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Aveng CEO resigns! Here's how to deal with restraint of trade agreements when an employee resigns

by , 22 August 2013
Aveng CEO, Roger Jardine, has resigned with immediate effect after five years at the helm. Jardine's resignation comes after the Competition Commissions' probe into collusive behaviour in the construction industry. According to reports, Jardine said the Commission's investigation has been 'personally very taxing'. While Financial Director, Kobus Verster prepares to take up the acting CEO role from the 1st of September, the company will now have to deal with restraint of trade and confidentiality undertakings. Here's how to deal with restraint of trade agreements when your employee resigns.

Directors, senior employees, managers and employees who have access to sensitive business information, such as client contacts, may be subject to restraint of trade agreements which need to be considered when they resign, says the Labour Law for Managers Loose Leaf Service.

Here's why it's important deal with restraint of trade agreements when your employee resigns

A restraint of trade agreement's a contract entered into between you and your employee. In it, your employee agrees for a certain period after the termination of his employment, he won't compete with your business unfairly.

He also agrees that he won't use the information and trade secrets he got while working for you.

A restraint of trade goes beyond confidentiality undertakings. It doesn't only protect the physical information in your employee's possession, but also the information in his head, which he acquired over time.

So when your employee resigns make sure your restraint of trade agreement includes statements saying that for a specified period he won't:

  • Encourage clients and customers to take their business away from you;
  • Encourage suppliers to stop supplying or to change the terms of their supply arrangement with you; or
  • Encourage his colleagues to leave their jobs and join a competitor.

Remember, restraints come into force when your employee's employment terminates. So it'll only be activated when he resigns from your company and ends his employment contract.

If your employee's subject to a restraint of trade agreement and breaches it (for instance by joining a competitor), you have every right to enforce it.

Here's how to ensure a restraint of trade agreement

You could:

  • Issue a letter of demand, telling him he has to stop this immediately;
  • Get a court interdict saying he must leave your competitor; or
  • Sue for damages, such as loss of revenue for clients that he poached.

But don't let it get to this. Make sure you hold a meeting with your employee when he resigns to remind him of the terms in the restraint of trade agreement and the consequences if he's in breach of the agreement.

This'll help ensure you deal with restraint of trade agreements effectively to safeguard your business so you can avoid the situation Aveng currently finds itself in.



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Comments
1 comments


Louis Botes 2014-11-05 19:07:43

Judges are viewing this differently lately, and will only look at profable secrets.

Example: The court held that a restraint of trade is aimed at preventing a person with the knowledge of confidential technologies, obtain as a result of these employment, from using them to the detriment of the employer. That really is the essence or purpose of any restraint of trade agreement.

The court held that a restraint of trade agreement is enforceable unless it is shown to be unreasonable - and the onus of showing that it is unreasonable rests upon the person alleging it. It was stated that two principal policy considerations must be considered in determining the reasonableness of a restraint, the first being that of public interest, which requires that parties should comply with their contractual obligations.

He adds that even if companies have the best drafted restraint of trade agreement in the world, the courts will look at whether it is in the public policy to allow this restraint to be enforced. “People must be allowed to work and if the employee is able to show that enforcing the restraint is contrary to public policy, such as when the old employer is simply sterilizing competition, it is likely that the ruling will be in the employee’s favor.”

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