Are Restraint of Trade agreements strangling property professionals into compliance?

Are Restraint of Trade agreements strangling property professionals into compliance?

MAIN IMAGE: Jim Alexander, PropertyTime area manager: Mossel Bay and Garden Route

Staff writer

How do property professionals protect themselves and their livelihoods against restrictive and often one-sided Restraint of Trade agreements?

Protectable interests

Restraint of Trade (RoTs) agreements are standard business practice in South Africa and globally. Simply put, RoTs protect a business’s interests by prohibiting employees (former or current) from sharing sensitive information that would be economically detrimental to that business. Depending on the type of concern, it may even restrict an employee from seeking work at a company offering similar services or manufacturing similar goods, which makes sense if a protectable interest is at stake.

This is rare in the real estate industry, says Jim Alexander, PropertyTime area manager: Mossel Bay and Garden Route, “A RoT is designed to protect a current employer from the possibility that an employee leaving their employment could share or use proprietary or confidential information that was gained during their term of employment in such a way as to be economically detrimental to the current employer,” he explains.

“In our industry, a ‘protectable interest’ would typically be a confidential client list of people who only deal with that agency or confidential/proprietary systems/information only known to that agency. In my experience, there are very few, if any, clients who are not known to other agents/agencies. There are also very few if any, systems or marketing methods or channels like advertising that are unique to or proprietary to any one agency.”

So, why the Restraint of Trade?  

“An agency must be able to prove they have a protectable interest to impose a RoT,” says Jim. He feels RoTs applied to the real estate industry are a thinly disguised way of discouraging agents from leaving an agency to join a competitor. And the repercussions if they do are nothing short of bullying. A typical restriction imposed via RoTs is sales territory, which restricts an agent from working anywhere within the province where their former employer operated. Another is the length of time they may not operate – which can be anything from three to 24 months.

“So, effectively, the RoT is a one-sided agreement that may force the agent to move to another province to continue working or try to manage without earning a living until the RoT is no longer in play. ‘Bullying tactics and other prejudicial practices’ are not uncommon, Jim adds. “In one case, a principal made life very difficult for an agent who wanted to resign and made it clear that they were no longer part of the ‘team’. When calls came in from either buyers or sellers, the agent was excluded from the distribution rules. In extreme cases, therefore, the agent ends up being stigmatised and traumatised.”

Is there a solution for both agents and agencies?

Jim believes several factors need to be addressed to protect the rights of agents’ rights to earn a living without prejudice:

  • The Property Practitioners Regulatory Authority (PPRA) should require all agencies to divulge them if they have a RoT clause. If they do, the PPRA should investigate if the agency has a protectable interest that validates the existence of the RoT.
  • If the agency has a protectable interest that warrants a RoT, new agents should be made aware of its specific existence. It should be a separate document that states the protectable interest, not just some vague clause about “client lists” and “training material”.
  • If a RoT is imposable, it means the agency is at risk of losing money in some way or another. So, the agent resigning should be compensated by being paid some reasonable amount during the RoT period. This would also have the balancing effect of the period being as short as possible instead of as long as possible.
  • The RoT territory should only be restricted to the agency territory, not a geographically enlarged area like the “province”.

Signing a contract to further your career at a new company is exciting, but reading everything is essential. RoT clauses can – and are – overlooked. They are either not noted or understood, and the contract is signed.

Unfortunately, once signed, RoTs are enforceable in the courts in South Africa. You never know what your longevity will be at a company. It’s possible that you feel it’s time to move on after two years, for whatever reason that may be, but a signed RoT clause and its restrictions will have far-reaching implications, and not everyone will have the means for a court battle. “Don’t sign the RoT,” is Jim’s advice. Instead, seek other agency opportunities where these restrictions are not imposed.

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