Understanding the Legal Implications of Restraint of Trade in South African Employment Transfers

In a recent case, the South African court had to determine if a restraint of trade agreement would transfer along with an employee’s contract of employment when a business was sold to a new employer. This case sheds light on the legal implications surrounding the restraint of trade and employee contracts under South African law.

1. In South African law, restraint of trade agreements can transfer along with an employee’s contract of employment under section 197 of the Labour Relations Act when a business is sold to a new employer.
2. The recent case of Slo-Jo Innovation v Beedle highlighted the complexities and legal implications surrounding the enforcement of restraint of trade agreements in employment transfers, including the importance of understanding the terms and conditions of such agreements.
3. The Labour Court ruled that a contract of employment is transferable under section 197 of the LRA, including all terms agreed to between the parties, emphasizing that if an obligation, such as a restraint of trade agreement, existed at the time of the transfer, it continues in force beyond the transfer.

Jacques van Wyk and Andrie van Heerden, legal experts at Werksmans Attorneys, explained that under section 197 of the Labour Relations Act, certain rights and obligations transfer with the sale of a business. This includes undertakings contained in contracts of employment, such as the restraint of trade.

“The new employer may seek to enforce the provisions of such a restraint if they have a proprietary interest worthy of protection,” said Werksmans Attorneys. They also highlighted that employees should be aware that they could be held accountable if they choose to breach such undertakings.

In the recent case of Slo-Jo Innovation v Beedle, the enforcement of a restraint of trade agreement became a contentious issue. Slo-Jo Innovation filed an urgent application to enforce a restraint of trade against Ms. Beedle, who opposed the application, arguing that no employment agreement existed between her and the applicant.

Ms. Beedle had begun working as a sales representative at Slo-Jo Trading in 2007, with her employment agreement containing a restraint of trade provision. Over the years, Slo-Jo Trading’s business grew significantly, thanks in part to Ms. Beedle’s contributions. In 2018, an internal restructuring led to the establishment of three new companies, including the applicant, all of which were wholly owned subsidiaries of Slo-Jo Trading.

Following the restructuring, certain employees, including Ms. Beedle, were transferred to the new entities while retaining the same terms and conditions of their original employment contracts. After resigning from Slo-Jo Trading, Ms. Beedle was hired by a competitor, prompting the applicant to file an urgent case with the Labour Court.

The Labour Court found that Ms. Beedle’s contract of employment had indeed transferred, with no basis for contending that no employment agreement was in place or that the agreement was superseded by the 2018 transfer. The court also considered the case of Laser Junction v Fick, which argued that the restraint of trade agreement would not transfer, only the employment contract.

The Labour Court disagreed with Laser Junction’s argument, stating that the facts of the case were distinguishable since Ms. Beedle had not signed a new contract of employment. Furthermore, the court ruled that a “contract of employment is transferable under the provisions of section 197 of the LRA, including all the terms agreed to between the parties, not only those that are more favorable than the provisions of the BCEA.”

Additionally, the effect of section 197(2)(b) of the LRA is that “if the obligation was in existence at the time of the transfer, it continued in force beyond the transfer.”

This case demonstrates the complexities of the legal framework surrounding restraint of trade agreements and employee contracts in South Africa. Employers and employees alike should be aware of the implications of such agreements, especially when businesses undergo restructuring or change ownership.