UNDER A RESTRAINT?

Here's what to do...

STEP #1: C

UNDER A RESTRAINT?

A STEP BY STEP GUIDE TO DEALING WITH RESTRAINTS OF TRADE

INTRODUCTION 
Often when property practitioners sign employment contracts with agencies there is included a restraint of trade clause. This usually will prevent the property practitioner on termination of the employment agreement from working as a property practitioner in a specific area for a specific time. This is potentially devastating to livelihoods and as such one should get advice before signing such an agreement or simply request that the restraint of trade clause is not included or at least reduced.

However, in the situation where the contract with the restraint of trade is already signed and the property practitioner wants to leave the employment of the agency, this step-by-step approach has been prepared to assist. What is important to note is that trying to get out of restraints of trade must be approached with caution as South African Law generally upholds them. Also highly relevant to know is that the strength of a restraint of trade depends on the facts of each case i.e. your level as a property practitioner, your exposure to the database of the agency and a number of other factors. 

STEPS TO TAKE WHEN YOU'VE SIGNED A RESTRAINT

BE TRANSPARENT. COMMUNICATE EARLY. Advise your employer that you wish to terminate the contract and that you wish to practice as a property practitioner within the restraint area as mentioned in the contract. The value of this approach is that you may win the trust of the employer as you may work with the agency in future as different agents in an area do. It will also soften the blow for them of finding out from you that you will continue to trade in another name in the same area. This may lead to their agreeing to waive the restraint or opening the door for further negotiations. More importantly, if it comes to legal action, the fact that you have informed them (along with the other steps below) may work in your favour before a judge. 

Advise your employer that you will not use their database or any of the items detailed in the restraint clause and the employment contract. 

Undertake in writing not to contact any clients or employees as referred to in the restraint clause for the period of the restraint 

Negotiate further by offering to pay a portion of your commission (earned at your new company) to the employer for the restraint period as compensation for the restraint being waived                                                                

Ask the employer then on the basis of the above to waive the restraint clause 

OUTCOME A -  THE RESTRAINT IS WAIVED

If the employer agrees to waive the restraint of trade clause you are free to continue as a property practitioner in the area but on the basis of not utilising the database or contacting the clients or employees of the employer for the period of the restraint as set out above 

OUTCOME B - THE RESTRAINT IS NOT WAIVED

If the employer does not agree to waive the restraint you could then negotiate for a smaller area or lesser duration 

OUTCOME C - THE RESTRAINT IS REDUCED 

If the employer agrees to a smaller restraint area or duration or both, then you can proceed on this basis if you are satisfied with it 

OUTCOME D - THE RESTRAINT IS NOT WAIVED OR REDUCED

If the employer refuses to waive the restraint or reduce it to your satisfaction you may then decide to obtain legal advice as to the strength of the restraint based on the relevant factors. In other words, at this point you should retain the services of a good attorney and pay them to give you a legal opinion on the strength of the restraint. If a restraint is legally strong it is more likely that a court will uphold it, if a restraint is legally weak it is more likely that a court will set it aside. Sometimes a court will also reduce a restraint.

OUTCOME E - A LEGAL OPINION IS OBTAINED REGARDING THE STRENGTH OF THE RESTRAINT 

If the legal opinion indicates that it is a weak restraint it is more likely that a court would not uphold the restraint and as such it would be less risky to ignore the restraint. In general the decision-making should relate to how strong or weak the restraint is and should be guided by legal advice in this regard.

If the legal opinion indicates that it is a strong restraint the wisest course is probably to submit to it. If you fight it and lose you will have to pay your own legal practitioner's as well as some of the costs of the legal practitioners of the agency.

If the legal opinion indicates that it is a weak restraint you may very well decide to ignore the restraint and proceed to trade as a property practitioner in the restraint area. 

OUTCOME F - YOU IGNORE THE RESTRAINT AND THE EMPLOYER TAKES NO ACTION 

In this situation if the employer takes no action you can just continue to trade. Congratulations!

OUTCOME G  - YOU IGNORE THE RESTRAINT AND THE EMPLOYER SENDS YOU A LETTER OF DEMAND TO STOP 

In this situation you could submit to the restraint and stop trading. Or you could call their bluff and continue to trade. If they take no further action after that, as above, you can just continue to trade. Congratulations!

OUTCOME H - YOU IGNORE THE LETTER OF DEMAND AND THE ATTORNEYS OF THE EMPLOYER SERVE LEGAL PAPERS COMMENCING COURT ACTION ON YOU 

In this situation you could now submit to the restraint and request not to pay the legal costs of the opposing side, OR obtain a further legal opinion and instruct your legal counsel to oppose the matter at court (this will entail a much higher order of legal costs).

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Note that this does not constitute legal advice and that in the particular facts of each case legal advice should be obtained. This guide is simply intended to provide some useful information for property practitioners who encounter restraints of trade.

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Restraints of trade in Real Estate