Employee Competition and Client Loss: When an Employer May Have a Claim

Client relationships can be a major source of value in professional services businesses. Disputes often arise when an employee leaves and joins a competitor.

What happened?

One of South Africa’s leading firms approached the Labour Court seeking a final order to enforce a restraint of trade undertaking against a former employee.

The employer alleged that, after tendering retirement notice and being placed on garden leave, the employee solicited clients and diverted business to a competitor.

Why it matters

A restraint of trade is not enforced simply because it exists. The employer must show a protectable interest, such as client connections, confidential information or business relationships that justify protection.

Practical point

Employers should ensure restraint clauses are properly drafted and supported by evidence. Employees should understand the consequences of competing while still bound by contractual obligations.