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Restraint of trade agreements protect company assets and professional technologies

By unknown | Jan 16, 2007 | COMMENTS [ 0 ]

Derek Jackson

Derek Jackson

There are some arguments that cannot be settled with hard and fast rules - one of these is the good old restraint of trade clause in employment contracts.

Firstly, it must be noted that restraint of trade agreements are not regulated by labour law, they fall under the law of contract.

The circumstances surrounding every restraint of trade clause are different - simply because the employers are involved in different industries, and have different assets or trade secrets that need to be protected.

Therefore, each case must be examined separately. Lets look at a recent matter involving a restraint of trade agreement - Dayandren Reddy (appellant) and Siemans Telecommunications (respondent).

The essence of the agreement was that the appellant was prohibited from taking up employment with his employer's competitor. The appellant was employed by Siemens, and on his resignation from that company he took up employment with a competitor - Ericsson.

His restraint agreement with Siemens prohibited him from doing this for a period of one year after leaving Siemens. In the agreement, the appellant undertook not to disclose trade secrets and confidential information belonging to Siemens.

In interdicting Reddy from taking up employment with Ericsson, the court held that it was not necessary to find that Reddy would actually use trade secrets and confidential information in his new employment - it was sufficient if he could do so.

The court held that the restraint was aimed at preventing a person with the knowledge of confidential technologies from using them to the detriment of the employer. That is the essence or purpose of any restraint of trade agreement.

The appellant argued the training he received from Siemens would be of no use to Ericsson and that his employment with Ericsson would not involve any of Siemens customers in South Africa. Therefore the restraint agreement was unreasonable.

The court found that the agreement did not stop Reddy from using his own skills and abilities.

It placed a limit on Reddy being employed by a competitor. It was found Reddy was restrained only in the choice of his employer for a limited period.

The restraint did not prevent him from obtaining employment - it only restrained his choice of employer.

Nor did it affect his employment elsewhere or prevent him from engaging in the employment he was trained for.

It was found that Reddy did possess confidential information

The judgement stated the mere possession of knowledge was not sufficient to enforce a restraint of trade, but Reddy would be employed in a concern which carried on the same business as his previous employer, and he would be employed in a position similar to the one he had with Siemens.

The court said Reddy's loyalty would be to his new employers, and it was sufficient that he had the opportunity to disclose confidential information - he did not actually have to disclose it.

The fact that the opportunity existed posed a risk to Siemens, and the intention of the restraint was to relieve Siemens of this risk of disclosure.

The court found that in the circumstances, the restraint was neither unreasonable nor contrary to public policy. The restraint was upheld.

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