Experiencing the resignation of a successful senior salesperson can be a daunting scenario for any business owner. The shock of such a departure may lead to crucial questions, such as the employee's future plans. However, probing for this information can sometimes backfire, especially when the employee reveals their intention to join a major competitor.
In this situation, a substantial portion of your client base might follow your former sales manager to the competition, leaving your business in a precarious position. This regrettable predicament often prompts business owners to wish they had heeded legal advice to have employees, especially senior ones like the sales manager, sign restraint of trade agreements.
Common Scenarios Without Restraints
Many businesses find themselves in situations where high-performing senior employees lack restraint of trade agreements. Several reasons account for this:
Omission in Employment Contracts: Employers may neglect to include restraint provisions when hiring employees.
Employee Resistance: Some employees may outright refuse to sign such agreements, and employers may reluctantly accept this stance.
Advancement Within the Company: Certain employees initially join in junior roles with no restraints and gradually assume crucial senior positions. Unfortunately, their employment contracts remain unaltered, without the incorporation of restraint clauses.
Additionally, some employers erroneously believe that restraint of trade agreements are unconstitutional and unenforceable, leading them to disregard the need for such provisions.
Addressing the Issue
It often takes a negative experience to awaken employers to the importance of examining the legalities surrounding restraint of trade agreements. However, can employers compel existing employees to sign such agreements after they've already joined the company? The answer is affirmative, provided it's done correctly and fairly, as any misstep could lead to allegations of unfair labor practices or even constructive dismissal, making caution essential.
Proper Procedure for Implementing Restraints
To initiate the process of having existing employees sign restraint of trade agreements, employers must adhere to a due and equitable process. The following steps should be taken:
Written Notification: The company should formally inform employees of its intent to request restraint of trade agreements. This written notice must explain in detail the reasons for seeking these restraints. Typically, these reasons revolve around safeguarding the company's proprietary interests, such as connections with customers and suppliers and protecting confidential information vital to the business's success.
Reasonable Terms: Restraint clauses must be drafted reasonably, aiming to protect only the company's proprietary interests without creating unfair monopolies or undue restrictions on employees.
Consideration Period: Employees should be granted a sufficient period, often 30 days or more, to contemplate the terms of the restraint agreement and their own positions.
While some employees may willingly sign these agreements, others may refuse. When dealing with employees who decline to sign, the company must weigh the risk of them potentially becoming competitors or joining competitors. If the risk is unacceptable, the company can initiate the termination process based on operational reasons in accordance with Section 189 of the Labour Relations Act 66 of 1995.
A relevant case to consider in this context is Jordaan v Commission for Conciliation, Mediation & Arbitration & Others (2010) 31 ILJ 2331 (LAC), which delves into constructive dismissal and underscores the necessity for companies to implement restraint of trade agreements to shield themselves from employees turning into competitors or joining competitors.
In conclusion, it's advisable for business owners to reflect on their own company's situation and evaluate the potential risks associated with employee resignations and their transition to competition. We strongly advise reaching out to our team of employment law specialists for expert guidance when navigating the intricacies of restraint of trade agreements, ensuring the safeguarding of your valuable proprietary interests.
Written by Naeem Dinat, Associate.
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