Restraint of trade agreements are enforceable provided they are not contrary to the public interest.
The enforceability of restraint of trade agreements.
It is easy to see why an employer would require his employees to sign "restraint of trade" agreements.
After all, an employee may build up a good relationship with the employer's clients and those clients may well be tempted to follow him if he starts up his own business or resigns to join a competitor. An employee may also have learned trade secrets and other confidential information during the course of his employment, which the employer would not want him to use for his own benefit if he resigns.
The constitutional Bill of Rights says that "every citizen has the right to choose their trade, occupation or profession freely". This right would seem, on the face of it, to be infringed by contractual restraints that render a person economically inactive and unproductive. On the other hand, it is fundamental to our legal system that contracts, freely entered into, are binding, and that if a person voluntarily enters into a restraint of trade agreement, it ought to be legally enforceable.
These conflicting principles came sharply to the fore in PSG Konsult Financial Planning (Pty) Ltd v Ballack  JOL 26445 which was heard in the Durban High Court late last year. In this case, PSG Konsult Financial Planning (Pty) Ltd ("PSG Konsult") was applying for an interdict to stop its erstwhile employee, Ballack, from canvassing its clients for business or rendering services to them or from using or disclosing its confidential information .
The background to the case was that Ballack had worked for a bank for some ten years, and had then entered the employ of Advance Wealth Management (Pty) Ltd ("AWM") as a financial planner. A written employment contract was entered into between Ballack and AWM which provided inter alia that -
- clients of AWM would at all times be regarded as its clients, and all details of such clients were to remain the exclusive property of AWM and would not be disclosed to any other party;
- no employee of AWM was to use confidential information for his own benefit or for the benefit of any other party, nor disclose any confidential information to any other party;
- no employee would solicit business from any of AWM's clients.
The agreement provided that these restrictions would apply during the period of employment and for six months thereafter.
The business of AWM was later sold to PSG Konsult as a going concern in 2006, and Ballack continued as the latter's employee, on the same contractual terms, until his resignation in 2010. By that stage, he had got to know the names and financial requirements of some 52 of the clients.
When he resigned, Ballack informed these clients that he had done so. Since he had normally communicated with them via his cellphone, they were able to contact him by telephone after his resignation, and some in fact did so.
PSG Konsult contended that, subsequent to his resignation, Ballack had continued to render services to at least nine of its clients.
Ballack argued that he had a "unique" relationship with these clients whom he regarded as "his" clients on the basis that they had dealt almost exclusively with him whilst he was in PSG Konsult's employ, and that he had developed a close bond of trust and friendship with them.
The court, however, gave short shrift to the argument that Ballack's relationship with the clients in question was "unique" in a way that relieved him of his obligations under the restraint of trade provisions of his employment contract.
Ballack's counsel argued that the restraint clauses in the employment contract were against public policy and were consequently legally invalid. He pointed out that Ballack had a right to work and that the clients in question had the constitutional right to insist that he should be the one to provide them with services.
Ballack argued that he was justified in continuing to provide services to the PSG Konsult clients in question because he did so at the clients' insistence. The court's response to this argument is the most interesting and important part of the judgement. After all, it needs to be borne in mind that those clients had not entered into any restraint agreement and were free to place their business with whomever they wished.
The court held in this regard that the restraint agreement was binding on Ballack and that, during the period that the restraint was in force, "the client will of necessity be compelled either to accept and hopefully bond with the substitute employee [of PSG Konsult] or to take his or her business to a stranger, but not to Ballack".
In other words, the client was free to ask Ballack to act as his financial adviser but, during the period of the restraint, Ballack could not lawfully accede to the request.
The court held that there was nothing "extraordinary, unfair or objectionable" in the terms of the restraint agreement. Ballack, said the court, was free to compete in the marketplace with PSG Konsult and others, but he was not permitted to enjoy any advantage from PSG Konsult's confidential information or from his contact with the latter's clients, particularly those to whom he had given advice while in the latter's employ.