his/her professional capacity is unreasonable. However, to restrain a professional from working for a competitor, or in the same or similar industry as the current employer is reasonable. Further, Where ever the employer conducts its business it is deemed reasonable to prevent the employee from working with a ‘like’ company/competitor in the same geographical area. And, provided the employee is paid during the period of restraint then a year restraint of trade will not be seen as unreasonable.

In deciding on the validity of a restraint the courts must balance the competing interests of the employee’s freedom to earn a living with the employer’s right to protect its proprietary interest. For a restraint to be unenforceable a party must clearly show that the effect of the contract was to cause the sterilization of services without any justification for the protection of the employer’s business interests.

Is the restraint reasonable?

Ask the following questions to find out if your restraint of trade is reasonable:

  • Does one party have an interest that deserves protection after termination of the agreement? If so, is that interest threatened by the other party?
  • In that case does such interest weigh qualitatively and quantitatively against the interest of the other party not to be economically inactive or unproductive?
  • Is there an aspect of public policy having nothing to do with the relationship between the parties that requires that the restraint be maintained or rejected?

Where the interest of the party sought to be restrained weighs more heavily than the interest to be protected the restraint is unreasonable consequently unenforceable.

Should you require any further assistance please do not hesitate to contact me on natasha@moni.co.za

Natasha Moni is the founder of labour law firm Moni Attorneys. She first worked for Deneys Reitz and Schindlers Attorneys as a Professional Assistant. In 2003 she realised that she could add more value to her clients at a fraction of the price and opened her own law firm specialising in Labour Law. Aside from her duties in her law firm Natasha instructs law graduates in Labour Law at the Practical Legal Training School and is a past Vice-President of SASLAW. Visit www.moni.co.za for more information.

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Labour Law

When To Collaborate And When To Employ

To help you navigate the maze we have constructed some key questions.

Nicolene Schoeman-Louw

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labour-law

Given the complexity of the labour legislation in South Africa, entrepreneurs are often reluctant to employ and rather look at other forms of agreements to achieve the same outcome. There are instances when it is more appropriate to contract in a different way, but it is important that these reasons are sound.

A number of alternatives could be plausible to consider, these include: Agency, Distribution, Independent Contractor or Supplier Agreements. To help you navigate the maze we have constructed some key questions.

1. Supplier

Question: Is this a unilateral arrangement (to some degree)? In other words, will one party supply or provide something to th other in exchange for payment?

Required Document: Clients or customers are typically engaged by agreement, usually a form of terms and conditions or perhaps even an agreement detailing credit terms. An important provision to include is the aspect of confidentiality and data protection / security. This is crucial from both a customer and supplier perspective.

Related: What Is The Legal Impact Of Acknowledgements?

2. Agency

Question: Do you want to engage multiple people or organisations to sell the goods or services you supply?

Required Document:  An agency agreement could either relate to an individual or an organisation. This means an individual or a business could represent the supplier of the goods or services and earn a commission or remuneration for actual sales. One of the advantages is that this does not create the commitment usually associated with an employment relationship, however, a number of aspects should be carefully considered or constructed including the agent’s powers of representation and some checks and balances should ideally be in place to ensure that these are not exceeded. The process of adjusting commissions in certain instances such as customer complaints or returns.

3. Distribution

Question: Do you sell and market goods? Are you concerned about multiple people or organisations selling the goods you supply, overstepping? Rather prefer that the goods be purchased and delivered to the end consumer from there?

Required Document: A distribution agreement detailing the price to be paid, passing of risk, storage and logistics. This is usually a more appropriate arrangement for a larger scale manufacture or export business. It could also be suitable (where logistics and storage would be less important) for software products. 

Related: The Differences Between A Supplier Relationship, Agency And Distributor

4. Independent Contractor

Question: Have you contracted with an organisation and require a skill you don’t have, to perform the contract only for purposes to finish the contract or project involved? There is no need for the person only working for you.

Required Document: An independent contractor agreement detailing remuneration and term being linked to the contract or project. There is a fine line between these arrangements, labour broking and employment. It is therefore crucial to understand the risks involved and to seek professional guidance when electing to proceed this way. 

Conclusion

It is best to strategically assess your risks, intentions and needs before electing which agreement to use. Contact an expert at SchoemanLaw today.

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Labour Law

An Ongoing Debate: Labour Brokers And Outsourced Labour To Keep Businesses Lean

Every business reaps the consequences of political actions in some way; coupling this with political uncertainty, slow economic growth and an underperforming Rand has brought some businesses to their knees.

Kristly McCarthy

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labour-law

Creating scalable businesses in a tough economy has become particularly eminent in 2018. No stranger to uncertainty, the construction sector, for instance, further plummeted in 2017 and these results have rippled through into this year.

Every business reaps the consequences of political actions in some way; coupling this with political uncertainty, slow economic growth and an underperforming Rand has brought some businesses to their knees.

Wayne Bartlett, Contracts Director for Bartlett Construction says that more than 19 000 jobs were lost in the construction sector alone last year. With the company’s long-standing history of more than half a century in South Africa, Wayne says that we are now seeing more diversification and lean business practices than ever before.

“We are seeing established companies reinvigorating their brands and business strategies. This is not a bad thing – it helps to grow the economy in other areas and establishes more resilience and perhaps more effort by businesses today. Complacency is no longer an option and as such as property management, social housing, renewable energy projects and road infrastructure are just some of the ways that traditional construction companies have branched out,”

Discussing the role that labour brokers in the construction industry and outsourced labour the country over plays, Wayne says: “While physical labour is key in every industry, we see companies reducing their risk by outsourcing work. This creates employment opportunities, funds small businesses and nurtures fresh thinking”.

Related: SA’s Labour Laws: Key Changes And How They Will Affect You And Your Business

Speaking to the topic of mechanisation in industry, Wayne says that while this is on the rise, bricks and mortar still plays a crucial role in business. “More than ever, consumers want value. We want to touch, see and experience what we pay for”.

Skilled labour shortage in South Africa has always been an issue. “We couple this with the need to compete on price whilst factoring in labour issues, BEE policies, trade unions, various regulatory changes and labour brokers”,

In February of this year, third-party suppliers once again came into the spotlight with labour brokers arguing that removing them from the employment equation would trample the rights and protection of employees.

“Despite conflicting views, labour brokers still have a role to play in uncertain economic times, provided that they are properly regulated. This market is huge for people wishing to enter the workplace and needing a platform to do so” Wayne continues.

Wayne concludes saying: “With the YES initiative soon coming into effect, the construction industry looks to empowering and upskilling the youths both in-line with labour brokers and as individual entities.”

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Labour Law

Alternatives To Traditional Legal Services – What Options Do Entrepreneurs Have?

In reality, small businesses that see legal compliance as a priority are often not in the position to hire attorneys.

Nicolene Schoeman-Louw

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Legal Services

Times are tough, especially for entrepreneurs. In order to succeed in the business world, you need “grit” as the Americans say. In addition, to you need access to markets and access to funding.

The problem with accessing sustainable markets, is that it often is a David versus Goliath situation. As a result, long and complex contracts or requirements are set. What is more, because most smaller businesses are more concerned about making sales or simply making ends meet, getting to the legal side of things – well that simply does not happen. This leads to businesses being non-complaint and thus viewed as a risk – as a result cannot access funding.

In reality, small businesses that see legal compliance as a priority are often not in the position to hire attorneys. As a result, their options are:

1. Purchase a template from a news agency

Although very cost effective, the problem with this is that templates are often outdated and the instructions on completion are unclear. If outdated and incorrectly compiled, businesses are, in my view, simply better off without.

Many businesses do not buy templates but actually download it from the internet. The problem with this is that the sources of these are often unclear – so in reality, you really don’t know what you are getting.

Related: SchoemanLaw Shakes Up The Legal Industry To The Benefits Of SMEs

2. Subscribe to legal insurance or legal consultancy

Subscriptions for in case you require legal representation are usually insurance policies. The problem herewith is that often some disputes are excluded, or some advisory needs are not included. Resulting in the business being left without access to these services, in some cases when they need it the most.

In terms of consultancies, these are businesses that are not law firms. In many instances, their service delivery and prices are much more competitive than law firms are. However, should a client be dissatisfied, they have limited recourse. All professionals belong to professional bodies that set and enforce standards. So, contracting with a consultant bears the risk of no specific quality standard guarantee and, in case of dissatisfaction, recourse lies in ombud structures or courts and often cost money.

3. A different way of thinking

It seems that small businesses are really left out in the dark. However, technology and developments in the legal industry may hold the answer. A select few consultancies, and now a law firm, have embarked on automating the documentary needs of small businesses and start-ups. SchoemanLaw Inc. in Cape Town is one of those firms.[1] In essence, this development is addressing a challenge faced by every other purported solution to date. Some benefits of this mind shift include:

  1. Users have access to up to date documents;
  2. It’s instantly accessible and the source is clear;
  3. Some systems include sophisticated help functions so as to ensure correct completion and implementation;
  4. The prices cannot complete with the traditional way of obtaining legal advice;
  5. Those supported by a law firm, are guaranteed the standards and quality associated with a law firm;
  6. Advisory support is often included or can be accessed additionally.

Related: Master The Ins And Outs Of South Africa’s Labour Laws

In addition, relying on more efficient ways of accessing these crucial services also standardises, manages and organises the legal and contractual needs of any businesses. Something that will serve them well whenever they wish to pitch to that large company for that contract that will really change things or access to funding when needing to expand.


[1] For more information: https://www.schoemanlaw.co.za/online-legal-services/

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