General Principles of Restraint of Trade in South Africa: the Kleynhans case

 

Summary:

The case of Micros South Africa (Pty) Ltd and Others v Kleynhans and Others involves an urgent application for interdictory relief to enforce a restraint of trade and confidentiality agreement against Ms Kleynhans, who intended to take up employment with a competitor. The court ultimately granted the interdict, and here, we discuss the general principles and enforcement rationale.

General Principles of Restraint of Trade in South Africa:

In South Africa, restraint of trade clauses are typically valid and enforceable unless they are unreasonable or contrary to public policy. The principle of pacta sunt servanda, emphasizing the honouring of freely and voluntarily undertaken obligations, guides the enforceability of such agreements. An unreasonable restraint of trade is one that prevents a party from engaging in trade or commerce without a corresponding interest deserving of protection.

Enforcement Against Kleynhans: In this case, the applicants successfully argued for the enforcement of a restraint of trade and confidentiality agreement. Several key factors influenced the court's decision:

• Legitimate Interest: The applicants demonstrated a legitimate interest in protecting their trade connections and confidential information related to specialized software for the hospitality industry. Ms. Kleynhans had extensive knowledge of their Opera products and strong customer relationships.
• Reasonableness: The restraint was found to be reasonable as it aimed to prevent employees from utilizing knowledge and connections acquired during their employment to offer similar products to the same customer base. The duration of one year was deemed reasonable.
• Public Interest: Enforcing the restraint was not against public interest, as it aimed to protect confidential information and prevent unfair competition. It balanced the interests of the applicants with Ms Kleynhans's right to employment.
• Confidential Information: The court acknowledged that confidential information in an employee's head, such as business strategies and trade secrets, can be subject to interdiction if unlawfully disclosed, even if not documented.

Conclusion:

The court's decision to enforce the restraint against Ms. Kleynhans aligns with the principles of legitimate interest, reasonableness, and protection of confidential information. Ms. Kleynhans, as an employee, had voluntarily agreed to the restraint, and the court found that her actions posed a substantial risk of taking proprietary interests to a competitor, thereby justifying the interdict. In conclusion, this case underscores the importance of upholding valid restraint of trade agreements while ensuring they are reasonable and aligned with the law to strike a fair balance between protecting business interests and individual rights.