As an employer it is crucial to safeguard your business interests both throughout and upon the termination of employment contracts. This can be accomplished through the implementation of confidentiality or restraint of trade agreements. Many employers and employees tend to get confused between the two.
A confidentiality agreement also known as a non-disclosure agreement, is typically a written legal contract between an employer and employee prohibiting the employee from disclosing any confidential or otherwise proprietary information of the employer, both whilst in the employer’s service and upon termination of employment. A restraint of trade agreement, on the other hand, generally indicates that upon termination of the employment contract (on any grounds), the employee is forbidden from conducting similar work in competition with his/her former employer within a specified area for a prescribed period.
The contents of both agreements are fairly similar with both agreements being customized to suit the employer’s particular situation. A confidentiality agreement generally incorporates naming the parties involved, the items subject to non-disclosure, the duration of the agreement and the obligations of the employee in terms of the confidential information.
The restraint of trade agreement similarly incorporates the parties to the agreement along with the type of work which the restrained employee may not conduct, the area within which the employee may not compete and the period for which the employee is restrained.
Both agreements are enforceable with the restraint of trade agreement being guided by case law regarding its enforceability. In Magna Alloys 1984 the former Appellate Division established that these restraint of trade clauses/ agreements are both valid and enforceable unless it is determined that they are contrary to public policy. The onus of proving that it is contrary to public policy rests on the employee.
The 1997 Basson v Chilwen & others case sets out factors to be taken into account when determining whether the restraint of trade is reasonable, such as:
- Whether the restraint covers a legitimate interest of the employer which interest is deserving of protection;
- Whether the interest is being prejudiced or could be prejudiced by the employee;
- If so, whether that interest outweighs, qualitatively and quantitatively, the interest of the employee so as to justify the employee’s economic inactivity; as well as
- Any feature of public policy which requires the restraint to be enforced or not.
The 2006 Reddy v Siemens Telecommunications case carried out in the Supreme Court of Appeal, added an additional requirement being whether the restraint goes further than required to safeguard the employer’s protectable interest.
In general, the courts find the restraint of trade to be unreasonable where they are too vague or broad in application. Therefore, employers should draw up relatively narrow agreements that would not be construed as too onerous, whilst concurrently justifiably safeguarding the their protectable interests. If the employee has breached the restraint of trade agreement the employer may approach the court for an interdict preventing the breach or further breach.
A confidentiality agreement is a bit less complicated. The employer should enter into a confidentiality agreement in writing. Even though verbal agreements are recognized as valid, said agreements bear a greater onus of proof compared to written agreements when enforcing confidentiality clauses. These clauses/agreements are typically enforceable as long as the terms are not too broad, the time frames or burden is not too high and if the disclosure of the information is in the public’s best interests.
A confidentiality agreement however, has a slightly broader scope with different forms such as unilateral, bilateral or mutual agreements depending on the number of employees which need to be bound to the specific agreement. It can also be used in additional circumstances such as when work is contracted out to other businesses; discussions with distributors regarding products; parts and other proprietary information as well as mergers and interviews where confidential information regarding the company is shared.
It is vital for an employer to distinguish between the two in order to ensure sufficient protection of the relevant confidential information to help remain competitive and profitable.
Employers are welcome to contact us to ensure that they have a proper and enforceable agreement in place, alternatively to have tailor-made agreements drawn up as per the employer’s specific needs.
Author: Bianca Niemandt (Researched obo The Labour Law Company)
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