ARE RESTRAINT OF TRADE AGREEMENTS ALWAYS VALID AND ENFORCEABLE?

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Historically restraint of trade agreements were void and unenforceable unless the employer could prove that it was a reasonable agreement entered into between the parties. Fortunately for employers the position in our law has changed.

What are restraint of trade agreements?
An agreement that seeks to restrict a party’s right to carry on a trade, business or profession in such manner or with such persons as he/she sees fit, is restraint of trade.

Restraint of trade clauses are most commonly found in employment and partnership contracts, which usually takes effect after termination of the contract, or in sale of a business or practice.

Why are they controversial?

They are controversial because there is a clash of fundamental values: on the one hand there is freedom or sanctity of contract which relies on agreements being honoured, and on the other hand there is freedom of trade which is a constitutionally recognised right.

As with other contracts, restraint of trade agreements are presumed to be prima facie valid and enforceable. Whereas the onus had earlier been on the employer to prove that implementation of restraint of trade was fair and in public interest, the onus is now on the employee to show why enforcement in the particular circumstances would be against the public interest.

An unreasonable restraint is contrary to the public interest and hence unenforceable. The reasonableness of a restraint of trade clause or agreement is judged on two bases: broad interests of community, and interests of the parties themselves.

Reasonableness inter partes depends on a variety of factors:

–     Does the employer have a protectable interest?

–     Area and duration of restraint (possibility of partial enforcement)

–  Concession by the employee in the contract that restraint is reasonable, and inequality of bargaining power of parties (these factors carry little weight)

Examples of protectable interests are confidential information, trade secrets, customer connections and lists, and goodwill of the business. However, it does not include interest in the elimination of competition, and the investment of time and capital in the training of the employee.

It is not sufficient simply to label confidential information as such. In order to be confidential the information must be commercially useful, in other words capable of application in trade or industry, have economic value to the person seeking to protect it, and be known only to a restricted number of people.

With regards to trade connections, it will only be relevant when the employee has close working relations with the customers, to such an extent that there is a danger of him/her taking them with him/her when he/she leaves the business. Relevant factors here include the following:

  • duties of the employee;
  • his/her personality;
  • frequency and duration of the contact with the customers;
  • his/her influence over them;
  • nature of his/her relationship with them (degree of attachment, extent of their reliance on him/her);
  • level of competition between the rival businesses;
  • type of product sold; and
  • evidence that customers were lost when he/she left the business.

With reference to the above the following questions must be asked:

a)   Does party A have an interest deserving of protection?

b)   Is such interest being prejudiced by party B?

c)   If so, how does A’s interest weigh up qualitatively and                                  quantitatively against B’s interest in not being economically                    inactive and unproductive?

d)   Is there some broader facet of public policy that requires the                   enforcement or rejection of the restraint?

If restraint of trade agreement is reasonable inter partes, it may still be unenforceable if it is damaging to the public interest for a reason not peculiar to the parties.

Sources:

Basson v Chilwan & Others [1993] 3 SA 742

Sunshine Records (Pty) Ltd v Flohing & Others 1990 (4) SA 782 (A)

Magna Alloys & Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A)

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

WHAT HAPPENS IF I DIE WITHOUT A WILL?

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Attorneys often emphasise the fact that you should have a will drawn up and revise it regularly in order to facilitate the bequeathing of your possessions after your death.  Many people still omit to do this. The problem is that, should a person die without leaving a valid will, in other words intestate, his/her estate will be administered and distributed according to the stipulations of the Intestate Succession Act  No 81 of 1987.

Below is a basic example of the effect an intestate death will have on the distribution of an estate. Should the composition of the beneficiaries of the deceased be more complex, the administering of the estate in terms of the Intestate Succession Act will also become more complicated.

Let us assume that person A dies and the value of his estate is R1.8 million. He is survived by his wife (B) and 2 children, of which one is of age and the other is a minor.

Scenario 1:

A and B is married out of community of property.

B inherits R125 000 or a child’s portion, whichever is the largest.

A child’s portion is calculated by dividing the total value of the estate by the spouse and number of children, in other words R1.8 million/3 = R600 000.

The spouse and children therefore inherits R600 000 each.

The inheritance of the minor will be paid to the Master’s Guardian’s Fund, as there is no will which determines that the minor heir’s inheritance should be placed in e.g. a Testamentary Trust, where the funds will be administrated on behalf of the minor until he/she becomes of age or reaches any other specified age.

Scenario 2:

A and B is married in community of property.

B inherits 50% of the estate due to the marriage in community of property.

B also inherits R125 000 or a child’s portion, whichever is the largest, with regard to the other half of the estate.

A child’s portion is calculated by dividing half of the total value of the estate by the spouse and number of children, in other words R900 000/3 = R300 000.

The spouse inherits R1.2 million and the children R300 000 each.

The inheritance of the minor will be paid to the Master’s Guardian’s Fund, as there is no will which determines that the minor heir’s inheritance should be placed in e.g. a Testamentary Trust, where the funds will be administrated on behalf of the minor until he/she becomes of age or reaches any other specified age. It is therefore clear that Intestate inheritance may result in an unpractical and often even impracticable division of assets.

The fact that the inheritance of the minor will be paid to the Master’s Guardian’s Fund may place the spouse in such a dilemma that she has to devise plans to finance the amount payable to the Master’s Guardian’s Fund to the benefit of the minor heir. Alternatively she could register a mortgage against an immovable property in favour of the Master’s Guardian’s Fund.

In case of death without a valid will there will of course be no person or institution appointed to support the surviving spouse in the administering of the estate. This should not usually present a huge obstacle, but the spouse should consider carefully which person or institution she appoints to assist her in this task. She should also negotiate the Executor’s fee with the relevant person or institution before the administering of the estate commences.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

A TIME OF GIVING

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-Kinney Oosthuizen

As part of its CSI portfolio, Schnetler’s is proud to be associated with the inaugural Horses for Causes Charity Fundraiser, to be held at Kenilworth Racecourse on 16 January 2016.  A lot of work has gone into this particular event, and Schnetler’s has acted as the project’s attorneys on a pro bono basis. We have been part of the project team from the outset, playing a significant role in various project planning and implementation aspects.

Let me give you a brief outline of the Horses for Causes project.

The launch of the inaugural Horses for Causes Charity Race Day will be held at Kenilworth on Saturday, 16 January 2016.  The day will be uniquely and intently focussed on the valuable community upliftment work which the 16 NGOs participating in Horses for Causes perform.  A large marquee tent erected in the grandstand area will display and showcase the work done by the 16 NGO beneficiaries, exposing racegoers to the empowerment and upliftment work performed by the participating NGOs.

The NGOs taking part in the event are involved in a wide spectrum of community upliftment activities, including skills development, sport, sustainable waste recycling and disposal, empowerment of people with disabilities, music, dancing, developing an effective bone marrow register, relieving the plight of neglected and abused street animals, rural education and healthcare, and providing career opportunities in the thoroughbred horseracing industry.

Funds raised on the day will be split equally amongst the 16 NGOs.  Racegoers, corporate sponsors and the general public will have the opportunity of showing their financial support and generosity.  Opportunities include sponsoring of races on the card, participating in fun-filled auction sales, purchasing hospitality tables in one of the three illustrious restaurant areas in the main grandstand, and making donations to the Horses for Causes fund.  All amounts donated are tax deductible, and are split equally amongst the participating NGOs.

In addition to top quality horseracing, the day will offer a fun-filled family-orientated entertainment programme which will include mini cricket, tag rugby, celebrity sprints, live music, dance groups and fashion soirées.  Think of the glitz and glamour of the J&B Met, combined with a really worthwhile community upliftment vibe, and you will get the general picture.

Entrance is free.  It is bound to be a significant event on the Cape Town social calendar.   The amount raised for the benefit of the participating NGOs will depend on the generosity of the public, but the benefits which funds donated will generate cannot be measured.  Any contribution could help youngsters achieve great things in education, sport, music, dancing; be the start of a waste disposal drive in Cape Town’s neighbourhoods; purchase a wheelchair for a child who would otherwise not be able to afford one; save lives and treat disease at a clinic in rural South Africa; investments which can never be valued in money, which are unique and priceless.

Horses for Causes is presented by the Riverside Estates Educational & Upliftment Trust, which is registered as a public benefit organisation for purposes of Section 18A of the Income Tax Act, No 58 of 1962.  Section 18A provides that any bona fide donation to a public benefit organisation approved by the Commissioner, not exceeding the greater of 5% of the taxable income of the taxpayer or the sum of R100 000,00, is tax deductible.  Donations to the Horses for Causes Charity Race Day therefore qualify for such deduction.  The website provides the necessary information on how to make a donation.

Further details of the event are to be found on www.horsesforcauses.org.za, on Facebook (horsesforcauses) and on Twitter (@horses4causes). Enquiries can be directed to Tracy on 021 424 5843 or info@horsesforcauses.org.za

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

SCHNETLER’S GIVES BACK TO THE YOUTH

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-Laura Ames

Life’s most urgent question is: what areyou doing for others?                   – Martin Luther King Junior

On 03 December 2015, Schnetler’s Inc donated a box full of goodies to the children at the Red Cross Children’s Hospital. The box included board games, colouring books, crayons, play dough, lollipops, puzzles and other educational toys and books. To many, these items are not considered as very ‘exciting’ gifts to receive, however, to some, these toys and games help make another day as a sick child, bearable. Our donation was just a small contribution aimed at lighting up some children’s lives.

The Red Cross Children’s Hospital manages around 260 000 patient visits each year, the majority of who are from exceptionally poor and marginalised communities.  One third of the little patients are younger than a year. This extraordinary place of healing advocates that no child will be turned away.  There are also no visiting hours as parents are encouraged to be a part of their child’s healing journey.

Patients are referred from within Western Cape, the rest of South Africa and across broader Africa.  The hospital provides training to paediatric healthcare professionals from the entire sub-continent and conducts ground-breaking research into childhood illnesses that has a global impact.

The hospital’s stature far outweighs its 260 000 annual patient visits. It holds the hope of a healthy childhood, a parent’s faith in healing, and a medical professional’s gift of prevention and cure for tomorrow’s most precious resources – our children.

Red Cross Children’s Hospital is constantly in need of everyday necessities, toys, blankets, nappies and very importantly, volunteers who are willing to spend quality time with the children.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)