Essential Guidance on Key Steps and Risks for Employers
The recent ruling in Backsports (Pty) Ltd v Motlhanke and Another provides important lessons for employers seeking to enforce restraint of trade clauses. While the judgment raises questions over the enforceability of such clauses – particularly in cases of dismissal – it also serves as a timely reminder of the need for meticulous preparation.
This article offers a clear summary of the case and outlines practical advice for employers on how to strengthen their position when enforcing restraint clauses.
In this case, Backsports (Pty) Ltd sought to enforce a restraint clause against Ofentse Retshidisitswe Motlhanke, a former senior stream lead who was dismissed after less than 10 months of employment. The restraint clause, which prohibited the employee from soliciting customers, recruiting colleagues, and engaging in certain competitive activities, was undisputed in its existence.
However, the court found that the employer had not provided sufficient evidence that the employee had access to confidential information or had used trade connections to the detriment of the business. Crucially, the fact that the employee was dismissed rather than resigning was deemed to have effectively waived the employer's right to enforce the clause.
Key Findings and Legal Principles
Burden of Proof: The court reiterated that an employer must clearly establish not only the existence of a restraint clause but also demonstrate that its terms have been breached. Once the allegation is made, the onus shifts to the employee to prove that the restraint is unreasonable.
Assessment of Confidentiality: Whether the information in question is genuinely confidential or of economic value is a factual enquiry. Employers must show that the information is useful, not publicly available, and limited to a small group of individuals.
Impact of Dismissal: A significant takeaway is that dismissing an employee can undermine the enforceability of a restraint clause. When an employer terminates an employee, especially after a short period, it may be seen as a waiver of the right to enforce post-employment restrictions.
Fairness and Reasonableness: Although fairness was referenced by the court, it is not a standalone reason to refuse enforcement. The decision focused on whether the employer's proprietary interests were genuinely at risk.
Implications for Employers
The judgment – regardless of whether it will be challenged – underscores the importance of building a robust case when planning to enforce restraint clauses. Employers must be proactive during the employment period, ensuring that:
Role clarity is established – Job descriptions should clearly outline access to sensitive information and client relationships.
Documentation is rigorous – Employers should maintain detailed records of interactions with clients, evidence of confidential information dissemination, and any instances where potential breaches of the restraint clause occur.
Dismissal procedures are carefully managed – If dismissal becomes necessary, ensure that the process is thoroughly documented and that the reasons for termination are unambiguous. This may help preserve the right to enforce contractual provisions, despite the inherent challenges.
Suggested Actions for Employers
- Draft Precise Clauses:
- Ensure that restraint clauses are narrowly tailored to protect genuine business interests.
- Clearly define what constitutes "confidential information" and specify the circumstances under which the clause will apply.
- Maintain Comprehensive Records:
- Regularly update and safeguard evidence showing that an employee had access to sensitive information or trade connections.
- Document any incidents that might later be construed as a breach of the restraint clause.
- Review Dismissal Practices:
- Be mindful that dismissal may weaken the enforceability of restraint clauses. Consider whether the circumstances of termination might be seen as a waiver of rights.
- If enforcing a restraint clause post-dismissal is a priority, ensure that any disciplinary process is rigorous and that reasons for dismissal are clear, mitigating the risk of a waiver argument.
- Seek Legal Advice Early:
- Consult with legal experts when drafting or revising restraint clauses to ensure they meet current legal standards.
- Engage legal counsel to assess whether your internal procedures and documentation are robust enough to support enforcement if required.
- Risk Assessment:
- Evaluate the potential risks of enforcing a restraint clause, including the possibility of damaging your organisation's reputation or facing counterclaims from former employees.
- Balance the need to protect proprietary interests with the potential negative implications of litigation.
The decision in Backsports (Pty) Ltd v Motlhanke serves as a pivotal reminder that enforcing restraint of trade rights requires more than a standard contractual provision – it demands a detailed, evidence-backed approach. By drafting precise clauses, maintaining rigorous documentation, and carefully managing dismissal procedures, employers can better safeguard their interests and navigate the complexities of post-employment restrictions.
Ultimately, proactive risk management and early legal consultation are key to ensuring that restraint clauses are both enforceable and effective in protecting your business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
