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  #1  
Old 30-05-13, 10:26 AM
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Default Restraint of trade


I need a bit of legal advise here

A guy works for a company where he is restricted to not go work for the competition. He is the bread winner in their house and the current company probably won't give increases this year - company wide.

IF he decides to move to the competition and the current company does not give him a counter offer to stay. Will he still be in trouble with the current company if he moves to the competition?

The guy has been with the company for 7 years and is quite loyal but unfortunately the company is going down and he has a family to look after.

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Old 30-05-13, 10:39 AM
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Samaya,

I looked into this recently because of a rep of mine that was leaving for opposition pastures.

The advice I was given was this.

Let's say the business is a car dealership. The rep is an experienced rep, comes into the business with his experience and knowledge, his own contacts etc, and decides to leave. There is little chance of the restraint being enforced.

However, the dealership hires a photocopy salesman. They train him, give him the benefit of their experience, help him build up a network of contacts, and then he leaves. In this case, you have a strong case to enforce a restraint. You need to prove that he has gained this insight at the expense of your company, and that by him going to the opposition, his gained knowledge will be detrimental to the business he is leaving.

If the guy can prove that he has no other way of making a living (in my case the rep could have gone to work for another engineering business that was not opposition to us) and that working for the current company is no longer feasible, then it is difficult to get the restraint enforced.

Hope this helps.

This is not qualified advice - it is what I was told by a labour consultant.

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Old 30-05-13, 10:39 AM
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Quote:
Originally Posted by Samaya View Post
I need a bit of legal advise here

A guy works for a company where he is restricted to not go work for the competition. He is the bread winner in their house and the current company probably won't give increases this year - company wide.

IF he decides to move to the competition and the current company does not give him a counter offer to stay. Will he still be in trouble with the current company if he moves to the competition?

The guy has been with the company for 7 years and is quite loyal but unfortunately the company is going down and he has a family to look after.
Depends on the wording and structure and severity of the restraint, but restraints are enforceable.

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Old 30-05-13, 10:40 AM
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I am no legal expert, but you signed a legal document. Do you have money to fight it? If you owned the company and your staff is stolen after you invested how would you feel? I see it more and more where people get stolen by various companies. Its quite a blind move. I just put restraint of trade in my contracts for the people I work for so I cannot stop you from working, But do not steal my customers while I pay you a salary or leave with the knowledge and compete with the same customer. If that makes sense. To now feed the competition is also not right.

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Old 30-05-13, 10:45 AM
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Same thing by us. Lady left after no increases and she actually working in different dept. But company is still going after ber.
She was told by laywer thay even if she was fired, they could still persue.

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Old 30-05-13, 10:51 AM
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Quote:
Originally Posted by Samaya View Post
I need a bit of legal advise here

A guy works for a company where he is restricted to not go work for the competition. He is the bread winner in their house and the current company probably won't give increases this year - company wide.

IF he decides to move to the competition and the current company does not give him a counter offer to stay. Will he still be in trouble with the current company if he moves to the competition?

The guy has been with the company for 7 years and is quite loyal but unfortunately the company is going down and he has a family to look after.
Depends on the duration of the restraint and the type of job, i could be wrong but I do remember from my contract law lectures (which I should be studying right now) that restraints of trade are prima facie enforceable however if it can be proven that such restraints are against public policy then they cannot be enforced. In a certain case the court stated that there 2 interests that are worthy of restraint protection on behalf of the employer I.e. 1) trade secrets and 2) a trade connection that the employee could have with major customers. However with regards to the latter, the restraint will not be enforced if it goes above the required protection that is needed by the employee
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Old 30-05-13, 11:00 AM
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Souds very mafia like......!!

You WILL be paid whatever we can, and NO, you may NOT resign to go and work for the competition where you can most likely earn a better salary. Very mafia like....!

Why not just pay the employee sufficiently to prevent them from leaving, he is, after all, an asset to the company, if he is deemed so critical to have a restraint placed on his future employment.

I'd say they should test it in court and seeing as the company will lay the charge the accused can revert to state appointed council (if none can be afforded). I'm very sure the company have the right to prosecute, but I'm not so sure that they will win the case.

And the piece of paper you signed agreeing with the limitation is alos not really worth that much. Again, very mafia like, sign this limitation or risk getting fired, or being looked over for the next promotion!!! An employee WILL sign if he is desparate to keep his job. It's very easy to prove it was signed under duress.

I am no legal expert, I am stating my opinion.

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Old 30-05-13, 11:01 AM
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Thanks

Ok so the company he works for did not send him on any training courses that I know of in the last 3 years. He is a qualified professional with a bachelors degree - which he paid for himself. He does not work with customers, only the products (Design and support) and he will be doing the same at the new company. All the the work he did was through his own experience

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Old 30-05-13, 11:08 AM
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http://www.labourprotect.co.za/restraint_of_trade.htm
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  #10  
Old 30-05-13, 11:14 AM
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Ok to summarize:

The company can lay a charge but the chances of them winning is marginal. The guy can have a state lawyer appointed at no cost to him. So to follow through with a charge like this, the company will pay A LOT of money to get the charge in court. The guy can't really be fined as he already is using a state lawyer and the fine may be very low or he might just get a warning. And continue with his life...

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  #11  
Old 30-05-13, 11:16 AM
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If the company is in financial trouble as you stated and cannot or will not give increases then I would leave and go and work for the opposition,before it is too late, say the compamy goes bankrupt ,then where does that leave you then.No job no payout of any kind.To hell with company laws.Look after yourself.
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  #12  
Old 30-05-13, 11:17 AM
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Quote:
Originally Posted by Oldtimer View Post
Souds very mafia like......!!

You WILL be paid whatever we can, and NO, you may NOT resign to go and work for the competition where you can most likely earn a better salary. Very mafia like....!

Why not just pay the employee sufficiently to prevent them from leaving, he is, after all, an asset to the company, if he is deemed so critical to have a restraint placed on his future employment.

I'd say they should test it in court and seeing as the company will lay the charge the accused can revert to state appointed council (if none can be afforded). I'm very sure the company have the right to prosecute, but I'm not so sure that they will win the case.

And the piece of paper you signed agreeing with the limitation is alos not really worth that much. Again, very mafia like, sign this limitation or risk getting fired, or being looked over for the next promotion!!! An employee WILL sign if he is desparate to keep his job. It's very easy to prove it was signed under duress.

I am no legal expert, I am stating my opinion.

Sorry but NO

a Company invest in its products and the design by employing people. That investment by the CPY should be protected. You sign the restraint - if you don't want to sign say so and see if you are worth what you think before you start the job.

A degree is valuable but the practical knowledge built up whilst working is often worth a LOTT more.

Would he have had the knowledge with-out the work ? Would the other CPY offer him a job if he did not have the experience ??

This will be a Civil matter so NO the state will not pay the legal fees - So you would be happy for your tax money to defend some-one who has a degree and signed a legal document and NOW breaks the contract...

This is not straight forward but - does the new CPY also ask for restraint ??

In any case looks like he wants to horse trade his salary - I don't do that. And I don't like people who do.

Nico

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Old 30-05-13, 11:31 AM
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Okay just a thought:

Say "hypothetically speaking" you worked your butt off for a company for about 5 years or so. You moved up in the ranks (position wise not salary wise) and took on allot more responsibility etc. etc. You helped the company grow a lot and quite a bit of good ideas you came up with was also implemented into the company. Company grew more than 100% since you've worked there.

But after all this time and asking and "fighting" to get a raise, you're still in the same salary bracket. Only raise you got was a yearly inflation raise.

Company always has a list of excuses why they cannot give a raise now and an even longer list of promises of how good you will do in the company one day if you just stick around and be patient. But all the promises started years and years ago and nothing ever happens.

What would you do? Would it then be wrong to walk away to the competition and give them the finger(figuratively speaking of course).

This is all hypothetically speaking of course.

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Old 30-05-13, 11:35 AM
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Thanks for the link

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Old 30-05-13, 12:12 PM
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Sorry but NO

a Company invest in its products and the design by employing people. That investment by the CPY should be protected. You sign the restraint - if you don't want to sign say so and see if you are worth what you think before you start the job.

A degree is valuable but the practical knowledge built up whilst working is often worth a LOTT more.

Would he have had the knowledge with-out the work ? Would the other CPY offer him a job if he did not have the experience ??

This will be a Civil matter so NO the state will not pay the legal fees - So you would be happy for your tax money to defend some-one who has a degree and signed a legal document and NOW breaks the contract...

This is not straight forward but - does the new CPY also ask for restraint ??

In any case looks like he wants to horse trade his salary - I don't do that. And I don't like people who do.

Nico
No he does not want to horse trade, he is very unhappy and a change is highly overdue. The company doing badly is just the last straw...

If I just look at the stuff I do, Electronic Engineer - design and development, The experience I have was gained by developing new products for the companies I have worked for. That is what they paid me to do. I obviously gained experience by doing this. But I could have designed these same products at home and gained the same knowledge/experience while not at work. For me to sign a restraint would mean I do not let the new company in on any designs I have done for the previous ones. And I DON'T work with customers...

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Old 30-05-13, 12:38 PM
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I know of a recent case where an employee resigned from his company (A) for much better benefits. The new company (B) put him at the same client where he used to work for A. A got a successful interdict against B on the principle that the employee caused or can cause (fin) damage to A, and the employee was prohibited to enter that specific clients' premises for one year by order.

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Old 30-05-13, 12:48 PM
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I am not a lawyer, but manager @ the old company I used to work for who also had restraint of trade clauses said to me once that a restraint of trade is VERY difficult to enforce, in your friends case, if they are professional and trained themselves via a B.Comm I think its HIGHLY doubtful that the company could stop him going to work for the competetion as it would be stopping his right to earn a living which takes precedent... just as long as he makes sure he doesnt try to take any of the current companies documents or trade secrets or "steal" clients... if a client comes over to him later by their own choice then it is a different story...
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Old 30-05-13, 01:31 PM
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I'm not an expert but have had previous experience of this and it is actually quite simple - in terms of the bill of rights no-one can be prevented from earning a living in the trade of his choice. The exceptions are few and far between. An example would be if an employee leave to start an opposition company in your geographical area of business. Or if he/she has intimate knowledge of "real" trade secrets. The onus is on the employer to prove that these trade secrets are real and this is very seldom accomplished unless it is covered by trademarks, patents etc..

To enforce a restraint because an empolyee gained experience and skills while working for an employer, is absurd. That means none of us would ever be allowed to change jobs unless you move to a diffirent field or industry and - as a result no one would ever become an expert in his field unless he retired with the company - which means the company looses his skills and knowledge anyway. Who will they sue then?

It is very unfortunate that most employees do not know the labour law well enough to know when a restraint clause in an employment contract is illegal (and sometimes they just accept it in order to get the job). Later when they want/need to leave they are hesitant to do so because they don't want to get in trouble. Many companies still use this (bullying) tactic.

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Old 30-05-13, 01:39 PM
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Quote:
Originally Posted by Samaya View Post
I need a bit of legal advise here

A guy works for a company where he is restricted to not go work for the competition. He is the bread winner in their house and the current company probably won't give increases this year - company wide.

IF he decides to move to the competition and the current company does not give him a counter offer to stay. Will he still be in trouble with the current company if he moves to the competition?

The guy has been with the company for 7 years and is quite loyal but unfortunately the company is going down and he has a family to look after.

I don't really have any proper legal advice, but have some personal experience.

I work in the IT industry on a contract basis, and have been asked on occasion to sign a restraint of trade. The problem is, that once you finish of a project, chances are that your next contract would be for the competition of your previous employer.

The company owns the Intellectual property, but you have applied your experience and expertise in giving them that IP. Surely you are then allowed to apply your knowledge somewhere else.

I would also like to know what the legal perspective is.
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Old 30-05-13, 02:12 PM
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As with any legal matter it relies mostly on 2 things. First was the agreement legal in the first place? Secondly, if it is legal - what is the appetite of the wronged party to pursue the matter. If you have a sales manager with 20 years experience who brings in 30% of company revenue, then chances are the company will have a massive appetite to pursue enforcement. Can it be enforced? Well you can take any matter to litigation - with deep enough pockets.

So even if you are right, the company could try and take you to court and tie you up with an expensive legal battle. Could being the operative word. A more prudent approach of course is to figure out why your star performer(s) are looking for other work. this is unfortunately not typical in many companies. they give jobs to the lowest bidder and then either sit with their hands in their hair when they invest and the employee moves on, or they try a postmortem action to accomplish something that should not happen in the first place. AND anyway, relying so completely and heavily on one employee without making that employee part of the shareholding (or a sharing in profits and risks through some proper incentive scheme) of the company is risky in the extreme.

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Old 30-05-13, 07:44 PM
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Quote:
Originally Posted by Samaya View Post
I need a bit of legal advise here

A guy works for a company where he is restricted to not go work for the competition. He is the bread winner in their house and the current company probably won't give increases this year - company wide.

IF he decides to move to the competition and the current company does not give him a counter offer to stay.
If this is not horse trading I don't want to know what is ?

I think there are diff in opinion from those who pay and those who earn BUT if CPY is not fair to its emplyees it will bite them in the long run.

My Q is still - must he sign restraint with new CPY ?

If the current CPY is really going down then they won't have the money for legal battle....

These things are job & industry spesific so I will suggest to seek professional legal advice AND be truthfull when you tell them the background NOT just yourside of story

cheers
Nico

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Old 31-05-13, 06:37 AM
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Quote:
Originally Posted by Vossie View Post
It is very unfortunate that most employees do not know the labour law well enough to know when a restraint clause in an employment contract is illegal (and sometimes they just accept it in order to get the job). Later when they want/need to leave they are hesitant to do so because they don't want to get in trouble. Many companies still use this (bullying) tactic.
Something similar happened to me once. Photography is a serious hobby for me, mostly doing it for myself, but occasionally get publish in national magazines for which I receive payment.

I took a middle management position at a company (manufacturing, using my knowledge of chemistry) and was asked to sign a contract. This contract was drawn up for the company by a labor lawyer. This contract must have been easy money as it looked like a 10 minutes cut and paste job. The companies name was mentioned but the rest very, very generic. It stated that whiles in their employment they hold ownership to everything of value I design, manufacture, or create, during working hours or afterwards. Nowhere did it state what the companies' line of business is, nor that the above claim is limited to the scope of the company's business.

I refused to have that clause included as it in essence entitled the company to lay claim to my photographic work too. The senior manager (near retirement) with whom I dealt said I was ridiculous to read into the contract that my photographic work can be laid claim to. I was 90% certain they would not do so, but I just was not prepared to take a change on a new manager who could interpret the control to the letter.

They eventually relented and removed the clause. The irony was that nowhere was any constraint of trade mentioned.

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Old 31-05-13, 07:07 AM
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I worked for clowns like that in the automotive engineering field, I found it is generally companies that are insecure about their future that resorts to this. Luckily the morons made me sign it but I changed it to include a radius of 200 km of their geographical area. It was in Pietermartizburg and as you all know besides durban there is nothing 200km around Durbs..

I left as the place was porely managed, btw my lawyer said it is a constitutional right to have a job and that the restraint wont hold much water, it is like signing a document permitting you to murder me, it is still against the law.
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Old 31-05-13, 08:04 AM
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AFAIK if you are compensated to honor the restraint of trade it might be enforced legally. If not, it might get ugly, but the moral of the story however is that you have the basic right, according to SA laws, to work how and where you want. No contract can over rule a law.

Almost the same scenario as me signing a document saying you may shoot me. If you do, you'll be in trouble as I don't have the power to grant you immunity against the law.

I'd think such scenarios work two fold - if you sell a services company, you negotiate a price for the business obviously. If the buyer wants a restraint of trade against you for what ever criteria, then nothing prevents the seller to include a fair increase in the selling price to cater for that criteria. Business is all about negotiation.

Companies getting rid of people and enforcing some or other restraint of trade at no compensation can pick a finger...

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Old 31-05-13, 08:20 AM
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Been down that road, believe me they can't enforce it. Gogga maak vir babba bang!!!

Very few cases where its been enforced lately.

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Old 31-05-13, 09:06 AM
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Here is my scenario....

I worked as a regional manager for a small security company with a resraint of trade for which I was paid....I received a better offer which I accepted...

My restaint stated that I was not allowed to ply my trade in the same industry....obivously with 20 years of experience and it being my field of expertise such a restraint has no value. I could not for 12 months approach any of their clients...4 months after leaving my old clients started contacting me and at the same time the company was sold to a much larger one....

The interesting thing is that my restraint may legally not be transferred or sold to another entity. So, it is cancelled away and all my old clients are busy joining me again. Funny world we live in.....

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Old 31-05-13, 09:10 AM
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Location: Cape Town
Age: 46
Posts: 20,900
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An interesting point is that Restraint of Trades are not covered by the Labour Relations Act, specifically.
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