Restraint of Trade
Also known as: Restrictive Covenant, Non-Compete Clause, Post-Employment Restraint.
What is Restraint of Trade?
A restraint of trade is a contractual undertaking that limits a party from competing, soliciting clients, or poaching staff after termination. Under South African common law following Magna Alloys v Ellis, restraints are prima facie enforceable, but a court will refuse enforcement where the restraint is unreasonable in scope, duration, area, or activity.
Drafted and reviewed by
Attorney & Founder, My-Contracts.co.za · Legal Practice Council of South Africa (LPC F17333)
Definition and context
A restraint of trade clause is a post-termination restrictive covenant by which an employee, seller of a business, or shareholder agrees not to compete with, solicit clients or employees of, or disclose confidential information of the former employer or counterparty for a defined period and geographic area. South African law on restraints is governed by the common law as authoritatively restated in Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A), which overturned the Roman-Dutch presumption of invalidity and held restraints to be enforceable unless the party resisting them proves unreasonableness.
The reasonableness test was refined in Basson v Chilwan 1993 (3) SA 742 (A), establishing four inquiries: does the restrainer have a protectable interest (confidential information or trade connections); is that interest threatened by the restrainee's conduct; does the restrainer's interest outweigh the restrainee's interest in economic activity; and is there a public-policy factor tilting the scale either way. A fifth factor — whether the restraint is wider than necessary — was added in Reddy v Siemens Telecommunications 2007 (2) SA 486 (SCA). The restraint must be limited in time, geographic area, and scope of prohibited activities; overbreadth is the commonest ground for unenforceability.
In practice, attorneys draft restraints with cascading fall-back periods and territories and include severability so a court may strike down the widest formulation and enforce a narrower one. Restraints against senior employees with access to customer lists, pricing, and know-how are routinely upheld for 6–24 months; restraints against junior staff are typically struck down for lack of a protectable interest.
Frequently asked questions
Is a restraint of trade enforceable against an employee in South Africa?
Yes. Since Magna Alloys v Ellis 1984 (4) SA 874 (A), restraints are prima facie enforceable and the onus is on the employee to prove unreasonableness. The Basson v Chilwan four-stage test requires the employer to demonstrate a protectable interest (typically confidential information or trade connections) that is actually threatened. Courts routinely enforce restraints of 6–24 months against senior staff with client access; restraints against junior employees without a protectable interest usually fail.
How long can a restraint of trade last in South Africa?
There is no statutory maximum. Courts assess reasonableness on the facts — duration must be no longer than necessary to protect the legitimate interest. Typical enforceable periods are 6 months for sales staff, 12 months for senior employees, and up to 24 months for sellers of a business or founding shareholders. Anything beyond 24 months faces heightened judicial scrutiny.
Can a court rewrite a restraint of trade that is too wide?
South African courts do not rewrite restraints, but they apply partial enforcement if the clause is severable. Drafters commonly include cascading formulations (24/18/12 months; national/provincial/metropolitan) so a court may strike the broadest and enforce a narrower fall-back. Without severability, an overbroad restraint may fail entirely.
Does a restraint of trade need to be paid for to be enforceable?
No. Unlike some jurisdictions, South African law does not require separate consideration for a post-employment restraint. The employment contract itself is sufficient consideration. Payment during the restraint period is a factor a court may weigh under the Basson v Chilwan public-policy leg when balancing interests, but is not a precondition to enforceability.
Contract templates using this term
7 templates reference Restraint of Trade.