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Are Restraints of Trade Enforceable? Ivan Israelstam Gives Key Answers

If an employee resigns to move to a rival business, can you get a court interdict to prevent them from working for the competitor?

Monique Verduyn

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  • Company: Labour Law Management Consulting
  • Player: Ivan Israelstam
  • Contact: +27 (0)11 888 7944
  • Visit:  www.labourlawadvice.co.za

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Are you adequately protected against the threat posed by employees who leave to join competitors?

There are few things more annoying than employing a new staff member, training them to do the job, and having them resign just as they start to earn their keep. What’s worse is when they leave to join a competitor.

Related: 9 Reasons to Quit Your Job As Soon As You Can

Many employers try to prevent this by making new recruits sign a restraint of trade agreement in which they agree that, should they resign, they will not take up employment with a competing business in a defined geographical area for a specified period of time.

These agreements have proved to be a vexing issue. The validity and enforceability of restraint agreements requires consideration of a few key aspects. Issues such as the duration and scope of the restraint are areas of concern for the courts.

To ensure that a restraint of trade is enforceable, it should go no further than what is reasonably required to protect the company’s proprietary interests. We asked Ivan Israelstam, CEO of Labour Law Management Consulting, to explain.

1. When is a restraint of trade enforceable?

The two primary criteria for enforceability are firstly, whether the restraint agreement has the effect of providing a real and material protection for the employer.

The second is whether the former employee’s compliance with the restraint will result in their being unable to earn a living. It’s vital that these agreements are limited to no more than what it is absolutely necessary to protect the employer.

2. What period should the restraint be for?

There is no statutory rule on this but a period of between one and two years is most common practice. The restraint of trade conditions need to be fair.

The shorter the period, the better, and the more likely it is to obtain a favourable ruling. If a company goes too far, the judge may simply find it unenforceable in totality.

3. Does an employer need to compensate an employee for a restraint?

While this is not a legal requirement, it serves to strengthen the validity of the restraint especially if the compensation covers the remuneration that the employee would have earned during the restraint period.

4. What if a business unwittingly hires a candidate who is operating under a restraint of trade?

The previous employer would have the right to send letters of demand to the former employee and new employer requiring that the new employment be terminated. Should they not comply, the old employer could sue both of them in civil court.

5. How can employers guard themselves in future to avoid such situations?

Ask all potential employees to show you all contracts signed with their previous employers. Get sworn statements from them in respect of their legal obligations.

Get signed indemnities from all new employees undertaking to pay all costs of any legal actions by former employers which are caused by the employee.

Protectable proprietary interest: It’s not unreasonable for a company to want to prevent its competitors from gaining an unfair advantage. Generally, a restraint of trade is not about preventing an employee from moving on.

Instead, the goal is to stop them from passing on sensitive inside information on customers, strategy methodologies, pricing and more.

To be effective, restraint of trade contracts must therefore set out why the company has a protectable proprietary interest in the information that the employee has access to. That’s why careful drafting of the agreement is critical to ensure successful enforcement.

Related: Hustling on a Side Business? How to Find the Time.

Monique Verduyn is a freelance writer. She has more than 12 years’ experience in writing for the corporate, SME, IT and entertainment sectors, and has interviewed many of South Africa’s most prominent business leaders and thinkers. Find her on Google+.

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Company Posts

Temporary Employment Service Providers Underpin IPP Economic Development Goals

Preference will be given to Independent Power Producer projects valued at R56 billion that possess a plant technology and location that contributes to local economic development.

Workforce Staffing

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“Independent Power Producer (IPP) projects will provide 61 600 full-time jobs,” stated Energy Minister, Jeff Radebe, while announcing the plan for 27 new renewable energy plant projects to be rolled out under the IPP programme.

This is an excellent and beneficial initiative. However, the fact that many of the skills will be required only on a temporary or project basis during the construction and setting up of each facility, may pose a challenge for IPPs looking to get started.

Skills sourcing

Sean Momberg, Managing Director of Workforce Staffing, says that IPP projects stand to benefit from consulting experienced Temporary Employment Service (TES) providers. “IPP projects require a significant investment in human capital, which becomes more complex and time-consuming by having to source local staff,” he explains.

Related: Temporary Employment Providers — Friend or Foe?

“Once the main contractor is appointed, they are responsible for sourcing skilled staff and suppliers for the duration of the construction and commissioning phases. A TES provider can significantly reduce the workload, by managing all human resources and industrial relations for them.”

Building an alternative power plant is a lengthy process. The 27 projects mentioned have spent approximately two years in this sign-off period and, now that they have been approved, IPPs need to work quickly to get the ball rolling. From civil work and environmental impact assessments, to mechanical, engineering, electrical and physical site building — each project requires a varied and vast number of skills.

Running interference

“TES providers go beyond providing temporary and project-based staff,” says Tebogo Moalusi, National IR Director at Workforce Staffing. With unions such as NUMSA protesting against IPP projects, even though job losses due to coal mine closures were unrelated to the introduction of IPPs, TES providers’ expertise in managing union relationships can prove a valuable aid to IPPs.

“IPP projects commonly face hinderances like demarcation disputes,” adds Tebogo. “A reputable TES provider understands local economic development as well as relationship management and works with both local employment providers, the community and unions to mitigate concerns.”

IPP projects often involve investment from international players and communication between international and local parties. Sean says that TES providers assist in breaking down these communication barriers, focusing on the importance of local job creation, while ensuring that international standards are maintained.

 “TES providers assess local catchment areas keeping fair processes in mind. This takes procurement into account, and sourcing of local equipment, accommodation, transport and catering is all considered,” he says.

Frequently with international parties, payment terms are set at 90 days from invoice. Sean stresses that this is not sustainable in local environments, where suppliers and staff don’t have the financial capacity to work within those terms. A reputable TES provider has the financial capacity to ensure that payment demands are met weekly or monthly, based on local requirements.

Related: Does A Strike Hit The Heart Of Your Business?

A focused approach

“A TES provider’s focus remains employment. Although the IPP’s goal is to complete their project on time and within budget, TES providers have the experience and knowledge to provide employment and procurement solutions that underpin the IPP’s objectives, ensuring a smooth and hassle-free project roll out,” Sean concludes. n

Temporary Employment Services’ part in minimising IPP job losses

  1. Onsite training and skills courses upskill temporary project workers.
  2. Skills transfer helps ensure future employability.
  3. Entrepreneurial skills development fostered for post-project maintenance contract work.

Workers obtain marketable skills they can add to their CV.

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Company Posts

Is Your Critical Illness Cover Keeping Up With The Times?

Critical illness cover was originally the brainchild of a forward-thinking surgeon who noticed more and more patients were struggling to make ends meet after recovering from life-threatening conditions.

BrightRock

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Critical illness cover was originally the brainchild of a forward-thinking surgeon who noticed more and more patients were struggling to make ends meet after recovering from life-threatening conditions. This increase was driven by medical advances, which drove a spike in survival rates – and its consequential recovery costs – something that old school insurance policies did not factor into their products. And while we all know the medical field continues to move forward through innovation, it’s important to ask yourself: has your cover kept up?

Medical advances during the 1960s and 70s didn’t just lead to an increase in patients’ life expectancies, but it also led to financial difficulties for many survivors of critical illnesses and –injuries. Many of these patients were faced with rehabilitation costs and additional expenses caused by lifestyle and/or professional adjustments they had to make to stay on the road to recovery, and they struggled to make ends meet.

Dr Marius Barnard, brother of the famous Dr Christiaan Barnard and respected surgeon in his own right, identified an opportunity to provide these patients with risk cover for these needs. He partnered with a life insurer in 1983, and critical illness cover was born.

Initially covering only four major conditions, medical advances soon enabled the expansion of critical illness cover to many more conditions, like Alzheimer’s or Parkinson’s disease, paraplegia, major burns and brain damage. Lifestyle factors such as smoking, obesity and lack of exercise have increased the likelihood of critical illness claims, but the claims are becoming less severe, thanks to improved medical techniques for the treatment and detection of life-threatening conditions.

Related: How BrightRock Is Rocking The (Industry) Boat In Only 5 Years Since Launch

Where does critical illness fit into your financial plan?

While medical and, possibly, gap cover can make provision for medical expenses, critical illness cover is instrumental in covering any gaps and providing for lifestyle changes that result from conditions like paraplegia, like the expenses involving alterations to a home to be wheelchair-friendly.

Many medical aid schemes may also exclude certain treatments or not cover them in full, or you might have reached your annual limit. In these instances, critical illness cover may just come to the rescue.

Considering all the scenarios where critical illness products have the potential to come into play, it’s important to ask yourself how forward-thinking the insurance you signed up for really is. Does your insurer factor in the latest treatments, and have they adjusted the range of conditions they provide cover for to keep up with the latest medical research and survival rates?

How many conditions are covered?

Start by obtaining the list of conditions covered by your critical illness policy, because the number of conditions covered vary from company to company. There are life insurance providers that provide cover for over 300 conditions, while some assurers cover fewer than 100 conditions. Some life cover providers also take into account the treatment, clinical impact and effect of an illness, which ensures protection for as yet undiagnosed conditions – this is the kind of cover you should be signing up for.

How do the pay-outs work?

You should also consider the pay-out structure and/or –options of your critical illness policy. There are policies with pay-out options that are helpful for conditions that involve large expenses initially, followed by smaller amounts over a number of months. Importantly, you should be allowed to make certain choices about how your cover should pay out at claim stage, when you know what your physical and financial needs are.

What about smaller events, like accidents?

Forward thinking life cover providers have also identified a need for financial protection in instances where you might have less critical, but still traumatic illnesses or injuries and spent little or no time in hospital.

Related: BrightRock’s 5 Entrepreneurial Tips For Start-ups

Just think about the myriad of costs involving corrective procedures, medical aid co-pays, hospital costs, rehabilitation, assistive devices, physiotherapy, wound care, nursing and surgery costs – not to mention being unable to earn an income while you recover from a serious illness or injury. Many of these expenses might be typically incurred just because you aren’t fully covered by medical aid schemes and gap cover products.

Innovations like cover that precisely matches your needs are done in the same spirit of innovation and matching the needs of patients as we saw with Dr Marius Barnard. So before signing up for, or selling your next critical illness policy, ask yourself: Does my cover provider do the same?

  • Schalk Malan is the CEO of BrightRock, provider of the first ever needs-matched life insurance that changes as your life changes.

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Company Posts

Keys To Simplify Payroll Compliance

Human resources departments across the country cite compliance as one of the top challenges they face. As an SME owner, it’s up to you to ensure that your company’s personnel business practices adhere to the current laws.

Sage

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Keeping accurate records to document your company’s compliance is just the beginning, says Ania Strydom, Compliance Specialist at Sage. 

1. Why is payroll compliance so important?

Payroll is the biggest expense for most employers. Employers must comply with all labour and tax laws that govern the payroll to avoid financial and legal risks and to protect the employees and the business. The risks of getting it wrong include:

  • Censure
  • Interest or fines by authorities
  • Imprisonment in cases of fraud or extreme negligence.

Payroll fraud is one of the most common white-collar crimes in the business world; what’s more, inaccurate payments and non-compliance can cost a business dearly.

Related: How To Get The Most From Your Payroll Solution With The Sage Academy

2. What are the implications for staff if a company is non-compliant?

non-compliant-companyThe payroll is one of the most crucial links in the employee-employer relationship. Late or inaccurate wage and salary payments, or inaccurate calculations of other earnings (such as overtime), deductions (such as PAYE and UIF), and contributions (such as retirement fund or UIF contributions) can be extremely damaging to the morale of the workforce.

By law, every employee is entitled to a payslip and tax certificate (IRP5/IT3(a)). Employees need payslips for purposes such as applying for personal or home loans. Accurate and easy to understand payslips will boost employee satisfaction and trust in the company, with a positive impact on business performance.

What’s more, employers must make sure UIF contributions are correct so that employees get the full amount they are entitled to if they need to claim.

3. How will the company’s growth prospects be affected if the company is non-compliant?

While an efficient payroll system enhances staff morale and boosts an organisation’s reputation, mistakes in record-keeping and compliance can result in punitive penalties and hurt the company’s brand. Compliance mistakes with payroll can be expensive and potentially catastrophic which subsequently results in business risks.

Related: How Do I Go About Valuing My Business?

4. How can a business ensure it is payroll compliant?

South African tax regulations and labour laws are and continue to be more complex. Keeping track of all the payroll legislative requirements can be challenging, but the risks of non-compliance are high and businesses can no longer rely on spreadsheets and other manual methods to do their calculations, report and file returns.

Automated solutions are becoming more essential for keeping reliable records, reporting and performing accurate payroll calculations.

The package you choose should:

  • Be tailored for the local tax law, labour law and regulatory environment
  • Manage all the complex calculations and regulatory reporting the business must do timeously
  • Feature automated updates to ensure the company always processes on the latest software and legislative version.

This will ensure it avoids censure, fines, penalties, interest and/or imprisonment as a result of non-compliance.

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