ARE RESTRAINT OF TRADE AGREEMENTS ALWAYS VALID AND ENFORCEABLE?

Historically restraint of trade agreements were void and unenforceable unless the employer could prove that it was a reasonable agreement entered into between the parties. Fortunately for employers the position in our law has changed.

What are restraint of trade agreements?

 An agreement that seeks to restrict a party’s right to carry on a trade, business or profession in such manner or with such persons as he/she sees fit, is restraint of trade.

Restraint of trade clauses are most commonly found in employment and partnership contracts, which usually takes effect after termination of the contract, or in sale of a business or practice.

Why are they controversial?

They are controversial because there is a clash of fundamental values: on the one hand there is freedom or sanctity of contract which relies on agreements being honoured, and on the other hand there is freedom of trade which is a constitutionally recognised right.

As with other contracts, restraint of trade agreements are presumed to be prima facie valid and enforceable. Whereas the onus had earlier been on the employer to prove that implementation of restraint of trade was fair and in public interest, the onus is now on the employee to show why enforcement in the particular circumstances would be against the public interest.

An unreasonable restraint is contrary to the public interest and hence unenforceable. The reasonableness of a restraint of trade clause or agreement is judged on two bases: broad interests of community, and interests of the parties themselves.

Reasonableness inter partes depends on a variety of factors:

  • Does the employer have a protectable interest?
  • Area and duration of restraint (possibility of partial enforcement)
  • Concession by the employee in the contract that restraint is reasonable, and inequality of bargaining power of parties (these factors carry little weight)

Examples of protectable interests are confidential information, trade secrets, customer connections and lists, and goodwill of the business. However, it does not include interest in the elimination of competition, and the investment of time and capital in the training of the employee.

It is not sufficient simply to label confidential information as such. In order to be confidential the information must be commercially useful, in other words capable of application in trade or industry, have economic value to the person seeking to protect it, and be known only to a restricted number of people.

With regards to trade connections, it will only be relevant when the employee has close working relations with the customers, to such an extent that there is a danger of him/her taking them with him/her when he/she leaves the business. Relevant factors here include the following:

  • duties of the employee;
  • his/her personality;
  • frequency and duration of the contact with the customers;
  • his/her influence over them;
  • nature of his/her relationship with them (degree of attachment, extent of their reliance on him/her);
  • level of competition between the rival businesses;
  • type of product sold; and
  • evidence that customers were lost when he/she left the business.

With reference to the above the following questions must be asked:

  1. Does party A have an interest deserving of protection?
  2. Is such interest being prejudiced by party B?
  3. If so, how does A’s interest weigh up qualitatively and quantitatively against B’s interest in not being economically inactive and unproductive?
  4. Is there some broader facet of public policy that requires the enforcement or rejection of the restraint?

If restraint of trade agreement is reasonable inter partes, it may still be unenforceable if it is damaging to the public interest for a reason not peculiar to the parties.

Sources:

Basson v Chilwan & Others [1993] 3 SA 742

Sunshine Records (Pty) Ltd v Flohing & Others 1990 (4) SA 782 (A)

Magna Alloys & Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A)

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

CANCELLATION OF THAT GYMNASIUM CONTRACT

We have all made New Year’s Resolutions. This year I will start exercising, eating healthy and spend less time at the office and more with the family. In order to fulfill this resolution, you join the local gymnasium as soon as you return from your December holiday. It does not bother you whether the agreement is for two, three or four years. This year you are going to keep that resolution!

Then winter arrives and you spend more time at the office and at the fireside and less time in the gymnasium. By August you recognise the debit order of the gymnasium on your bank statement, knowing full well that you have not been there for at least two months.

The Consumer Protection Act (“the act”) has limited the effect of fixed-term agreements containing automatic renewal clauses for a further fixed term. As the legislator has given a wide definition to the words “goods” and “services”, most fixed-term agreements will fall within the scope of the act. Section 16 of the act provides that any consumer may cancel a long-term agreement with twenty business days’ notice, which notice must be in writing, unless both parties to the agreement are juristic persons.

The act then provides that the supplier may be entitled to a “reasonable cancellation penalty” payable by the consumer for cancelling the fixed-term agreement. What constitutes a reasonable cancellation penalty will depend on the type and nature of the contract.

Lester Timothy of Deneys Reitz Attorneys uses the example of a mobile phone contract, an analogy most of us will understand. A consumer enters into a two-year contract with a mobile phone service provider and simultaneously purchases a handset to be paid by monthly installments in the course of the two-year contract. The service provider will thus have incurred expenses regarding the handset. Therefore, in the event of the consumer cancelling the contract, it will be acceptable for the mobile service provider to charge the consumer for the outstanding balance of the handset to recover the expenses incurred.

Where a supplier incurs no significant additional cost as a result of the cancellation of the contract, the supplier will have more difficulty to establish the reasonableness of any cancellation penalty unless a discount is given.

You may therefore approach that gymnasium and notify them in writing of your intention to cancel the agreement after twenty business days. Depending on the remaining period of your contract and the wording of the agreement, you will have to pay a reasonable cancellation penalty. However, as the gymnasium did not incur significant additional costs as a result of your cancellation, you will be entitled to a discount on the remaining balance of the agreement.

Negotiate the cancellation penalty fee with the gymnasium. You may be surprised what the offer of an immediate payment as cancellation penalty can do.

And next year, rather buy running shoes, even expensive ones. They will wait patiently in your wardrobe till the following New Year’s Day…

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)

MINDERJARIGES, KONTRAKTE EN DIE DIGITALE ERA

Hierdie artikel handel oor die vraagstuk of kontrakte wat deur minderjariges, met hul ouers se kredietkaarte, aangegaan is bindend is met spesifieke verwysing na sosiale mediaplatforms, soos Facebook.

Beide die gemenereg en wetgewing maak voorsiening vir bepalings rakende minderjariges se reg om verskillende tipes kontrakte aan te gaan. Volgens die Kinderwet, 38 van 2005 is ‘n minderjarige, ‘n persoon tussen die ouderdom van 7 en agtien jaar. Volgens die gemenereg het ‘n minderjarige nie die reg om bindende verpligtinge aan te gaan ingevolge ‘n kontrak nie, en moet die hulp of toestemming van die betrokke minderjarige se voog verkry word, alvorens ʼn kontrak aangegaan kan word. Die toestemming kan gegee word voordat die kontrak gesluit word of daarna, in welke geval dit gesien word as bekragtiging van die kontrak. Daar kom uitsonderings op hierdie reël voor, wat gevind kan word in verskeie stukke wetgewing, sowel as in die gemene reg, soos kontrakte waar die minderjarige net regte en geen verpligtinge verkry (bv. ‘n donasie).

‘n Minderjarige kan aanspreeklikheid vermy, selfs wanneer hulle gebind is in terme van die kontrak (d.w.s. waar die ouer die minderjarige bygestaan het ​​in die sluiting van die kontrak, daartoe toegestem het of die kontrak daarna bekragtig het). Dit kan gedoen word in die geval waar die kontrak nadelig is vir die minderjarige ten die tyde van die kontraksluiting. Die hof kan dan op aansoek, die kontrak tersydestel en las dat alle betrokke party in dieselfde posisie geplaas word, as wat hulle was voor die kontrak gesluit is.

Facebook is tans betrokke by ‘n deurlopende klasaksie regsgeding waar ouers in Amerika eis dat Facebook die wyse waarop aanlyn transaksies deur minderjariges hanteer word verander.

Prokureurs stel dat dit belangrik is dat Facebook kennis dra van ‘n gebruiker se werklike ouderdom, maar kinders word nog steeds dieselfde as volwasse gebruikers behandel wanneer geld (die sluiting van kontrakte) betrokke is.

Een van die grootste probleme is dat wedersydse prestasie, synde die betaling van geld via kredietkaart of debietkaart en die kind krediete verwerf, byna onmiddellik plaasvind. Daarom, as die ouer terugbetaal word, sou die minderjarige onregverdig verryk word deur die gebruik van die krediete.

Die stelsel wat Facebook tans gebruik is problematies aangesien dit minderjariges misbruik wat nie die kontrakte wat hulle aangaan, wanneer hulle krediete koop om aanlyn speletjies te speel, ten volle verstaan nie​​. Verder skep die huidige stelsel die moontlikheid van situasies waar ouers, wat onmiddellik terugbetaal moet word, toestem tot die aankope en dan nadat die kind die krediete verkry en gebruik het, versoek dat hul rekeninge gekrediteer word as gevolg van ‘n ‘gebrek aan toestemming’.

Dit is duidelik dat hierdie betrokke stelsel van betaling verander moet word en dat daar duidelikheid verkry moet word oor hoe om hierdie betrokke situasie in Suid-Afrika te hanteer, nadat ’n uitspraak rakende die klasaksie in Amerika gelewer is. Op die oomblik, blyk dit dat daar geen oplossing is, vir ouers wie se kinders te veel geld bestee, of hul krediet of debiet kaarte sonder hul toestemming gebruik nie. Indien jou kind van Facebook speletjies hou is dit dalk ‘n goeie idee om ‘n ogie te hou oor jou beursie totdat daar duidelikheid is oor die verhaalregte beskikbaar vir ouers wat hulself in hierdie situasie bevind.

Verwysings Lys

Hierdie is ‘n algemene inligtingstuk en moet gevolglik nie as regs- of ander professionele advies benut word nie. Geen aanspreeklikheid kan aanvaar word vir enige foute of weglatings of enige skade of verlies wat volg uit die gebruik van enige inligting hierin vervat nie. Kontak altyd u regsadviseur vir spesifieke en toegepaste advies.

DISCLAIMER NOTICES

Disclaimer notices offer protection for owners and employees concerning shopping centres, stadiums, parking lots and other public areas. For these notices to be effective, certain requirements have to be adhered to. False reliance on these disclaimers can be a very expensive mistake. Find out whether your disclaimer notice will be sufficient to protect you and your employees.

Disclaimer notices are commonly seen in shopping centres, stadiums, parking lots and other public areas. These notices are generally aimed at protecting the owner or employees with regards to the area in question, by exempting him/her from legal liability when a member of public using the area suffers damage.

It is well established that disclaimer notices are enforceable when properly implemented. This is clear from the extract below:

Durban’s Water Wonderland (Pty) Ltd v Botha and Another (1999) 1 All SA 411 (A) at 115:

“If the language of a disclaimer or exemption clause is such that it exempts the proferens from liability in express and unambiguous terms effect must be given to that meaning. If there is ambiguity, the language must be construed against the proferens. (See Government of the Republic of South Africa v Fibre Spinners & Weavers (Pty) Ltd 1978 (2) SA 794 (A) at 804 C.)”

According to prevailing case law, when considering whether a disclaimer notice is effective, two factors have to be considered:

Firstly, from the Durban Water Wonderland case, it is evident that for the disclaimer’s content to be effective, the wording thereof must not be ambiguous. It is therefore required that the disclaimer must indicate in express terms what the person relying on the disclaimer is exempted from when someone reads the disclaimer. However, any alternative meaning of the disclaimer notice cannot be too widely interpreted. It is simply required that the meaning of the disclaimer is clear to anyone reading it. This test is implemented so that a vague statement cannot be regarded as sufficient to bind someone according to the legal principle of so called “quasi-mutual assent”, which is the underlying basis binding a person that reads a disclaimer notice.

Consider the following examples: “the owner of the property is hereby exempted” and “the owner, managing agent and any other employee is hereby exempted”. In the first example only the owner of the property is exempted from liability, while in the second example, employees of the owner and the managing agent of the property are included under the exemption clause. The first example would not have been sufficient if damage was caused to a person by the negligence of an employee, as employees were clearly not within the ambit of the notice. It is therefore important to ensure that the wording of a disclaimer is clear, unambiguous and is sufficient to protect all parties that need protection.

A further issue to take into account when the effectiveness of a disclaimer notice is considered is the question whether such disclaimer has been properly displayed. A disclaimer can only be effective when it is found that the disclaimer was displayed in an appropriate position, which would allow the reasonable person to have seen the disclaimer, or to ought to have seen the disclaimer. Practical issues, such as the size of the disclaimer, the distance from the viewer, the visibility, font and positioning of the disclaimer should be taken into account. This test is implemented as the content of the disclaimer can only fall within the knowledge of a person, when the notice is of such a nature that it is easily spotted by someone. When a disclaimer is affixed to a premise, it is therefore important that the above factors be taken into account.

It is clear that a disclaimer is an effective method of protection, especially when used in areas where large amounts of people visit frequently. However, the use of a disclaimer notice is a potentially risky practise, as it must be ensured that the wording and placement thereof is sufficient for the reliance thereon. It is recommended that an attorney be consulted before putting up such a notice.

Bibliography

Cases

Durban’s Water Wonderland (Pty) Ltd v Botha and Another (1999) 1 All SA 411 (A)

Government of the Republic of South Africa v Fibre Spinners & Weavers (Pty) Ltd 1978 (2) SA 794 (A)

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.