MURERIWA AND CHAGA ON RESTRAINT OF TRADE CLAUSES IN ZIMBABWEAN LAW. Chagaresango Thelma and Mureriwa Isiah The Concept of Restraint of Trade. A clause in restraint of trade is one which prevents an employee from exercising his or her trade, profession or calling, or engaging in the same business venture as the employer, for a specific period of time and within a specific area after leaving employment. Restraint of trade clauses are often contained in either the contract of employment itself or stand as a separate and distinct contract between the employer and employee.
It is an unquestionable fact that employers often use the mechanism of restraint of trade clauses in order to protect their businesses from competition by the ex-employees and often employees enter into such contracts without questioning them. For this reason restraint of trade clause need be approached with great caution. Basson et al writes that in most cases the employee will be in the weaker bargaining position and will not really be able to negotiate the terms of the contract:- the employee will just have to accept the restraint of trade clause, whose terms may be grossly unreasonable, harsh and unfair.
In Super Safes (Pty) Ltd & Others v Voulgarides & Others Nicholas J said; “A bare covenant not to compete cannot be upheld. A restraint against competition must, if it is to be valid, serve some interest of the person in whose favour it is inserted”. In Magna Alloys & Research (SA) Pty Ltd v Ellis the Appellate Division (as it then was) identified two interests or considerations whose balancing is crucial in the determination of the validity or otherwise of restraint of trade clauses.
It was stated as follows; “The first is that the public interest requires, in general, that parties should comply with their contractual obligations even if these are unreasonable or unfair. The second consideration is that all persons should, in the interest of society be permitted as far as possible to engage in commerce or the professions or, expressing this differently, that it is detrimental to the society if an unreasonable fetter is placed on a person’s freedom of trade or to pursue a profession. The sentiments expressed in Magna Alloys & Research (SA) Pty Ltd v Ellis were also taken with apparent approval by Grosskopf JA in the later decision in Sunshine Records (Pty) Ltd v Frohling & Other at page 794 when he quoted verbatim the words of Rabie HR in the Magna Alloys decision and added that in general, however, it will be contrary to the public interest to enforce an unreasonable restriction on a person’s freedom to trade. In Zimbabwe the decision in Greendale Hardware & Electrical (Pvt) Ltd v Goodfellow Bangaba is a particular case in point.
In this judgment Malaba JA wrote as follows: “The correct test for the validity of a restraint of trade in a contract of employment is whether there are proprietary rights for the protection of which the restraint was imposed by the employer and undertaken by the employee. If there are proprietary interests to be protected the next question is what are they being protected against and is the restraint more than is reasonably necessary for the protection of the proprietary interests. Malaba JA went on further to write as follows, after reference to the decision in Herbert Morris Limited v Saxelby : “A restraint of trade is an obligation voluntarily undertaken by the employee to refrain from the exercise of freedom of trade in favour of the employer in the exercise (by the employer) of freedom of contract. It is therefore prima facie valid and the onus is on the employee who seeks to resile from its burden to show that it is nonetheless against public interest and unenforceable.
A restraint of trade which does no more than protect the employer against mere competition from a former employee by preventing him or her from carrying business similar to that undertaken by him or entering the services of an undertaking carrying on business similar to that undertaken by him in fear that in doing so the employee would exercise the knowledge and skill acquired during employment with him is an unreasonable restraint. So is a restraint of trade which is too wide as to time or place or scope depending, of course, on the nature of the business carried on and the uties of the employee. ” In the Bangaba decision Malaba JA authoritatively stated that the proposition that an employer is not entitled to protection from mere competition by a former employee means that the employee is entitled to use to the full, any personal skill or experience even if it has been acquired in the service of his employer. It is this freedom to use to the full a man’s improving ability and talent which lies at the root of the policy of the law of restraint.
The additional knowledge and skill acquired during employment belong to the employee and their exercise cannot be lawfully restrained by an employer as they are not his property. Malaba JA went on to state that to preclude a former employee from carrying on his natural trade in any part of the country of his own, or in association with others, is a very strong prohibition which requires exceptional justification. In New Zealand, as appears from the decision in Green v Transpacific Industries Group (NZ) Limited , the employment Court stated that restraint of trade can be useful in protecting the interests of a business.
They are also notoriously difficult to enforce. In the Green decision the Employment Court of New Zealand dealing with a restraint clause purporting to prohibit competition even in respect of customers (or potential customers) who were not customers of the employer, the court stated: “Whilst a restraint may be lawful to the extent that it protects reasonably a proprietary interest that the employer has, including … business with its customers, the law does not extend to prohibiting competition alone. In following with the Green decision it would appear that in New Zealand where a former employee actively seeks prospective customers of the former employer, whom he, during his service to the employer, had dealt with and in respect of whose dealings he had supervised or in respect of whom he had acquired confidential information in the course of his employment, the court will regard such to be proprietary interests that the employer is arguably entitled to protect by reasonable restraints.
The Employment Court ended up with a note that a restraint of trade clause carefully drafted to fit the specific role and organization is much more likely to be enforceable and capable of protecting the legitimate business interest of the former employer than an “off the shelf” clause. The same position in New Zealand one could argue, finds application in Zimbabwe. Similar sentiments are clear from the decision in Paragon Business Forms (Pty) Ltd v Du Preez where it was stated per Leach J that; Where an employee has access to customers and is in a position to build up a particular relationship with customers so that when he leaves his employer’s services he could easily influence them to follow to his new business, there does not seem to me to be any reason why, in principle, a restraint should not be enforced to protect the employer’s trade connection. ”
