In late 2015, the Labour Court in Vox Telecommunications (Pty) Ltd v Steyn revisited the principles governing restraint of trade agreements and drew a distinction between supplier and competitor restraints.
Steyn was employed by Vox Telecommunications in a senior strategic executive position. He had been with Vox for 14 years when he resigned in June 2015 to join Internet Solutions, another telecommunications operator which was both its direct competitor and supplier.
The Court reiterated that an agreement in restraint of trade is enforceable, unless it is unreasonable and thus contrary to public policy. A restraint will generally be considered to be unreasonable if it does not protect some legally recognisable interest of the party in whose favour it is granted, but merely seeks to eliminate competition. A party seeking to enforce a restraint agreement is required only to raise the fact that there is a restraint and to prove a breach of its terms. The onus is then on the other party to prove on a balance of probabilities that the restraint agreement is unenforceable because it is unreasonable.
The enquiry into the reasonableness of a restraint is a value judgment that involves a consideration of two policy considerations – public interest, which requires that parties to a contract must comply with their contractual obligations, and the principle that a citizen should be free to engage in or follow a trade, occupation or profession of his or her choice.
The Court noted the two kinds of proprietary interests that can be protected by a restraint agreement – confidential information and customer connections. It commented that, although restraints of trade typically afford protection against employees joining competitors, there is no reason why a supplier restraint should not be recognised.
The purpose of a restraint of trade undertaking is to protect the goodwill of a business, and goodwill includes connections with suppliers. If a company's goodwill requires protection by way of a supplier restraint, then in principle there is nothing less enforceable about this restraint as compared to an employee restraint against soliciting customers or employees or joining a competitor. The rationale for the restraint remains the same — the protection of the company's proprietary interests.
The Court found that several parts of the restraint clause in the agreement concluded between Vox and Steyn were incomprehensible. While the clause clearly served to restrain Steyn from joining one of Vox's suppliers, it did not restrain him from joining a competitor. In the light of this finding, the Court held that only the supplier relationship between the two operators was relevant. It found that Steyn could not influence Internet Solutions in its capacity as supplier to Vox in any way that could harm its business. The Court considered as irrelevant evidence that, due to the absence of a competitor restraint, Vox had a protectable proprietary interest in restraining Steyn from being employed by Internet Solutions as competitor.