It is an experience almost any business owner dreads. That moment when your most successful and senior sales person walks in and hands you his resignation. Whilst you are mentally reeling, you do have the wherewithal to ask what his future plans are. Perhaps you should not have done this because he tells you he is about to join your biggest competitor.
You now face the prospect of more than half of your client base leaving your business to follow your ex sales manager straight to the competition. How you wish you had listened to your attorney all those months ago when he told you to get your employees to sign restraints of trade. Especially your senior employees and most particularly, your sales manager.
Many businesses have high performing effective employees in senior positions without restraints of trade. There are various reasons for this. Quite often when employees join, the employer doesn’t think to include restraint provisions in the employment contract. Some employees simply refuse to sign restraints and employers are content to live with that. Other employees start off in junior positions without any restraints and gradually work themselves into very senior and important positions over time. Their employment contracts are never updated and no restraints of trade are implemented.
Other employers have heard and come to believe that restraints of trade are unconstitutional and simply unenforceable. So why bother?
It often takes a bad experience to make employers realise they need to look into the legalities of implementing and enforcing restraints. But can an employer insist that existing employees sign a restraint of trade after they have joined the business? There is little point in looking into restraints of trade and their effectiveness as an employer if you can’t get your existing employees to sign. Sometimes employees have been in your employ for many years without a restraint and may well resist any suggestion to sign one after a long period of time.
The answer to the above question is yes. There is nothing evil about a restraint of trade agreement. When used properly it is a legitimate legal tool to protect a company’s proprietary interests.
If there is a legitimate and genuine reason for a company to have an employee or all of its employees enter into restraint of trade agreements, then this can certainly be done.
A due and fair process must however be adhered to. If not, the employee will certainly allege an unfair labour practice or even a constructive dismissal. Hence the need to tread with caution.
Written notification should be given to employees of the company’s intention to request that they sign restraint of trade agreements. In such written notice the company must explain fully what the reasons for wanting a restraint of trade actually are. Details must be set out as to the nature of the company’s proprietary interests. These are usually connections which the company has built up with its customers and suppliers. The company needs to protect all of these connections to continue functioning profitably. Furthermore, the company has confidential information or secrets upon which its business success is based. If either the customer connections or the confidential information belonging to the company is divulged to competitors, then the company’s business and profitability will be directly affected. This in turn will have a knock on effect within the company’s business, potentially leading to a loss of jobs, and ultimately even the failure of the company’s business.
The terms of the restraint must be reasonable and drafted to protect the proprietary interests only. The company cannot go further than a reasonable protection of its own proprietary interests. It can’t for example try and create some form of monopoly by unfairly restraining any one or more employees.
All of the employees must be given an adequate opportunity to consider the terms of the restraint of trade agreement as well as their position. A period of 30 days or even more should be considered before the employee responds to the company.
Certain employees may sign willingly, others may flatly refuse.
When it comes to dealing with employees who refuse to sign the restraint of trade agreement, the company will know where it stands with such employees. They will believe they are entitled to leave the company and join competitors at any point in time. The company must then assess whether it is prepared to put up with this risk. If not, it is possible to start the procedure of terminating that particular employee’s employment for operational reasons in terms of Section 189 of the Labour Relations Act 66 of 1995. The basis for such termination is clearly the risk the company runs should the employee remain in the company’s employ without a restraint of trade.
The case of Jordaan v Commission for Conciliation, Mediation & Arbitration & Others (2010) 31 ILJ 2331 (LAC) is an interesting decision on the above points. Although the case deals with constructive dismissal, it covers the need a company may well face of having to implement restraint of trade agreements to protect itself against employees becoming competitors or joining competitors.
It may well be time for you to reflect upon your own company’s situation and whether you are potentially at risk when it comes to any one or more of your employees resigning and becoming competitors.
