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[2010] ZAGPJHC 139
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Kelly Group Limited v Capazorio and Others (15484/2010) [2010] ZAGPJHC 139 (7 December 2010)
SOUTH GAUTENG HIGH COURT,
JOHANNESBURG
REPORTABLE
CASE
NO: 15484/2010
DATE:
07/12/2010
In the matter between:
THE KELLY
GROUP
LIMITED
............................................................
Applicant
and
CAPAZORIO,
DIANE
.................................................................
First
Respondent
ADCORP
HOLDINGS LIMITED
........................................
Second
Respondent
ADCORP
TECHNOLOGY SOLUTIONS (PTY) LTD
..........
Third
Respondent
JUDGMENT
KATHREE-SETILOANE AJ:
Facts giving rise to this application
[1] This is an
application in which Kelly Group Limited (“the applicant”)
seeks an interdict to enforce the terms of
a confidentiality and
restraint of trade agreement (“the restraint agreement”)
,
concluded between the applicant and the first respondent, Ms
Capazorio, which it claims she has breached by taking up employment
with the third respondent, Adcorp Technology Solutions (Pty) Ltd, a
wholly owned subsidiary of the second respondent, Adcorp Holdings
Limited.
[2] As appears
from the papers filed of record, the first respondent was employed by
the applicant since 1992. Over the course of
18 years, she was
promoted to branch manager of the Park Town branch, Regional Client
Services Manager, and then Regional Director.
At the time of her
resignation on 1 March 2010, she was employed by the Kelly division
(“Kelly”) of the applicant
as its Director: Strategic
Business Solutions within its Corporate Accounts Department. She was
responsible for the applicant’s
Corporate Accounts Department
Offices in Sandown, Cape Town and KwaZulu Natal. She was responsible
for marketing staffing solutions
to client companies with large
volume staffing requirements, particularly call centres. The Kelly
division constituted the applicant’s
core business, generating
approximately 85 per cent of all earnings of the company. The
Corporate Accounts Department, which
the first respondent was
responsible for achieved an income of more than R776 million for the
2009 year, which constituted approximately
85 per cent of the
applicant’s turnover.
[3] On taking
up employment with Kelly, the first respondent was required to sign a
restraint agreement that prohibited her,
inter
alia
,
from taking up employment with a competitor of Kelly for a period of
12 months and within 25 kilometres of any office in which
she had
been employed or for which she had responsibility. Each time that the
first respondent was promoted, she was required to
sign updated
restraint agreements. In 1999, the period of her restraint was
extended from 12 months to 24 months, and the restraint
area was
increased to prohibit her from working within 50 kilometres of any
office in which she had been employed or for which
she had
responsibility. At that stage, she had already occupied a high level
position for approximately three years.
[4] In 2004,
the first respondent was required to sign a further restraint
agreement. This is the agreement which was in force at
the time of
her resignation. It provides in relevant part as follows:
“
3 The
employee hereby agrees that the proprietary interests of the company
in the trade secrets and confidential information will
be prejudiced
if the employee takes up employment or becomes interested in any
concern that competes with the company. It is accordingly
agreed
that, in order to protect such proprietary interests, the employer
binds himself/herself during the period of the employees’
employment and for 24 [twenty four] months after termination thereof
within a fifty [50] kilometre radius of any branch or office
of the
company, that the employee has been employed in or was responsible
for, to the following restraints:
3.1
The
EMPLOYEE will not encourage, assist, persuade, induce, incite or
procure any employee of the COMPANY to become employed by
or
interested in [in whatsoever capacity, either directly or indirectly]
any concern of whatsoever nature which carries on as part
of or as
the whole of its undertaking or business, the same business, or
business similar to or alike the business of the COMPANY.
3.2 Save in
the proper execution of the EMPLOYEE’s duties as employee of
the COMPANY, the EMPLOYEE will not approach, advise
or contact in
order to, either directly or indirectly, solicit the custom of any
person or entity who was or is a customer or
client to or to whom, on
behalf of the COMPANY, negotiations, discussions or representations
where [sic] entered into or made during
the period of the EMPLOYEE’s
employment with the COMPANY.
3.3 The
EMPLOYEE will not either directly or indirectly be employed by or
have an interest, either as employee, principal, agent,
member,
shareholder, director, partner, consultant, financier or advisor or
any other like capacity in any concern or entity which
carries on the
same business or similar business to or alike the business of the
COMPANY. This does however not exclude the
employee
from holding shares in companies listed on the Johannesburg Stock
Exchange.”
[
5] It
is common cause that the first respondent was paid no compensation
over and above her ordinary remuneration package for accepting
the
terms of the restraint agreement, and that all the applicant’s
employees are required to sign a similar or identical
restraint
agreement as a condition of their employment. Rather than tailoring
the terms of the restraint agreement to suit the
seniority of the
employee and his or her access to confidential information and trade
secrets, the applicant reassesses the terms
of the restraint at the
employees exit interview and, presumably, determines whether or not
it will enforce the restraint.
[6
] Now,
on the respondent’s version, although the applicant’s
restraint policy was harsh, the first respondent was largely
satisfied in her employment there and had no intention of resigning.
She was, however, forced to do so by a change in the company’s
ethos and structure, which made it unbearable for her to remain with
the company. The events, which gave rise to this change unfolded
in
the following sequence. During the course of 2009, the Deputy Chief
Executive Officer, and the Sales Director of the applicant
determined
that the company would embark on a process to reduce the employees
over the age of 55. It was also decided that Kelly
would need to be
restructured because it was “unacceptably white”. This
was a cause for concern for the first respondent,
who was a 52 year
old white woman at the time. She viewed this as a clear message that
she was the wrong age and colour to have
any real future with the
applicant. In September 2009 and February 2010 respectively, two
high-level women, namely the Managing
Director of Kelly and the
Executive: ICT (Denise Thomas) were charged with
insub-ordination and forced to resign. In
the same period, the first
respondent was passed over for two potential promotions. This
re-enforced her view that there was no
real future prospect for her
growth or advancement within Kelly.
[
7] She
was informed shortly thereafter, by Kelly’s new Managing
Director, Mr Wordon, that the Corporate Accounts Department,
which
she was responsible for, was to be re-structured. The restructuring
was implemented after the first respondent had resigned,
and the
position which she had occupied ceased to exist. Mr Wordon apparently
also informed the first respondent that Kelly could
not accommodate
both him and her, and that their relationship has irretrievably
broken down. The first respondent viewed that as
a clear indication
that, despite her competent and loyal service for 18 years, she had
to go. In the circumstances, the first respondent
felt that she had
no choice but to resign, and did so on 1 March 2010. The first
respondent then took up employment with the third
respondent, on 8
March 2010, as the Managing Executive of its Skillstream division.
[8
] The
applicant filed extensive founding papers detailing the nature and
scope of its business. In summary, it described itself,
and its
subsidiaries, as being engaged in the provision of employment
services, information technology (IT) skills development
and
outsource solutions. Its activities include, in broad terms,
(a) permanent
recruitment of employees;
(b) providing
clients with temporary staffing;
(c) headhunting executive employees on behalf of clients in the
employment market;
(d) consulting
services in respect of employment issues;
(e) management
of Business Process Outsourcing (“BPO”), which is a
centralised office where clients and prospective
clients are serviced
through a telephonic contact or call centre;
(f) management of client’s payroll and workforce productivity
and time and productivity management of client’s employees
by
utilising an outsourced solution known as K-Log;
(g) management of clients’ staffing requirements in respect of
the recruitment process; and
(f) vendor
management, which is a process in terms of which the client appoints
a master vendor (such as the applicant) to assist,
in the process of
recruiting, managing and payrolling of contingent, temporary,
interim, contract and permanent employees and,
the management of
multiple staffing service providers/suppliers, which supply temporary
and permanent recruitment services.
The
Applicant’s
Case in Reply
[
9] The
applicant, however, changed its entire case in reply stating, for the
first time, that it provides a vendor management system
by either
using Bond Adapt, which it claims it has licensed from MCI
Consultants (Pty) Ltd (“MCI”) or through a combination
of
K-Log and Talent Ocean, which it claims is a software offering that
it developed in-house.
It
is the applicant’s version, in this regard, that it competes
directly with Adcorp Technology Solutions (ATS), the third
respondent, and its Skillstream product for the provision of vendor
management systems either as part of a technological and recruitment
solution offered by the applicant or as an independent product. In
this regard, it states that it offers a complete technological
support system to clients in respect of both vendor management
solutions and managed services provider contracts or in respect
of
any variation or combination thereof that the client may require.
Hence, the applicant states under reply that:
“
the
crux of the matter is that [it] competes for the award of contracts
i
nter
alia on the basis of the technological solutions in the form of
software programming that it is able to offer customers. Should
ATS
or the first respondent market the Skillstream vendor management
system successfully to a customer, this will mean that the
applicant
will not be able to market its own technological solution to such
client. It often happens that a party who can successfully
offer a
technological solution to a particular client will succeed in locking
in such a client for the rendering of other recruitment
services or
staff and vendor management services as well. Being able to compete
with the applicant in respect of technological
software solutions
with the Skillstream product is accordingly a major competitive
advantage to ATS and the Adcorp group. Their
ability to compete is
unfairly enhanced by the first respondent’s intimate knowledge
of the applicant’s confidential
business information and her
well established customer relationships with the applicant’s
clientele.”
[
10] The
applicant relies upon a report by Jeremy Park, a K-Log executive, in
which he found, after having compared Kelly group staffing
modules on
the one hand, and Skillstream and Adtime on the other, that
Skillstream and K-log are direct competitors in the market,
and where
Skillstream is utilised by a customer, such customer has no further
need to utilise the K-log system. Hence, according
to the applicant
the two systems, as far as time and attendance is concerned, are
mutually exclusive. It is also the applicant’s
version, under
reply that it identified the vendor management system, which it
provides as a new opportunity, when the first respondent
was still
employed by it, and that it had made presentations to major clients
on the basis of either its licensed recruitment
process software or
its own recruitment process software ( of which vendor management
systems forms a component, where required
by the client), both whilst
the first respondent was employed by the applicant and thereafter.
[
11] The
applicant’s claims that it was required to change its case in
reply because the respondents’ attorney, in response
to the
applicant’s letter of demand of 31 March 2010, confirmed in a
letter, dated 6 April 2010, that the first respondent
had entered
into a contract of employment with Adcorp Holdings in terms of which
she has been employed in its Skillstream business
division focused on
vendor management. It is the applicant’s version that upon
receipt of the letter of response, it prepared
its founding affidavit
on the basis of the version presented on behalf of the first
respondent in the letter of response, and that
overwhelming evidence
was presented in the founding affidavit that the first respondent is
in breach of her restraint undertaking
by being employed with Adcorp
Holdings, and by being involved in vendor management activities.
[
12] The
first respondent, in her answering affidavit, however, contends that
she is employed by a separate corporate entity, being
Adcorp
Technology Solutions (Pty) Ltd (the third respondent), and not by
Adcorp Holdings (the second respondent). Her explanation
for this
changed version is that:
“
My initial letter of appointment was signed by the second
respondent. At the date of signature, it had not yet been determined
where
Skillstream would be housed. The intention was to register a
separate company in the name of Skillstream (Pty) Ltd but an
objection
was raised to the use of the name because there was an
existing company by the name of Skill Stream (Pty) Ltd. As a result,
Skillstream
was housed in ATS, which was an existing non-trading
company in the Adcorp group.”
S
he
goes on to explain that she neglected to inform her attorney of her
“subsequent” letter of appointment, by the third
respondent, due to the urgency under which the response to the letter
of demand was prepared.
[13] In view
of this so-called change in the first respondent’s version, the
applicant has made application to join the third
respondent to the
application and to amend its notice of motion accordingly. The
application for joinder is not opposed, but the
third respondent
opposes the amended relief sought. The applicant had, consequently,
amended it notice of motion. This being
the case, the application
for leave to join the third respondent is granted.
[14] The
applicant claims to have been “severely prejudiced” by
what it terms a “material change” in the
first
respondent’s version. The respondents, however, contend that
the applicant’s claim of prejudice is unsustainable
as it was
informed that the first respondent was employed in the Skillstream
division, which is responsible for the development
of Skillstream.
The respondents further contend that the applicant is well-aware of
what Skillstream is and does as a vendor management
system, because
as set out in their answering affidavit, and which is not denied by
the applicant under reply, the first respondent
researched
Skillstream for the applicant and advised that it obtain a licence
for Skillstream. The respondents, therefore, contend
that the
applicant ought, in the circumstances, to have known what business
areas to address in its founding papers in order to
show a
proprietary interest in the restraint it seeks to enforce. They
contend that it was incumbent on the appellant to show,
in its
founding affidavit, that the first respondent had breached a
provision of the restraint. It sought, in this regard, to establish
a
breach of clause 3.3 of the restraint agreement by showing that the
first respondent had become employed in a staffing business,
which
was a competing business to the staffing business of the applicant.
However, notwithstanding the great detail in which the
applicant’s
business was described in the founding affidavit, little attention
was given to setting out the applicant’s
business as a supplier
of vendor management systems. They accordingly contend that the
applicant has failed to make out a case
in its founding affidavit for
the relief which it seeks.
[15] When an
objection such as this is taken, it is necessary to consider the
founding affidavits alone. On consideration of the
founding
affidavit, I am of the view that the applicant has failed to make out
a case for the relief which it seeks. In a belated
attempt to remedy
the position taken in its founding papers, the applicant delivered a
substantial replying affidavit, in which
it sought for the first time
to show that the applicant engaged in the business of the provision
of vendor management systems.
Now, it is generally impermissible for
an applicant to seek to make out a case in reply (
Director
of Hospital Services v Mistry
1979
(1) SA 626
(A) at 635H-636B;
SA
Railways Recreation Club and Another v Gordonia Liquor Licensing
Board
1953
(3) SA 256
(C) at 260).
[16
] It
is clear from the first respondents’ letter of response, dated
6 April 2010, to the applicant’s letter of demand,
dated 31
March 2010, that she was employed in the Skillstream Division of an
Adcorp company. As is evident from the respondents’
version,
the applicant knew, at all times, that Skillstream was a vendor
management system as the first respondent had investigated
vendor
management systems, on behalf of the applicant, and identified this
as an important new business opportunity that the applicant
should
pursue. As a result, a significant portion of the founding
affidavit, and in particular paragraphs 39 to 60, is dedicated
to
establishing that K-log and Skillstream are the same kind of product
and that the applicant provides a vendor management system.
It is
significant, in this regard, that the applicant makes the following
allegations in its founding affidavit:
“
Similar
to the applicant’s K-log, the second respondent makes use of a
UK-based Skillstream software system to eliminate the
problems
associated with recruiting, management and pay-rolling of clients’
workforces.
The details
of the Skillstream product appear from a press release which the
second respondent issued after it obtained the rights
to the UK-based
Skillstream product in 2008, a copy of which is annexed hereto,
marked
FA7
.
Although Skillstream and K-Log conduct substantially the same
services and solutions to clients the applicant developed K-Log
itself over time. The first respondent participated in this process
and was well aware of the development thereof and the promotion
of
K-Log to its clients. It is clear from the first respondent’s
description of her roll in the applicant that she regards
K-Log as a
solution to assist clients and that she regards the second respondent
as a direct competitor.
The second
respondent realised the advantage of an IT solution such as K-Log and
as a counter thereto, in 2008, the second respondent
obtained the
rights to the Skillstream product, which system is well known and
which is utilised by international companies, such
as
Morgan Stanley and HSBC.
...
Skillstream
is a multi-vendor recruitment management solution with a time
management component. K-Log in turn is a multi-vendor,
time and
activity-management solution. There is an area of substantial overlap
between the products in the area of time management,
intuitive
software platforms that facilitate end to end management solutions,
dealing with the recruitment process, third party
management and
payroll, workforce productivity and management information, and
electronic time sheets...
The
applicant and the second respondent use K-log and
Skillstream
respectively to support vendor management. Vendor management and
related staffing business models, as applied by the
applicant and the
second respondent, compete head-on in the marketplace. In fact, the
second respondent and the applicant being
the two largest companies
in South Africa are the primary competitors in this area.
In order to
support this contention, I reiterate that, headed by the first
respondent, the applicant, with its K-log system recently
competed,
with the first respondent as director, with the second respondent and
its Skillstream system for key accounts. An example
hereof is where
the applicant and the second respondent recently competed for the
Vodacom account. The applicant with its K-log
system and the second
respondent with its Skillstream were the final two competitors on
Vodacom’s shortlist for this tender
which was finally awarded
to the applicant and
which
the applicant presently operates successfully.
In addition
to its Vodacom client, the applicant renders vendor management
services to inter alia Standard Bank. K-log is also installed
and
used by inter alia ABSA, IBM, and First Rand, amongst approximately
40 other clients. The second respondent and the applicant
compete
head on for these accounts with these clients.
...
The K-log
and Skillstream systems are tools to mange large and/or decentralised
workforces and multiple shift changes and at the
same
time provide the staffing company and the client with real-time
information. The staffing company and client can therefore
immediately see which employees are on site, who is late, who is
early and who has not arrived and the information is then transferred
to key personnel of clients who require this information. The systems
are also able to manage multi-vendor environments, contractors
and
permanent workforce staff with different payment cycles, different
shifts and payroll exports within a company configuration.
The
business of the applicant and the second respondent are similar in
all material respects and they are direct competitors on
a nationwide
basis in all major business sectors.”
[17
] It
is clear from these allegations that the applicant has at all times
known that Skillstream is a vendor management system, and
what its
capabilities are. I am accordingly of the view that the applicant
ought to have addressed the issue of it also being in
the business of
providing a vendor management system either through Bond Adapt, or a
combination of K-Log and Talent Ocean in its
founding affidavit, in
order to show a proprietary interest in the restraint it seeks to
enforce. It was incumbent on the applicant
to show, in this regard,
that the first respondent had breached a provision of the restraint
agreement. Although it sought to establish,
in its founding
affidavit, a breach of clause 3.3 of the restraint agreement by
showing that the first respondent had become employed
in a staffing
business, which competed with the staffing business of the applicant,
little attention was given to showing that
the applicant’s
business was a vendor management system. The applicant is therefore
not allowed to do so in reply, when no
case at all was made out in
its founding affidavit. Having regard to the founding affidavit, it
is clear that the applicant has
failed to make out a case for the
relief that it seeks in its founding affidavit.
Disputes of
Fact
[
18] However,
and regardless of the applicant’s belated assertions in its
replying affidavit, as the proceedings before this
Court are motion
proceedings in which final relief is sought the rule, as enunciated
in
Plascon-Evans
Paints Ltd
v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634H-635C,
that where there is a dispute as to the facts a final interdict
should only be granted in motion proceedings
if the facts as stated
by respondents together with the admitted facts in the applicant’s
affidavits justify such an order,
applies. Accordingly, the
respondents’ version must prevail. It is significant, in this
regard, that the first respondent
denies that the applicant, during
the time of her employment with the applicant ever supplied vendor
management systems to its
customers.
[19] It is,
moreover, clear from a reading of the papers filed of record that the
application has given rise to a number of material
disputes of fact
between the parties, and that the filing of supplementary and further
supplementary affidavits by the parties
served to deepen these
disputes, which include,
inter
alia
:
(a) whether the applicant conducts the same or a similar business or
a like business to the third respondent;
(b) whether the applicant owns or is licensed to offer a vendor
management system;
(c) whether
the applicant
in
fact and in its own right offers a vendor management system;
(d) the
circumstances leading to the first
respondent’s
resignation;
(d) whether
the first applicant came to possess any of the applicant’s
trade secrets and confidential information which is
considered
protectable; and
(e) the
first respondent’s interaction with the applicant’s
clients since leaving the applicant’s employ.
[
20] The
applicant is, however, adamant that it is clear from the affidavits
filed by the parties that there are no disputes of fact
on the
papers. It has also, in this regard, produced a large volume of new
documents (including agreements) to make out its case.
These
documents were not disclosed in the founding affidavit nor where they
produced by the applicant in response to the respondents’
application in terms of Rules 35(12), 35(11) and/or 35(14) of the
Uniform Rules of Court.
[
21] It
is notable, therefore, that the core disputes in this matter relate
to vendor management systems, and whether the provision
of such
systems form part of the applicant’s business. As indicated
earlier, in this judgment, the first respondent’s
reply to the
applicant’s letter of demand stated categorically that she is
employed in the Skillstream division of an Adcorp
Company. The
applicant was likewise also, at all times, aware that Skillstream is
a vendor management system, and what its capabilities
are. It is
therefore not surprising that the applicant dedicated a significant
portion of the founding affidavit to establishing
that K-log and
Skillstream are the same product, and that the applicant consequently
provides a vendor management system.
[2
2] The
respondents, while preparing their answering papers, brought an
application, in terms of Uniform Rules 35(11), (12), and
(14), to
compel the production,
inter
alia,
of
all agreements concluded between the applicant and its clients in
terms of which it provided a vendor management system; all
agreements
in terms of which it was supplied or licensed to provide a vendor
management system; and all revenue generated by the
provision of such
vendor management system. The affidavit in support of the application
to compel pertinently states as follows:
“
At the heart of the dispute between the applicant and the
respondents lies the question of whether the applicant presently can
provide
or does provide a vendor management system – which is a
software product that manages a client company’s recruitment
process.”
Significantly,
the applicant did not deny that the documents requested in the
application to compel were central to the matter.
Nor did it dispute
the respondents’ characterisation of the case. Instead, it
provided the confidential documentation. Notably,
none of these
documents mention Bond Adapt or Talent Ocean, either as products that
the applicant has licensed from another company
or as a product that
it supplies to its clients. Moreover, only K-Log’s revenue
stream was furnished, which represents in
the region of 0.01 per cent
and 0.16 per cent of the applicants turnover. The applicant has, in
addition, also failed to provide
a single agreement concluded between
it and a client for the provision of a vendor management system. Even
when pressed by this
Court for an example of the applicant having
provided a vendor management system to a client, the applicant’s
counsel avoided
directly answering my question. According, and
despite the applicant’s consistent denials that there are
disputes of facts
on the papers, accompanied by its production of a
large volume of documents described as
‘objective,
corroborating evidence’
to make its case, it has failed to convince me that there are no
real, genuine or
bona
fide
disputes of fact on the papers.
Breach
of Restraint Agreement
[
23] It
is conclusively settled that in considering the reasonableness of a
restraint undertaking the following questions must be
considered:
(a) Does the
one party have an interest that deserves protection after termination
of the agreement?
(b) If so, is that interest threatened by the other party?
(c) In that case, does such interest weigh qualitatively and
quantitatively against the interest of the other party not to be
economically inactive and unproductive?
(d) Is there
an aspect of public policy having nothing to do with the relationship
between the parties that requires that the restraint
be maintained or
rejected? (
Basson
v Chilwan
[1993] ZASCA 61
;
1993 (3) SA 742
(A) 767F-H).
(e) Does the
restraint go further than is necessary to protect the particular
interest (
Kwik
Kopy v Van Haarlem
1999
(1) SA 472
(W) 484B-E)?
However, it is
important, prior to considering the reasonableness of the restraint
undertaking, to first determine whether or not
the first respondent
has breached the restraint agreement.
Businesses not same, similar or alike
[24
] I
will deal first with clause 3.3 of the restraint agreement, which
provides that the concern in respect of which the employee
is to be
restrained from taking up employment is any concern “...
which
carries on the same business or similar business to or alike the
business of the COMPANY.”
Clause
3.3 is not a traditional non-compete clause as it does not expressly
seek to prohibit employment in a competitive business.
It seeks only
to prohibit employment by “any concern or entity which carries
on the same business or similar business to
or alike the business of
the COMPANY.” It is the respondents’ contention that the
applicant has failed to prove a
breach of this provision as the
respective businesses of the applicant and the third respondent are
patently not the same, similar
or alike.
[25
] I
am of the view that the phrase “any concern or entity which
carries on the same business or similar business or alike
the
business of the COMPANY” postulates a comparison of the
applicant’s business to the respondents business, as a
composite whole (
Capnorizas
v Webber Road Mansions (Pty) Ltd
1967 (2) SA 425
(A). Accordingly, because the applicant provides some
of the services which are provided by the third respondent does not
mean
that the respective businesses viewed in their entirety, are the
same, similar or alike.
[26
] The
applicant’s business is best described as the provision of
staffing. It acts as a labour broker, and sometimes, as an
on-site
manager, to companies with large staffing contingents. Its business
is to provide personnel to fill temporary or permanent
positions
within client companies and to manage those personnel’s
performance and payment once they are employed. It is service
oriented rather than product or technology driven. As a result, it
employs a workforce of more than 1000 people. Significantly,
the
division of the applicant in which the first respondent was employed
at the time of her resignation was accountable for 85%
of the
applicant’s revenue, which was derived from providing staffing
and recruitment services.
Its
direct competitors in the Adcorp Group are Quest Staffing (which is a
division of Adcorp Staffing Solutions (Pty) Ltd) and Emmanuel’s
Staffing Services (which is a division of Adcorp Fulfilment Services
(Pty) Ltd).
[27
] The
applicant remains steadfast, however, that it offers vendor
management software, and vendor management and employee management
services subsequent to recruitment of employees, in competition with
the Skillstream software, by utilising its K-log system, or
a
combination of K-log and Talent Ocean or Bond Adapt. However, and
despite having been called upon by the respondents to indicate
what
portion of its revenue was derived from the provision of vendor
management systems to clients, and its repeated assertions
that it is
in competition with the third respondent, the applicant has failed to
show that it derived any revenue from providing
vendor management
systems. Hence, it is the respondents’ submission that there is
no merit in the contention that the business
of the applicant is the
business of providing a vendor management system. In support of this
contention, they rely upon the judgments
of
PE
Nightwatchman Patrol (Pty) Ltd v Blignaut
1979 (2) SA 302
(SE) and
Poolquip
Industries (Pty) Ltd v Griffin and Another
1978 (4) SA 353
(W).
[28
] PE
Night
watchman
Patrol v Blignaut (supra)
concerned
an application for an order committing the respondent to prison for
contempt of court on the ground that he had disobeyed
an order of
court interdicting him from carrying on a security service similar
to, and in competition, with the business of the
applicant. The
applicant supplied a service which actually guarded premises, whereas
the respondent did not guard anything, but
the radio systems which he
supplied could be used by guards. The court, citing
Mays
v Roberts
1928 SASR 217
at 219, in which it was argued that the word “similar”
when used with reference to houses did not mean “exactly
alike”, concluded that it was not necessary that the
respondent’s business was exactly like that of the applicant.
It was sufficient if the respondent’s business “was so
like that of the applicant as seriously to compete with it.”
In
Poolquip
Industries (Pty) Ltd v Griffin and Another
1978 (4) SA 353
(W) at 361H, the Court arrived at a similar
conclusion.
Poolquip
Industries
concerned the enforcement of a restraint agreement, in terms of which
the respondent, a managing director of the applicant (a manufacturer
and distributor of equipment and chemicals for the swimming pool
industry) agreed, prior to resigning an becoming employed with
the
second respondent (whose business was concerned with the manufacture
and sale of chemicals, veterinary products, anti-freeze
solutions,
fibre glass products for agriculture and swimming pools and swimming
pool cleaning equipment), not to be associated
with a business
“similar” to that being carried on by the employer or
“which competes or is likely to compete
with the business of
the employer. The Court held that a “similar” business in
the context in which it was used meant
a business which competed with
the applicant’s business, “in some material respect”,
and not a business which
was the same in all respects.
[29] Accordingly,
and in so far as the applicant contends that the third respondent’s
business and that of the applicant are
similar, it must show that the
two businesses compete in some material respect. Likewise, the term
“business of the COMPANY”
as used in clause 3.3 of the
restraint agreement must also be construed as a reference to the
business as a composite whole conducted
by the applicant. That the
applicant provides some of the services provided by the third
respondent does not mean that the respective
businesses viewed in
their entirety are the same business or similar business to or alike
businesses. Having regard to the nature
of the respective businesses
of the applicant and the third respondent, it is clear that they are
neither the same, similar or
alike, and nor do they compete in any
material respect. The applicant’s core business is that of a
staffing and recruitment
service, while the third respondent’s
core and exclusive business is that of the provision of vendor
management systems,
that administers the staff recruitment process.
In other words, it provides client companies with a software product
to enable
them to manage their recruitment process, where they rely
on staffing vendors, such as the applicant to provide them with
staff.
Its products are ancillary to and supportive of staffing
providers such as the applicant. It is not in competition with the
applicant
as it is not a staffing vendor which provides staff or
staffing solutions. It is also technology and product driven, rather
than
service oriented. Unlike the large workforce of the applicant,
the third respondent employs a small number of highly skilled
business
analysts who are able to assess a client’s technology
needs and customise the Skillstream product offering to match. It
currently
has three employees only. I am, accordingly, of the view
that the third respondent’s business is significantly different
to the applicant and is, therefore, not the same, similar or alike
the applicant’s business.
Nor
do they compete in any material respect.
[30
] As
the Managing Executive of the third respondent’s Skillstream
South Africa Division, the first respondent is responsible
for
developing and marketing Skillstream. Skillstream is a vendor
management system that is a technology product that manages the
end-to-end recruitment process, which involves,
inter
alia
,
publishing requests for staff, screening candidates on a formal
level, and ensuring that their appointment and employment complies
with the relevant statutory and corporate governance requirements. In
contrast, the first respondent was not involved in developing
and
marketing software for the applicant, while in its employ. The
applicant, in this regard, does not provide technology products
at
all; it is a service provider. It sometimes markets software called
K-Log on behalf of K-Log (Pty) Ltd, which is a separate
legal entity.
The first respondent did not work for K-log (Pty) Ltd and has never
signed a restraint in its favour. K-Log (Pty)
Ltd, and not the
applicant, earns revenue from the provision of the K-Log system to
the applicant’s clients. K-Log, in any
event, does not compete
with Skillstream. It is a time-and-attendance system that monitors an
employee’s hours on the job
after appointment and in some
instances generates a payroll and invoices based on time. It is not a
tool involved in recruitment,
and for that reason does not have the
capabilities of a vendor management system.
In
an attempt to overcome this obstacle, the applicant contends in reply
that a component of Skillstream performs time-and-attendance
and
payrolling functions and accordingly it is a competing product with
K-Log. However, the respondents contend that this misrepresents
the
market as Skillstream’s clients require a product that is able
to manage their full recruitment process, and will therefore
acquire
the full technology bouquet that Skillstream offers. Where a client
requires only time-and-attendance and payrolling,
it will not
purchase Skillstream. Rather, it will acquire K-Log or Adtime, which
are competing products. They accordingly contend
that the K-Log
market is not the same as the Skillstream market.
[31] Similarly,
in so far as the applicant contends that it has developed a vendor
management system by combining the capabilities
of K-log and Talent
Ocean, it is apparent from the respondent’s version that Talent
Ocean is a job-listing website, and not
a vendor management system.
The applicant elected not to acquire a licence for a vendor
management system. It is, consequently,
disallowed from marketing
vendor management systems unless it enters into an agreement with a
company that has a licence to operate
a vendor management system,
which it has not done. Significantly, in both its IBM proposal and
its South African Post Office proposal,
Kelly made it clear that it
could not provide a vendor management system, and that if the client
required one, it recommended that
the client acquire Bond Adapt,
which is licensed by a company called MCI (Pty) Ltd, and not by the
applicant.
[32] As
indicated earlier, in so far as the applicant contends that it
carries on business in competition with the third respondent,
which
provides vendor management systems, it bears emphasis that the
revenue earned by K-Log (Pty) Ltd, even if taken into account
in
relation to the applicants’ activities represents between 0.01
per cent and 0.16 per cent of the applicants’ turnover.
I am
of the view that the insignificant revenue generated by the applicant
through K-Log (Pty) Ltd, and its notable failure to
produce a single
contract in terms of which the applicant provides a vendor management
system to a client either in the form of
K-log combined with Talent
Ocean or through Bond Adapt, together with the fact that its business
is substantially different to
that the third respondent, demonstrate
conclusively that the two businesses do not compete in any material
respect.
[3
3] It
is furthermore important to bear in mind that mere employment with a
competitor could not
per
se
infringe
a proprietary interest of a covenantee. There has to be a likelihood
that the first respondent would use her employment
or let it be used
to wean away the applicants’ goodwill. The applicant has,
however, failed to demonstrate any such likelihood.
In tacit
acknowledgement of this flaw in the applicant’s case, it
contends that irrespective of whether the applicant and
third
respondent are competitors, the third respondent is part of a group
of companies, and the first respondent, as an employee
thereof, will
“lock in” clients for
the
rendering of recruitment or staff and vendor management services.
However, as contended for by the respondents, the third respondent
only provides vendor management systems. It cannot, therefore, “lock”
clients in to provide them with services that
it does not provide,
such as staff and vendor management services. The claim of this “lock
in” effect is made by the
applicant, in its replying affidavit,
without putting forward any actual evidence to demonstrate that the
provision of vendor management
systems by the third respondent does
in fact “lock in” clients for the provision of other
services. I am accordingly
unpersuaded by the applicant’s
argument in relation to the “lock in” effect.
[34
] The
applicant, in addition, contends that the first respondent will not
only compete directly with the applicant for the supply
of vendor
management systems/recruitment process outsourcing systems but will
also be indirectly employed by or have a direct or
indirect interest
as employee, consultant or advisor in the business of the second
respondent. It claims that this indirect involvement
with the second
respondent, will amount to an additional and independent breach of
her restraint undertaking. The applicant relies,
for this contention,
on the decision of
Dickenson
Holdings (Group) (Pty) Ltd v Du Plessis
(2008) 4 SA 214
at para 23, in which the court took into account
that where the new employer was part of a family or group of
companies, a strong
probability is raised that, if a chance presented
itself for the new employer to share information with its family of
companies
in areas where there is competition between the applicant
and a member of the employer’s group of companies, the company
would be likely to share such information.
[35
] I
am again unpersuaded by the applicant’s reliance on the
Dickensen
decision
,
as it is distinguishable from the matter at hand. In
Dickensen,
the
Court
was dealing with a restraint that specifically prohibited
competition against the business engaged in by the Dickensen group
of
companies, commonly known as ‘The Dickensen Group’ which
consisted of approximately sixteen companies. However,
the clauses
upon which the applicant relies in the restraint agreement, in this
matter, do not contain such a broad wording. The
undertaking is
confined to only the applicant. Furthermore, the second respondent in
the
Dickensen
matter, admitted that it could still accept work that was in
competition with that of the applicant and pass it on to specialists
that include the applicant and its competitors. The respondents in
the current matter, however, make no such admission.
The
Restraint
is Unreasonable and Unenforceable
[3
6] In
terms of clause 3.2 of the restraint undertaking, the first
respondent is “
not
[to]
approach,
advise or contact in order to, either directly or indirectly, solicit
the custom of any person or entity who was or is
a customer or client
or to whom, on behalf of the COMPANY, negotiations, discussions or
representations where
[sic]
entered
into or made during the period of the EMPLOYEE’s employment
with the COMPANY.
”
[37
]
The applicant concedes that this clause is unreasonable as it
stands, and seeks to limit its applicability to a list of customers
of the applicant as reflected in annexure “
C1”
to the confidential affidavit. It is the applicant’s case that
annexure “
C1”
was stored on the first respondent’s personal laptop and was
accessed by her on a daily basis. It contains a list of all
the
customers of the applicant with whom the first respondent had an
established
business
relationship with at the time of her resignation. According to the
applicant, the list was obviously not available at the
time when the
restraint and non-solicitation undertakings were agreed upon with the
first respondent. It was, therefore, obviously
not possible to
anticipate at that stage the identity of the customers the first
respondent would establish a business relationship
with in the
future. Accordingly, the applicant states that in light of the
evidence currently available, it only seeks an enforcement
of the
non-solicitation restraint in respect of the customers reflected on
annexure ”
C1”
to the confidential affidavit.
[3
8] In
light of this concession, the respondent contends that the applicant
bears the onus of establishing the reasonableness of
this restraint.
In
BHT Water Treatment (Pty) Ltd v Leslie
1993 (1) SA 47
(W), where the applicant conceded that the original
restraint clause was too wide, and therefore sought partial
enforcement thereof,
Marais J stated that:
“
I
do not accept in principle that the litigant (on whom the onus does
not originally rest) attracts the onus because he makes a limited
concession in respect of matters where the onus initially rests on
the opposite party. Save for matters directly affected by the
concession, in my view, the onus remains undisturbed by the fact of
the concession.
The applicant, properly making a concession that the restraint is
geographically too wide, does not in my view concede that the
restraint is otherwise unreasonable, and I am of the view that the
onus of showing that the enforcement of the cut-down restraint
is
unreasonable remains on the respondent.”
[39
]
This approach has been endorsed in a number of other cases including
Nampesca
(SA) (Pty) Ltd v Zaderer
1991
(1) SA 886
(C) 895H-I. It has, however, been recognised that despite
the onus remaining with the respondent in cases of partial
enforcement
of the restraint by the applicant, the applicant must,
nevertheless, lay a proper basis for the enforcement of the narrower
or
pared down restraint (
Macphail
(Pty) Ltd v Janse Van Rensburg
1996
(1) SA 594
(T) at 599C,
Sunshine
Records (Pty) Ltd v Frohling
1990 (4) SA 782
(A) at 795I).
[40
]
Saner, in
Agreements
in Restraint of Trade in South African Law,
Lexis Nexis Butterworths 2009 at 5-15 to 5-16, has the following to
say concerning the approach adopted by Marais J in the
BHT
Water Treatment
decision
:
“
Whilst,
with respect, Marais J’s reasoning is superficially attractive,
it is submitted that it does not accord with the basic
principles
regarding the reasons why agreements in restraint of trade are now
regarded as being prima facie valid and enforceable.
The fact of the
matter is that, according to Magna Alloys
[1984] ZASCA 116
;
[1984
(4) SA 874
(A)]
they
are so because it is in the public interest that agreements solemnly
entered into should be enforced unless they are unenforceable,
in
which case public interest demands that they should not be enforced.
Consequently, once the covenantor has discharged the onus
of proving
that the covenant in restraint of trade is in conflict with the
public interest and thus unenforceable as a whole [or
the applicant
(covenantee) has conceded that the restraint is unreasonable or
otherwise in conflict with public policy], it would
not seem
unreasonable to require that the convenantee provide a suitable
answer to indicate why partial enforcement should nevertheless
be
allowed. It is submitted that in the circumstances the covnenantee
must actually prove that partial enforcement is in the public
interest because, in the words of Grosskopf JA in Sunshine Records
(Pty) Ltd v Frohling:
[1990
4 SA 782
(A) 796E]
‘
The
ratio for the partial enforcement of the restraint is that the public
interest
requires
it. Thus Rabie CJ stated in the Magna Alloys case supra at 896E that
the Court should be empowered to order the partial
enforcement of a
restraint clause ‘in ‘n gepaste geval, in die lig van die
vereistes van die openbare belang’.
It should follow therefore that it is not for the covenantor to
prove that partial enforcement would prejudice the public interest,
but for the covenantee to prove that partial enforcement is in the
public interest.”
[
41]
Having regard to
Magna
Alloys v Ellis
[1984] ZASCA 116
;
1984 (4) SA 874
(A)
and subsequent cases regarding the incidence of the onus in restraint
of trade cases, I am in agreement with Saner’s view
that the
correct approach, where a covenantor concedes that a restraint clause
is unreasonable as it stands, and should therefore
only be partially
enforced, is that the covenantee must show that partial enforcement
is in the public interest. Accordingly, I
am of the view that the
applicant bears the onus of proving the reasonableness of the
restraint where it concedes that such restraint
is too wide. It has,
however, failed to do so. In any event, I am of the view that the
applicants prayer for partial enforcement
of clause 3 does not go far
enough to cure the reasonableness thereof. The clause as it stands
would preclude the first respondent
from approaching any of the
applicant’s customers listed on annexure “
C1
”,
to solicit business of any nature from these customers. This
unreasonableness is, moreover, exacerbated by the broad class
of
entities that the first respondent is prohibited from approaching. It
is apparent, from perusal of this list, that it nonetheless
includes
every significant corporate entity in the country. There is
effectively little difference between the pared down clause
3.2 of
the restraint agreement, and seeking to enforce the restraint
throughout most of commercial South Africa, as originally
intended.
[
42] The
applicant furthermore seeks to enforce a 24-month restraint. This
period is the period stipulated in the restraint agreement.
However,
at the hearing of the matter, the applicant argued for an 18 month
restraint. It is the respondents’ contention
that a 24 –
month restraint is unreasonable, and the applicant’s vain
attempts at justifying the period of the restraint
are undermined by
the concession made by the applicant in argument, where the applicant
argued for an 18-month restraint.
[43
] I
am of the view that there is much force in this contention for the
following reasons. Where a court is asked to read down an
agreement
so as to make it reasonable and, hence, enforceable, this must be
pertinently raised at the outset, in the applicant’s
papers,
and the facts must be set out in support of the severance itself and,
of the partial enforcement of the restraint clause,
so that the
issues can be fully ventilated
(Nampesca
(SA) Products (Pty) Ltd v Zaderer
1999
(1) SA 886
(C);
Macphail
(Pty) Ltd v Janse van Rensburg
1996 (1) SA 594
(T) at 599B; and
Forwarding
African Transport Services CC t/a FATS v Manica Africa (Pty) Ltd
[2004] 4 All SA 527
(D) at 534b;
Alum-Phos
(Pty) Ltd v Spatz
[1997] All SA 616
(W) at 633g)
[4
4] Having
perused the applicant’s affidavits, it is clear that the
applicant only makes mention in passing, in its replying
affidavit,
that in the event of this Court concluding that the period of 24
months is not justifiable, it will seek an order
for a period of 18
months from date of termination of the first respondent’s
employment. This notwithstanding, nowhere on
its affidavits does the
applicant state that its 24 – month restraint is too wide, and
it seeks to enforce something less
than that. Nor does it set out
facts in support of the severance or the partial enforcement of the
restraint. Therefore, severance
or partial enforcement has, in my
view, not been pertinently raised by the applicant. Accordingly, the
case must be dealt with
on the basis that the applicant seeks to
enforce a 24-month restraint, and not on the basis of counsel’s
submission from
the bar. Accordingly, I am persuaded by the
respondents’ submission that the applicant elected to seek to
enforce the full
extent of the agreement on its papers. It should,
therefore, be held to this election, and the restraint should be held
to be
unreasonable in its terms on this account too.
[45
] This,
accordingly, brings me to the question of whether the restraint of 24
months is too long. It is important that the period
of the restraint
should not be any longer than is necessary to enable the applicant to
replace the first respondent, and for that
person to become
acquainted with the nature of the job, the products and services
provided, the customers, and the staff that will
work under him or
her (
Den
Braven SA (Pty) Ltd v Pillay and Another
2008 (6) SA 264
at para 55). In my view, two years, or even eighteen
months for that matter, is much too long for a case such as this,
particularly
because the executive position, which the first
respondent had occupied, has ceased to exist as a result of the
re-structuring
of Kelly’s Corporate Accounts Department.
[46] Our courts have accepted
that an overbroad restraint of trade clause may be rendered
reasonable by being partly enforced (
Magna
Alloys
at 896A-E;
Sunshine Records
at 794G-H). However, a court cannot save an unenforceable restraint
by engaging in judicial “
plastic
surgery
”
(
National Chemsearch
at 1117A;
Sunshine
Records
at 796B-E).
It can only give effect to a restraint agreement that is recognisably
one that the parties agreed to (
Sunshine
Records
at 796E-G;
Advtech Resourcing
at paras 43-45).Thus, where a restraint agreement was intended to
operate in an unduly oppressive manner or
in
terrorem
, a court
cannot sever the agreement to give effect to a more innocuous form
(
Ibid
).
The restraint must be rendered unenforceable “
precisely
because
[its terms]
were too grasping
”
(
Sunshine
Records
at 797B;
Interpark (South
Africa) Ltd v Joubert and Another
[unreported judgment of the South Gauteng High Court, 30 April 2010,
at para 71]).
[47] In the present
circumstances, I am of the view that the restraint agreement is
unusually stringent both in geographic area
of operation and in
duration, and that the applicant intended the restraint agreement
to operate as an oppressive measure that
would discourage employees
from leaving its employ and seeking work elsewhere. In these
circumstances, I remain convinced that
the terms of the restraint
agreement cannot be rendered reasonable by selective enforcement. It
is overbroad and unenforceable
in its entirety, and I accordingly
decline to give effect to it. Accordingly, and having regard to the
unreasonableness of the
restraint undertakings in clause 3, and its
consequential unenforceability, I am satisfied that the first
respondent is not in
breach of such undertakings.
The applicant has no interest that requires protection
[4
8] Even
if I am wrong in my finding as to the unreasonableness of the
restraint agreement, I remain fortified in my view that the
applicant
has, on the papers, provided insufficient evidence to justify a
conclusion that it has an interest that requires protection.
The
first consideration in assessing the validity of a restraint
agreement is whether the convenantee has any interest that requires
protection. If it has no protectable interest, it will not be
entitled to enforce the restraint agreement.
[
49] Trade
secrets, confidential information, goodwill and customer connections
may all constitute protectable interests for the
purposes of a
restraint of trade agreement (
Advtech
Resourcing (Pty) Ltd t/a Communicate Personnel Group v Kuhn and
Another
2008 (2) SA 375
(C)
at para 11). These must be distinguished from a person’s
knowledge or skill, which he or she cannot be precluded from using,
even where he acquired them in the course of employment with the
convenantee (
Automative
Tooling Systems (Pty) Ltd v Wilkens and Others
2007 (2) SA 271
(SCA) at para 8-10;
Aranda
Textile Mills (Pty) Ltd v Hurn and Another
[2000] 4
All
SA
183
(E) at para 33).
[50
] The
applicant must identify what confidential information and trade
secrets it seeks to protect, and why (
Mozart
Ice Cream Franchises (Pty) Ltd v Davidoff and Another
2009
(3) SA 78
(C) at 87A). Its mere say-so that it has confidential
information and trade secrets is not sufficient. In order to qualify
as
confidential, such information must be capable of use and
application in the industry concerned; be known and available to
a
restricted group of people; and be of business value to the
convenantee (
Allum-Phos
(Pty) Ltd v Spatz and Another
[1997] 1
All
SA
616
(W) at 623g-624a;
Townsend
Productions (Pty) Ltd v Leech and Others
2001 (4) SA 33
(C) at 53
I
-
54B;
Walter
McNaughtan (Pty) Ltd v Schwartz and Others
2004 (3) SA 381
(C) at 388J-389B).
[
51] I
am of the view that, in the present case, the applicant does not at
any point set out with the appropriate level of specificity
what
information it seeks to protect. However, based on the contents of
the confidential affidavit (and annexures thereto), it
appears to
suggest that the following constitute confidential information and/or
trade secrets such that they should be protected
by law:
The
applicant’s customer list an
d
its customer connections;
The
applicant’s 2010 strategy document (including its products’
strengths and weaknesses, its business strategy and
its brand
reviews;
Proposals to Kelly customers, including the pricing and terms
offered; and
The
capabilities of K-Log.
It is the
respondents’ contention that n
one
of these classes of information is confidential and they do not give
rise to a protectable interest.
The Kelly Group customer list and its customer connections
[
52] I
deal first with the Kelly Group customer list and its customer
connections. The applicant contends that the first respondent
knew
the identity of Kelly’s major clients, had the opportunity to
build up a relationship with them and was aware of their
specific
needs. The first respondent admits that she knew Kelly’s client
list and had developed a business relationship with
some of Kelly’s
clients. However, she denies that such information or relationships
give rise to a protectable interest.
[
53] In
Mozart
Ice Cream Franchises (Pty) Ltd
v
Davidoff
and Another
2009 (3) SA 78
(C) at 87, the court held that a customer connection
is protectable where it –
“
denotes
a
knowledge
of the needs of the customer, the way in which those needs are
fulfilled by the party seeking to enforce the restraint
and the
identity of those within the customer’s organisation who are in
a position to influence the movement of the custom
to the person
sought to be restrained.
”
Equally
,
where the market is so open that all potential customers and their
needs are known to each competitor, it is unlikely that the
convenantee will be able to establish a protectable trade connection
(
Sibex
Engineering Services (Pty) Ltd v Van Wyk and Another
1991 (2) SA 482
(T) at 504
I
-505A).
It is apparent from the respondents’ version that, in the
staffing solution industry
in
which the applicant operates, clients and their needs are well-known
in the industry, and they are generally serviced by various
staffing
vendors simultaneously. By way of example, Kelly and Quest were
simultaneously awarded contracts to provide staff to
Vodacom. Client
companies generally call for proposals, either by way of a formal
tender or during negotiation meetings where competing
staffing
vendors are present. Their needs are entirely transparent. This is
amply demonstrated on the applicant’s own version
by the
example of the Nestlé meeting, where Nestlé called in
various companies that it believed could provide it
with a
recruitment outsourcing process model and technology, and described
to them, orally and in writing, exactly what it required
and the
basis on which it would accept proposals. Since, staffing vendors are
appointed through a formal procurement process; relationships
play a
very limited role. As the Nestlé RFP illustrates, applicants
are considered according to strict criteria, which
are assigned their
respective weight and importance in advance. There is no real scope
for an employee to influence the movement
of custom. In any event,
the client relationships within Kelly were maintained at many
different levels by a number of different
people. They were not the
domain of the first respondent.
[
54] Having
regard to this state of affairs in the staffing industry in which the
applicant operates, I am of the view that Kelly’s
customer
lists and customer connections are known to a wide group of people
and are, in any event, of no commercial value. They,
therefore, do
not constitute confidential information and do not give rise to a
protectable interest. The law, in any event, recognises
that an
employee is likely to remember some of her former employer’s
customers and allows her to use such knowledge for her
own benefit or
for the benefit it her new employer (
Meter
Systems Holdings Ltd v Venter and Another
1993 (1) SA 409
(W) at 428D-F;
Advtech
Resourcing
at para 59. Since the applicant does not allege that the first has
taken her client lists, it can at best only claim that she
is making
use of her knowledge of the identity of Kelly’s customers that
she acquired during her employment at Kelly. She
can, however, not
be precluded from doing so.
[55] To the
extent that the applicant claims that the first respondent may in her
new employment benefit from the relationships
she formed with her
former customers, I am of the view that she cannot be precluded from
doing so. Relationships with personnel
flow inevitably from her
skill and experience at Kelly; she cannot be precluded from using
them. There is no evidence that she
is or will improperly use any
influence within customers to move them over to the third respondent.
The Kelly Group 2010 strategy document
[
56] The
first respondent was involved in drawing up the applicant’s
2010 strategy document as part of the Kelly Executive
Committee. The
applicant contends that this contains confidential information and/or
trade secrets. It is clear from the respondents’
version that,
on its face, the 2010 strategy document contains nothing that is not
known throughout the industry and nothing of
commercial value. In
fact the challenges and areas for growth identified in the
applicant’s 2010 strategy document are, according
to the
respondents, known across the staffing industry. It is of particular
significance that they are the same as those identified
by Adcorp
Holdings in its, publicly available, presentation to the financial
analyst community, although the applicant’s
document contains
significantly less detail. The only aspect of the applicant’s
strategy document that is not publicly known
is who within Kelly was
responsible for which areas of growth. However, this information is
of little commercial value. In any
event, strategy documents of this
kind have a very short lifespan and generally remain current for
about six months. Hence, any
commercial value that may have existed
in the 2010 strategy document would have already expired. In the
circumstances, I am in
agreement with the respondents that the 2010
strategy document does not give rise to a protectable interest that
justifies the
terms of the restraint agreement.
Proposals to Kelly customers, including the pricing and terms
offered
[
57] It
is again clear from both the respondents’ and applicant’s
versions that the first respondent had access to proposals
made to
clients, and service level agreements concluded with them. It is,
however, the respondents’ contention that there
was a vast
volume of such agreements, and that the first respondent did not
retain such documentation and can hardly remember any
details
pertaining to the documents. They therefore contend that the
proposals and service level agreements (and the contents thereof)
are
not confidential information because the industry is relatively
transparent. Staffing vendors know the terms including the
price on
which their competitors contract, and these terms are often dictated
by the clients themselves. They are accordingly
known to a wide
group of people. Since, the applicant differentiates itself from its
competitors on the basis of service and brand,
and not on product or
price, there is accordingly no commercial value associated with these
proposals or service level agreements.
In the circumstances, I am in
agreement with the respondents’ that these proposals to the
applicants including the terms
and pricing thereof do not give rise
to a protectable interest tha
t
justifies
the terms of the restraint agreement.
The capabilities of K-Log
[
58] In
so far as the applicant appears to contend that K-Log’s
capabilities constitutes confidential information and that
the
applicant is entitled to protect this, it is clear from the
respondents’ version that the K-Log system belongs to K-Log
(Pty) Ltd and not to the applicant. Kelly presents K-Log on behalf
of K-Log (Pty) Ltd, but service agreements are entered into
directly
between the client company and K-Log (Pty) Ltd. K-Log (Pty) Ltd
derives revenue from K-Log, and not the applicant. There
is no
restraint in favour of K-Log (Pty) Ltd.
[
59]
It is furthermore clear from the respondents’ version that
K-Log’s
capabilities are not secret. They are expressly set out on K-Log’s
website and in its user manual which is
distributed to any client or
staffing supplier that uses K-Log (including Kelly’s direct
competitor, Quest Staffing). All
sub-contractors and clients have
free access to the K-Log processes and methods. The applicant cannot,
therefore complain that
they are confidential (see
Automotive
Tooling System
at para 19). It is clear from my review of the main confidential
documents, which have been put up by the applicant, that none
deal
with K-Log’s functions or processes. The second respondent,
furthermore, owns and markets a product (Adtime) that has
the same
capabilities and uses the same processes and methods as K-Log. In
the circumstances, the applicant cannot claim that
K-Log is unique or
protectable. In the circumstances, I remain of the view that K-Log’s
use and capabilities do not constitute
a trade secret or confidential
information that the applicant can claim a protectable interest in.
I am therefore of the view
that the applicant does not have any
confidential information or trade secrets that require protection by
the enforcement of the
terms of the restraint agreement.
[60
] This
position is confirmed by the applicant’s attitude to Denise
Thomas (“Ms Thomas”). Ms Thomas held an executive
position reporting to the managing director, and was therefore
employed at the same level as the first respondent. She had access
to the same business information as the first respondent, and was the
executive responsible for the technology and for the IBM
account. On
taking up employment with the applicant, Ms Thomas was also
required to sign a restraint of trade agreement.
The terms of the
restraint would have, on the applicant’s version, been
enforceable against her at the time of her resignation
in February
2010. This notwithstanding, on the respondents’ version, the
applicant has unconditionally waived the terms
of the restraint
agreement against Ms Thomas. Ms Thomas currently works for
Quest, Kelly’s direct competitor.
[61
] Now
although the applicant states, under reply, that Ms Thomas has only
been released from her obligation under clause 3.3 of
her restraint
of trade agreement, and that it intends persisting against her vis-
a- vis the balance of her restraint obligations,
it does so in terms
so vague that little weight can be placed on this allegation. I am
of the view that if the applicant genuinely
held confidential
information or trade secrets that required protection, it is
inconceivable that it would have allowed Ms Thomas
to work for
Quest, its direct competitor in the Adcorp Group, without seeking to
enforce the terms of the restraint agreement.
It therefore follows
that the applicant has no protectable interests that justify the
imposition and enforcement of the restraint
agreement against the
first respondent. On this basis alone the restraint agreement is
unenforceable and this application falls
to be dismissed.
No
Prejudice
to
Applicant’s Interests
[
62] Even
assuming that the applicant has a protectable interest, under the
test enunciated in
Basson
v Chilwan at 767F-I,
a restraint agreement should only be enforced where the convenantee’s
interests may be prejudiced by the party that it seeks
to restrain.
A prejudice (or harm) requirement is met where an employee takes up
employment with a direct competitor even if she
undertakes not to
disclose confidential information to her new employer (
BHT
Water
at 57J-58B; Reddy
v
Siemens
Telecommunications
(Pty) Ltd
2007 (2) SA 486
(SCA) at para 20).
[
63]
In the present matter this consideration also arises under clause 3.3
of the restraint agreement, which prohibits the first
respondent from
taking up an interest in, or employment with, any entity that carries
on “
the same
business or similar business to or alike the business of” the
applicant. However, as demonstrated
earlier in this
judgement,
the applicant and
the third respondent are not competitors and do not carry on
businesses that are the same, similar or alike.
In
the premises, first respondent’s employment with the third
respondent does not constitute a threat to the applicant’s
protectable interests, such as they might be, because the two
companies do not operate businesses that are the same, similar or
alike. On this further basis the restraint agreement is
unenforceable and the application must fail.
[64] For these reasons therefore,
the application is dismissed with costs including the costs of two
counsel. The applicant is also
ordered to pay the wasted costs,
including the costs of two counsel, occasioned by the postponement on
18 June 2010.
F KATHREE-SETILOANE
JUDGE OF THE SOUTH GAUTENG
HIGH COURT, JOHANNESBURG
COUNSEL FOR THE APPLICANT: LJ
VAN DER MERWE SC WITH
GW AMM
APPLICANT’S ATTORNEY: LOWNDES DLAMINI ATTORNEYS
COUNSEL FOR THE RESPONDENTS: A
SUBEL SC WITH MF WELZ
RESPONDENTS’ ATTORNEY: RUDOLPH, BERNSTEIN & ASSOCIATES
DATE OF JUDGEMENT: 7 DECEMBER 2010