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[2017] ZAKZDHC 36
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Laser Junction (Pty) Ltd v Fick (6970/2017) [2017] ZAKZDHC 36; (2017) 38 ILJ 2675 (KZD) (28 September 2017)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL LOCAL
DIVISION, DURBAN
CASE
NO: 6970/2017
In the matter between:
LASER JUNCTION (PTY)
LTD
APPLICANT
v
KARL LEESON
FICK
RESPONDENT
Date of
Hearing
:
8 August 2017
Date of
Judgment
:
28 September 2017
ORDER
The
following order is granted:
The
application is dismissed with costs.
JUDGMENT
D.
Pillay J
Introduction
[1]
The applicant Laser Junction (Pty) Ltd seeks
to
enforce a restraint of trade agreement against the respondent, its
erstwhile employee Karl Leeson Fick.
Does
a restraint of trade agreement exist between the parties? If so, is
it a contract of employment transferrable in terms of s
197 of the
Labour Relations Act 66 of 1995 (LRA)? Are there public policy
considerations that inform how the court should approach
a restraint
agreement in the context of employment? Are there public policy
considerations that inform how any competing interests
should be
reconciled, taking into account the interests of the parties and the
public? Has the applicant established that it has
protectable
interests? Has the respondent violated or threatened to violate such
interests?
The
Facts
[2]
Laser CNC (Pty) Ltd employed the respondent in November 2010 on three
months’ probation. On 31 January 2011, at the end
of the
probation period, he signed a Memorandum of Agreement of Secrecy and
Restraint. Three months later on 8 April 2011, the
parties concluded
a contract of employment a term of which enabled Laser CNC to
terminate the respondent’s services as an
internal sales clerk
summarily after the first three months. Laser CNC also prohibited the
respondent from using confidential information
as stipulated in that
contract
‘
not
only for the currency of [that] agreement, but for an indefinite
period after its termination as well’.
[1]
[3]
In December 2012, the applicant, Laser Junction (Pty) Ltd, purchased
the business of Laser CNC as a going concern. In terms
of s 197 of
the LRA, Laser CNC transferred its business and employees, together
with their contracts of employment to the applicant.
The applicant
purported to also take transfer of the restraint agreement.
[4]
In November 2015, the applicant promoted the respondent from sales to
procurement. After serving three months’ probation,
the
applicant confirmed his appointment as purchasing officer on 1
February 2016. His responsibilities changed from being a salesman
to
a raw materials buyer.
[5]
With the resignation of the applicant’s managing director in
August 2016, its difficulty in paying its accounts, and its
offer of
voluntary retrenchment to its employees, the respondent realised that
the applicant was in financial difficulty. His application
for
voluntary retrenchment was rejected on the basis that his skills were
still required.
[6]
By the end of 2016 another director and the sales manager resigned to
take up employment elsewhere. Furthermore, the applicant
was unable
to pay its steel suppliers. As a buyer this impacted negatively on
the respondent’s reputation in the industry.
At the end of 2016
the applicant attributed its difficulties to
‘
market
factors … not unique to the respondent’.
[2]
Whatever
the causes, the respondent deduced that his job security was in
jeopardy. Consequently he began circulating his curriculum
vitae in
December 2016 in a bid to find alternative employment.
[7]
By the beginning of February 2017 the respondent had not received any
job offers from four businesses he had applied to. Nevertheless
he
decided to resign. On 14 February 2017 he tendered his resignation.
In his letter of resignation he stated that his services
would end on
28 February 2017 and that he would take 18 days leave. On the same
day (14 February 2017), the respondent accepted
an offer for the
position of technical sales representatives from Pinion and Adams
(Pty) Ltd with effect from 1 March 2017.
[8]
In April 2017, Pinion and Adams and the applicant engaged each other
with a view to establishing a joint venture. To this end
they
concluded a Confidentiality Non-Disclosure and Non-Circumvention
Agreement on 20 April 2017. Nothing however came of this
engagement.
[9]
On 31 May 2017, Shannon Kannigadu, the Design Centre Manager of the
applicant, sent a text cellular phone message via WhatsApp
to the
respondent enquiring whether the latter would be willing to return to
the applicant to take over sales at a very good salary.
The
respondent expressed his appreciation for being considered for the
position and undertook to discuss the offer with his fiancée.
Mr Kannigadu enquired what salary the respondent was earning. The
respondent replied that he was earning R22 000 per month
plus
commission at half a percent on sales after R6.5 million per
annum and he had the use of a car. Acknowledging how good
the
respondent was, Mr Kannigadu offered him R26 000 per month plus
a car. The following day Mr Kannigadu indicated that the
applicant
might discuss paying him a little more. Early on the morning of
Monday, 5 June 2017, he called the respondent again.
The respondent
declined the offer saying that he had more than just money to
consider. Mr Kannigadu urged the respondent to reconsider
as
‘
things
are good now’
at
the applicant
.
The
respondent remained unmoved. Agreeing to remain in touch, they
terminated their WhatsApp communication amicably. On 20 June
2017 the
applicant launched this application
urgently
without any forewarning.
Order
sought
[10]
The applicant seeks an order interdicting the respondent from being
interested in, taking up employment or offering his services
to any
person, including Pinion and Adams, that is situated in the Durban
Metropolitan area that develops, manufactures, markets
and
distributes metal products and that is engaged in competition with
the applicant in relation to any of the activities in clause
2.1 of
the restraint agreement for 15 months from 13 March 2017. Other
remedies sought relate to communicating with or soliciting
the
applicant’s customers and suppliers, enticing employees of the
applicant, retaining, using or disclosing any confidential
information of the applicant and directing the respondent to return
all confidential information to the applicant.
Is
there a valid restraint between the parties?
[11] The applicant bears
the onus to prove the restraint. It relies on the restraint agreement
between Laser CNC and the respondent.
The applicant pleaded that when
it bought the business from Laser CNC, all the contracts of the
latter, including the restraint
agreement transferred to the former
in terms of s 197 of the LRA. Furthermore the attorney for the
applicant submitted in her heads
of argument that in addition to an
alleged cession of the restraint agreement, the applicant also relies
on the agreement’s
express terms that entitle the applicant to
the restraint as successor in title.
[12] As far as the
respondent is concerned, the restraint fell away when the applicant
employed him. He contends that when the applicant
took over the
business from Laser CNC, he signed a new contract of employment with
the applicant before its director Mr Sphiwe
Xulu, in 2013. The
applicant did not give him a copy of this agreement. He understood
from the new contract of employment that
it superseded all previous
contracts including the restraint agreement. Mr Xulu denies having
concluded any written agreement with
the respondent.
[13] The applicant
criticises the respondent for not elucidating the full terms of the
new contract of employment. It therefore
contends that the respondent
failed to prove the existence of such a new contract and the waiver
or substitution by the applicant
of its rights under the restraint
agreement concluded with Laser CNC.
[14]
Whether the respondent concluded a new contract of employment with
the applicant is a material dispute of fact that cannot
be resolved
on the papers, except in favour of the respondent by applying
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd.
[3]
Less
still is it possible to draw any adverse inference from the fact that
the respondent is not able to provide any better detail
of the
agreement. Without the new contract to remind himself of its terms,
the respondent could hardly be expected to specify any
terms other
than the most obvious ones that were already being implemented and
therefore known to the applicant, i.e. his position
and remuneration.
Significant however is his evidence that the new contract of
employment did not come with a restraint agreement.
As the applicant
is also silent about whether any of its other serving and departed
employees were under a restraint, it fortifies
the respondent’s
case that he was not restrained.
[15] Respondent’s
counsel submitted that the restraint was also superseded by the April
2011 contract of employment with Laser
CNC, which followed three
months after the restraint agreement. The contract of employment was
subsequent to the restraint agreement;
it did not refer to the
restraint agreement, and it had a section on confidentiality that
would endure ‘for an indefinite
period after its termination’,
that was wider than the two years provided in the restraint
agreement. However, the restraint
agreement had the additional
prohibition against his employment in Durban. However, more
importantly the respondent’s evidence
was not that the April
2011 agreement substituted the February 2011 restraint, but that the
new contract of employment with the
applicant in 2013 displaced the
restraint agreement. His evidence rather than his counsel’s
submissions about the two agreements
is more reliable as it was his
understanding at the time and not a post hoc construction.
[16] Additionally, there
could not have been any restraint agreement in force by February 2016
as the restraint was specifically
addressed to the respondent in his
capacity as an internal sales clerk. The preamble to the restraint
agreement records that Laser
CNC employed the respondent in the
capacity of an internal sales clerk. The respondent ceased to be a
salesman on 1 November 2015.
Consequently if the restraint existed at
all it fell away when he was promoted to procurement. His contract of
employment states
that the applicant may require him to perform
duties falling outside of his job description but the restraint
agreement was specific
to his salesman function. As a limitation of
several fundamental rights discussed below a restraint agreement must
be construed
strictly.
[17] As for the
applicant’s reliance for the cession on the express wording in
the restraint, this was not pleaded in its
affidavits but emerges in
its heads of argument. Unsurprisingly the respondent did not testify
whether he saw, read and understood
the words ‘and being
hereinafter together with the successors and assigns referred to as
“Laser CNC”’ appearing
in parenthesis and in
significantly smaller font size 8 below the name Laser CNC in the
restraint agreement. In this format a reader
could easily miss it
altogether.
[18] Furthermore the
agreement appears to be a cut and paste standard term agreement that
switches from addressing the respondent
in the second person in
paragraph 2 and then in the third person as ‘he/she’ in
paragraph 3. The respondent does not
dispute his consent to the
restraint agreement or contend that he misunderstood its terms. And,
having accepted his evidence that
the restraint fell away, no more
needs to be said about the quality of its form and content or what,
if anything, they meant to
the respondent.
[19] Were the agreements
transferable by operation of law under s 197 of the LRA? Assuming
that the contract of employment was transferred
because s 197
expressly provides for it, the same cannot be said for the restraint
agreement.
[20]
Section 197 of the LRA provides for the transfer of a contract of
employment to a new employer. It is designed to ensure that
the
transfer of a business does not prejudice the employees. That
sub-section 9 holds the old and new employer jointly and severally
liable in respect of any claim concerning any term or condition of
employment that arose prior to the transfer epitomises the breadth
of
the protection for employees.
[21] Only contracts of
employment are transferrable under s 197 of the LRA. What is a
contract of employment? Section 4 of the Basic
Conditions of
Employment Act 75 of 1997 (BCEA) stipulates that contracts of
employment may contain basic conditions of employment
as provided in
the BCEA or a sectoral determination, and any law or term in a
contract that is more favourable to the employee.
The corollary of
this is that a restraint that is less favourable than the BCEA to an
employee cannot be a term in a contract of
employment. Whether a
restraint agreement is less favourable must be determined case by
case. If it is less favourable and therefore
excluded from a contract
of employment as defined then it cannot be transferred by operation
of law under s 197.
[22]
Is the restraint in this case less favourable to the respondent?
Neither the Constitution of the Republic of South Africa,
1996 nor
our labour laws recognise a right to work. Similarly conventions of
the International Labour Organisation from which the
LRA draws
sustenance, recognises fundamental rights
at
work but not the right
to
work.
[4]
By signing the
restraint agreement the respondent acquired the right to work. And
with that right came all the protections of an
employee under s 23 of
the Constitution. However, the restraint agreement also constrains
the respondent’s other rights including
rights to freedom of
trade, occupation and profession in s 22. The respondent could have
acquired the right to work in a contract
of employment as workers
usually do if that was the only purpose of concluding an agreement.
It was not. In the hands of Laser
CNC and now the applicant who
relies on it the real and only purpose of the restraint agreement was
to wield it as a weapon to
discourage him from leaving and when he
did to constrain his new employment to its advantage. As such the
restraint was not merely
less favourable but manifestly unfavourable
to the respondent; therefore it did not meet the definition of a
contract of employment.
Consequently it could not be transferred to
the applicant by operation of law.
[23] For these reasons I
find on the facts that the restraint agreement fell away in 2013 when
the applicant became the employer
and concluded a new agreement with
the respondent, otherwise it fell away when he was promoted to
procurement. As a matter of law
s 197 of the LRA does not permit a
transfer of agreements that were not contracts of employment, i.e.
agreements favourable to
an employee, which the restraint agreement
was not. Consequently no valid restraint agreement existed between
the parties. This
finding is dispositive of the application. However,
if it transpires that the restraint agreement still exists, the
further questions
raised in my introduction will be relevant.
Are
there public policy considerations that inform how the court should
approach the restraint agreement in the context of employment?
[24]
In the four-point test for reasonableness of restraints
the
enquiry into whether
there
is ‘another aspect of public interest that does not affect the
parties but does require that the restraint not be invoked’
appears last.
[5]
However if a
restraint raises a question of public interest, then the public
interest concerns must be addressed first. Ultimately
reasonableness
will be determined with reference to public policy.
[6]
In so far as a restraint ‘flies in the face of the rights in
the Constitution, even if the parties have agreed to it’
it
will not be enforceable ‘because it would be against public
policy and therefore unreasonable.’
[7]
[25]
Reasonableness and public policy in contracts are open-ended norms,
never static, ever evolving over time, in tandem with society
to
gather meaning and certainty.
[8]
Predictably
‘there can be no
numerus
clausus
of the circumstances in which a Court would consider a restraint on
the freedom to trade as being unreasonable.’
[9]
Consequently,
‘
[
w]ith
the public interest as the touchstone the Court will be called upon
to decide whether in
all
the circumstances of the case it has been shown that the restraint
clause should properly
be
regarded as unreasonable.
’
[10]
(my
emphasis)
[26]
When the test for reasonableness of a restraint agreement was
reformulated
[11]
and
amplified,
[12]
two public
policy considerations rooted in the common law informed the
deliberations to determine interests: the freedom and sanctity
of
contracts (
pacta
sunt servanda
)
and the freedom to trade. Today the Constitution informs policy.
Labour laws inform labour policy. Together they constitute
‘
circumstances’
that inform the reasonableness
of
a restraint between an employer and an employee.
[27]
The Supreme Court of Appeal interpreted the Bill of Rights in the
Constitution to apply to all agreements including agreements
in
restraint of trade, to all law including private law and to both
natural and juristic persons.
[13]
Subsequently
the Constitutional Court was unanimous in concluding that the common
law in the field of contract may be developed
‘because it is
highly
desirable and in fact necessary to infuse the law of contract with
constitutional values
.’
[14]
Earlier it had interpreted the property rights clause under s 25 of
the Constitution to apply horizontally to juristic persons.
[15]
In the circumstances it is safe to say that contrary to the holding
in
Den
Braven SA (Pty) Ltd v Pillay & another
,
[16]
the Bill of Rights has horizontal application to contracts in
restraint of trade.
[17]
Together with labour laws it creates a new dispensation in
employment.
[28]
Consequently contracts of restraint in employment raise questions
about the proprietary interests of both parties under s 25
of the
Constitution. Both parties’ rights to freedom of trade,
occupation and profession in s 22 are also implicated.
[18]
Labour laws and the policy considerations they embrace extend
particular protections to the respondent against unemployment and
unfair labour practices under s 23 of the Constitution. Each of these
rights ramifies into other values, interests and rights including
the
rights to equality,
[19]
dignity,
[20]
freedom
of movement and residence,
[21]
and to
all the rights, goods and services that are accessible only by having
decent work to pay for them.
[22]
[29]
The genesis of the right to fair labour practices is in the
Constitution and expatiated in the LRA in order to protect employees
because the common law did not do so adequately or at all. A
foundation of fundamental constitutional and labour rights elevates
the protection of employees and bolsters their bargaining position.
Furthermore when interpreting rights or freedoms recognised
by the
common law and when developing the common law, the obligation is upon
every court to promote the spirit, purport and objects
of the Bill of
Rights.
[23]
To achieve this
objective a restraint agreement enforceable on the principle of
pacta
serva sunt
must be scrutinised carefully to ensure that the common law does not
creep in to snatch away hard won constitutional and statutory
protections. A restraint favouring the applicant with no quid pro quo
for the respondent other than the right to work is a typical
example
of a one-sided restraint that backtracks on these protections.
[30]
If the restraint exists, is enforced and the respondent becomes
unemployed, it would implicate other rights in the matrix of
rights
above. The respondent’s resulting unemployment would partner
with poverty to entrench inequality and indignity. Inflating
the pool
of unemployed and poor people is antithetical to a developing
constitutional democracy and a burden on society. Enforcement
of the
restraint would also strip the respondent of a plethora of important
components of the right to fair labour practices that
are available
only to employees.
[24]
These
are the potential injustices and inequities that arise for
consideration when undertaking an analysis to enforce a one-sided
restraint agreement. Consequently ignoring the interests of the
respondent would lead to an incomplete, unbalanced and
disproportionate
result.
[31]
Another concern is the onus of proof.
By
placing the onus
of
establishing on a balance of probabilities that the restraint was
unreasonable
on
the
party seeking to attack the restraint
Magna
Alloys
and
Research (SA) (Pty) Ltd v Ellis
[25]
imposed
a burden not previously born by an employee
who
seeks to avoid the restraint.
[26]
Previously a restraint agreement was invalid and the onus rested on
the party seeking to enforce it to prove its validity.
[27]
Notwithstanding this imposition the court accepted that ‘
once
the agreement is before the court it is open to the scrutiny of the
court in all its surrounding circumstances as a question
of law.’
[28]
In
answering
the question whether a restraint is reasonable
the
SCA mollified the onus in
Reddy
v Siemens Telecommunications (Pty) Ltd
[29]
as one
that calls for a ‘value judgment
rather
than a determination of what facts have been proved, and the
incidence of the
onus
accordingly plays no role.
’
[30]
[32]
The Constitutional Court’s approach ‘is not the
conventional
onus
of proof as it is understood in civil and criminal trial[s] where
disputes of facts have to be resolved.’
[31]
If
argument to justify the limitation of a right is inadequate the court
may nevertheless conduct a justification analysis if the
issue is of
great public importance.
The
authors of the
Bill
of Rights Compendium
summarise:
‘
Because
the task of interpreting the Bill of Rights rests with the courts,
evidentiary rules relating to
onus
ought
not to play any role with regard to factual issues in the
determination of the normative content of provisions of the Bill
of
Rights. Neither should the incidence of
onus
play
a role when there are no factual disputes and only the application of
standards such as reasonableness is at issue.’
[32]
(Footnotes
omitted)
This
approach ameliorates the burden on the respondent to prove the
unreasonableness of the restraint. It fortifies the need for
constitutional scrutiny of restraint agreements in employment.
[33]
The relative bargaining position of the contracting parties is also a
concern.
Magna
Alloys
did not consider this question because the employer raised the
restraint in its counterclaim in order to resist the employee’s
claim for unpaid commission.
[33]
Basson
acknowledged that contracts between employer and employee may fall in
the category of contracts concluded from a position of
inferiority,
[34]
even though
in that case the parties contracted on ‘a footing of
equality’.
[35]
When
there is parity of bargaining power protection from the court will be
dispensable. The principle of
pacta
sunt servanda
will apply unless ‘some other factor of public policy’
applies.
[36]
However,
employees with no unique talents, who depend on others for jobs and
who are vulnerable to the vicissitudes of the open
labour market have
little, if any, bargaining power.
Consequently
the ‘other factor of public policy’ that applies
to
them originates in constitutional and labour law protections.
Although the respondent has talent and capabilities he depends
on
industry for employment. He was not head hunted; he searched for two
months before he found his current job. He admitted agreeing
to the
restraint but it is unlikely that he would have done so if he had had
a choice or the applicant was prepared to employ him
without the
restraint. After all why would any employee sign a one-sided
restraint agreement if the only benefit for him is a job?
[34] In these
circumstances a one-sided restraint agreement in employment is
different from other restraint agreements in which
parity of
bargaining prevails. Assessing reasonableness of the restraint must
be viewed through the lens of constitutional and
labour law
protections. In so far as a restraint agreement reverses such
protections, as the restraint in this case does, it is
against public
policy and unenforceable. One of the ways to avoid this result would
be to ensure that the restraint is not one-sided,
that the employee
receives some quid pro quo additional to securing a job. This would
also support a finding that the employer
genuinely has interests to
protect, is willing to secure such protection in a meaningful way
that avoids the hardships of unemployment
and is not simply stamping
out lawful competition. An employee who violates such a restraint
would risk severe penalties that may
be either agreed or imposed by a
court. Otherwise as a weapon in the hands of an employer against an
unarmed employee a one-sided
agreement is unenforceable, as the
restraint in this case is. This finding too is dispositive of the
application.
Are
there public policy considerations that inform how any competing
interests should be reconciled taking into account the interests
of
the parties and the public?
[35]
The fundamental rights implicating restraint agreements are
substantial, self-standing rights that are more than ‘incidents’
of one another.
[37]
The
respondent’s rights cannot be whittled down or automatically
trumped exclusively by the applicant’s s 22 rights.
[38]
Instead, all rights have to be weighed and balanced against each
other.
[39]
If they are to be
limited at all then such limitation must be proportional,
[40]
‘
reasonable
and justifiable in an open and democratic society based on human
dignity, equality and freedom, taking into account all
relevant
factors,’ and that no ‘less restrictive means to achieve
the purpose’ exists.
[41]
[36]
To withstand constitutional scrutiny the restraint agreement has to
be so vital to the protection of applicant’s proprietary
interests under s 25 and its rights to trade under s 22 that without
it, its performance, commercial wellness and the livelihood
of its
workforce would be jeopardised; that no less restrictive means exist
to protect its rights and interests; and that constraining
the
respondent from exercising all his first and second generation human
rights
[42]
and all his third
generation socio-economic rights
[43]
accessible only by having decent work to pay for them, for 15 months
in the Durban Metropolitan is proportional, reasonable
and
justifiable. As will emerge from the facts below, the applicant fails
to justify any need for the restraint at all.
Did
the applicant have protectable interests? If so, what were they?
[37]
Generally it is accepted that under s 25 of the Constitution, an
employer would have protectable proprietary interests in its
confidential information, trade secrets, and customer or trade
connections if it proves having such interests.
[44]
Whether proprietary interests worthy of protection under a restraint
agreement exist, depends on whether confidential matter exists,
whether the employee has access to it, whether it would be useful to
the employer for carrying on business,
[45]
whether it is private or known to a few people and not in the public
domain, and whether if disclosed, it would give a competitor
an
advantage.
[46]
Whether
information is confidential or amounts to a trade secret is a factual
enquiry.
[38]
An employer would also have a proprietary interest in its
relationship with customers, potential customers, suppliers and
others, that is, its trade connection or goodwill.
[47]
To establish a trade connection an employee would have to have had
access to her employer’s customers, be able to build
relationships with them and induce them to follow her to her new
employment. She would have to acquire such personal knowledge and
influence over the customers that if she were allowed to compete she
would be able to take advantage of the employer’s trade
connection.
[48]
[39]
Care must be taken to distinguish an employer’s proprietary
interests from those of its employee.
[49]
An employee’s talent, skills and capabilities are her own.
These qualities must amount to a proprietary interest which vests
in
the employee personally, forming part of her identity, and adding to
her intrinsic value in the labour market. An employer cannot
take
such proprietary interests away from an employee by enforcing a
restraint of trade. Any restraint of the employee’s
proprietary
interests must be compensated for or else it could amount to
violations of the employee’s constitutional rights
at least
under s 25 of the Constitution. In so far as an employer cultivates
an employee’s capabilities in ways she might
not have been able
to do on her own, then the employer would have an interest in
retaining her services. Employers have a social
obligation to provide
skills and training for employees.
[50]
An employer has no proprietary interest in an employee’s
knowledge, skills and experience even if these were gained during
her
employment.
[51]
Tying down an
employee to an employer who ‘invests’ in its employee to
acquire or cultivate these qualities as ‘a
return on its
investment’ is unreasonable, against public policy,
[52]
‘pernicious and feudalistic’.
[53]
[40]
Some understanding of the nature of the applicant’s business is
needed here to assess whether it has protectable proprietary
interests. The business of the applicant was to fabricate sheet metal
to meet the design specifications of customers in the engineering
industry. The customer would approach the applicant when the need
arose for a bespoke product. The design and drawings belonged
to the
customers. In so far as the applicant contends that they belonged to
it, this too creates a genuine dispute that must be
resolved in
favour of the respondent.
[54]
[41] The sales function
differed in that the customers were from a small community of
engineering firms, quite unlike a mass based
production of goods and
services for sale to the general population for which customer lists,
preferential pricing and discounts
would be confidential because it
would give the holder of such information a competitive edge. The
cost of steel constitutes the
bulk of the manufacturing costs of
sheet metal. As a purchaser of the metal, the applicant and other
fabricators of steel worked
off price guides of steel merchants. The
same discounts were available to all bulk buyers. Pricing and
customers’ needs are
not automatically confidential
information. In the course of shopping for the best price and
service, nothing stops a customer
from disclosing its needs and the
prices quoted to multiple steel fabricators. Therefore costing of
steel and pricing of fabricated
steel would not be confidential
information in this instance.
[42] In the order prayed,
the applicant does not specify what confidential information or
categories it wants the respondent to
return to it. Although the
restraint agreement defines confidential information broadly to
include reports, data, memoranda, manuals,
production orders, test
results, designs, customer and supplier lists, lists of goods and
prices, computer programmes and stored
information, and know-how in
connection with Laser CNC’s business, the applicant has not
proven that it had any confidential
information or trade secrets. The
respondent denies that he had any confidential information to
disclose to Pinion and Adams or
anyone else. He points instead to the
applicant itself providing Pinion and Adams with confidential
information during their talks
about a joint venture. Therefore if it
did have confidential information confidentiality was lost with
disclosure to Pinion and
Adams.
[43] Pinion and Adams
shared customers with the applicant. However, the respondent points
out that Pinion and Adams was established
over 45 years ago, making
it an industry leader. The registration of the applicant and Laser
CNC suggests that they were only established
in 2012 and 1997. The
applicant could not genuinely dispute the respondent’s evidence
that when he arrived at Pinion and
Adams, four large firms were
customers of both the applicant and Pinion and Adams. Furthermore,
the respondent did not manage these
accounts for the applicant; other
employees did. Consequently the respondent could not have established
a trade connection with
them or acquired any trade secrets in
relation to them.
[44] In the circumstances
I find that the applicant has failed to prove that it has any
protectable proprietary interests either
in the form of confidential
information or customer connections. Such interests as it might have,
Pinion and Adams already has
by virtue of its own endeavours and the
applicant’s disclosures in anticipation of forming the joint
venture. This finding
on the facts is also dispositive of the
application.
Has
the respondent violated or threatened to violate such interests?
[45] More than 15 months
lapsed between the respondent being a salesman for the applicant and
taking up a job as such for Pinion
and Adams. If he had any
proprietary interests of the applicant this was a sufficient cooling
off period for him to have dissociated
himself from them. As a buyer
for the applicant he did not have to interact with customers of the
applicant but with its suppliers,
so it was submitted for the
respondent.
[46] The applicant
countered in reply that the respondent did have contact with its
customers. It attached several emails exchanged
between him and
customers. On this basis the applicant urged the court to hold that
the respondent is dishonest or misrepresented
his relationship with
customers.
[47] These are serious
allegations that should not be made lightly in publicly accessible
court papers. As they emerge in the replying
affidavit in urgent
proceedings, the respondent had no opportunity to respond to them.
The applicant knew it had to make out its
case in its founding
affidavit; failing to do so raises questions about its own integrity.
[48] Dishonesty and
misrepresentation are not the only inferences to draw from the
limited facts presented in motion proceedings.
It emerges from some
of the emails that the respondent interacted with customers when he
was asked to do so by the sales staff
to clarify customers’
orders or to dispose of excess stock. As a purchaser he had to know
what customers wanted. However,
he did not have to deal with
customers to know this. Sales people were employed for this purpose.
As regards emails SX2 and SX12,
a third party seems to have initiated
the email exchanges regarding Bell Equipment’s spread-sheet and
copied it to the respondent.
After a lapse of more than three months
the respondent requested a copy of the spread-sheet from Bell
Equipment. Bell Equipment
was a customer of both the applicant and
Pinion and Adams. Consequently even if the respondent had not
received the spread-sheets
while he worked for the applicant he would
have had free access to Bell Equipment and its spread-sheets through
Pinion and Adams.
The restraint if it existed was upon the
respondent, not Bell Equipment who was free to disclose whatever
information to whomever
and whenever it chose. The applicant’s
example of the spread-sheet fails to prove that the respondent had
any information
of the applicant that was confidential or established
a trade connection.
[49]
The applicant contends that the respondent was coy about disclosing
in this application when Pinion and Adams offered him a
job.
It
accuses him again of dishonesty when he resigned.
[50] The respondent did
not say, as the applicant alleges, that when he handed in his
resignation that he did not have a job offer.
What he did say was
that he had not received any positive responses from the companies he
had approached for employment by early
February 2017; therefore he
decided then to resign and travel to Tanzania to visit his brother
and search for employment. He had
mentioned this to the applicant’s
Managing Director Mr Muthusamy Nelson Govender at some stage, not to
Mr Xulu as the applicant
alleged. The applicant cannot sensibly
refute the respondent’s intention to travel to Tanzania. As the
respondent could not
find work in Durban, it cannot be ‘nonsensical’
as the applicant claims for him to find work elsewhere, even if that
meant being away from his fiancée.
[51] The respondent
handed in his letter of resignation only on 14 February 2017. The
decision to resign and the resignation were
separated in time. The
offer of employment from Pinion and Adams dated 13 February 2017 also
does not contradict the respondent;
he did not say that he did not
have an offer when he resigned. What he said was when he decided to
resign in early February 2017
he did not have a job offer. That he
met Pinion and Adams before 13 February 2017 is speculation on the
applicant’s part.
He might never have met them at all if, as he
says, he received an offer electronically from LabourNet, a labour
broker; and he
might even have received it only on 14 February when
he resigned. The applicant has no basis to say that the respondent
had the
offer from Pinion and Adams in early February 2017.
[52]
Certainly the respondent was coy about when he received the job
offer. However I cannot find that he had any obligation to
disclose
the offer at all. In the circumstances, to accuse the respondent of
dishonesty is unfair, unjustified and malicious.
The
unwarranted emphasis on dishonesty in the applicant’s
affidavits and heads of argument is unfortunate. Left unquestioned
it
could be potentially damaging to the respondent’s career. To my
findings above that the applicant has failed to prove
that it had any
proprietary interest, I add that the respondent had no proprietary
interest of the applicant to disclose and any
interests he did have
were already available to Pinion and Adams. Even if it transpires
that the respondent did have access to
the applicant’s
proprietary interests and that he did violate such interests, the
applicant delayed more than two months
in launching this application.
Consequently, this application has become moot, the remedy
ineffective.
The Delay
[53] The applicant
alleged that it learnt of the respondent’s employment at Pinion
and Adams during the ‘latter half
of May 2017’ when its
driver, Mr Frans Ngidi, saw the respondent in a Pinion and Adams
vehicle at Bell Equipment, one of
the applicant’s biggest
customers. In fact Mr Ngidi’s affidavit specifies that he saw
and took photographs of the respondent
on 12 May 2017. The applicant
deliberately misrepresents of the evidence of its own witness. This
misrepresentation is compounded
by the uncontested evidence of the
respondent about his conversations with the applicant’s staff
Mr Govender and Mr Kannigadu..
[54] The respondent
disputed that the applicant had not known earlier that Pinion and
Adams was his new employer. He recalled meeting
Mr Govender at the
offices of Pinion and Adams on 13 April 2017. They shook hands. Mr
Govender would have noticed that Pinion and
Adams employed the
respondent because he was wearing its logo on his shirt. He continued
to see Mr Govender when follow up meetings
took place during the
negotiations to form a joint venture.
[55]
Then there were the discussions on 31 May 2017 with Mr Kannigadu. The
applicant does not mention them in its founding affidavit.
It also
cannot deny the transcript of the messages the respondent produced.
The
applicant alleges that Mr Kannigadu did not know initially that the
respondent was employed with Pinion and Adams. This is odd
because as
he had asked the respondent what he was earning he had to know that
the respondent was working and where, especially
as his Managing
Director already knew it was at Pinion and Adams .
[56]
On both its versions the applicant knew by mid or latter half of May
that the respondent worked for Pinion and Adams. In the
discussions
with the respondent on 31 May 2017, Mr Kannigadu
was
cordial to the respondent recognising that he was a valuable
employee. Mr Kannigadu
gave
no indication of the litigation to follow 20 days later.
[57] The
misrepresentation about when it knew about the respondent’s
employment with Pinion and Adams was to bolster its case
for urgency
and to counter any suggestion that it waived its rights to its
proprietary interests in the restraint agreement. It
has the opposite
effect. The delay in launching this application suggests that the
applicant was not concerned about the respondent
violating any
restraint probably because it did not genuinely believe that it had a
valid restraint over him. Its offer of re-employment
fortifies this
view. Otherwise it would mean that the applicant was prepared to
offer employment to someone whom it believed had
violated its
agreement, behaved dishonourably and was untrustworthy. If there was
a valid restraint agreement the offer of re-employment
tacitly
confirmed the applicant’s waiver of its rights under it.
Conclusion
[58] This case is
distinguishable from other cases in which employees deliberately set
out to use the skills, knowledge, confidential
information and trade
connections they gathered in violation of a restraint of trade with
their old employer to better their prospects
with a new employer. In
this case the respondent searched for employment only after he
deduced that his job security was on the
line as the applicant
struggled against adverse market conditions. That he was endowed with
his own talent and capabilities is
borne out by the applicant
expressing its appreciation to him in writing, promoting him,
refusing to retrench him voluntarily,
and eventually attempting to
re-employ him at a significantly higher rate of remuneration.
[69]
When the respondent’s bargaining position had improved, he was
able to reject the significantly improved offer from the
applicant.
This application is in retaliation against the respondent rejecting
that offer. When he tendered his resignation and
informed the
applicant that he would be taking 18 days leave, the applicant did
not object to either the resignation or the leave.
In this
application the applicant contends churlishly in its replying
affidavit that the respondent was not entitled to such leave.
It has
stooped to misrepresenting the facts in the hope of succeeding in
this application. Missing from its evidence is any corroboration
that
it had similar restraints on its other staff. Accordingly the
respondent should not be out of pocket for any loss of income
or
legal costs. However, the court was not asked to make any special
order in these respects.
Order
[60]
The application is dismissed with costs.
_________________
D. Pillay J
APPEARANCES
Attorney
for the applicant : C.A Nel
Instructed
by : MacGregor Erasmus Attorneys
Tel:
(031) 201 8955
Ref:
charmane@meattorneys.co.za
Counsel
for the respondent : A.Camp
Instructed
by : Pearce, Du Toit & Moodie
Tel:
(031) 304 6781
Ref:
johan@pdtm.co.za
Date of Hearing : 08
August 2017
Date of Judgment : 28
September 2017
[1]
Page 24 of the
pleadings para 34.
[2]
Page 129 of the
replying affidavit para 44.
[3]
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
1984
(3) SA 623 (A).
[4]
ILO Declaration on
Fundamental Principles and Rights at Work
http://www.ilo.org/declaration/lang--en/index.htm. (accessed 26
September 2017)
[5]
Basson v
Chilwan
at
743.
Reddy
v Siemens
T
elecommunications
(Pty) Ltd
2007
2 SA 486
(SCA)
para
16.
[6]
Magna Alloys
and Research
(SA) (Pty) Ltd v Ellis
[1984] ZASCA 116
;
1984
(4) SA 874
(A)
at
887I-888E and 893C.
[7]
John
Saner
‘Agreements in Restraint of Trade in South African Law’
3-11 citing Magna Alloys at fn 42.
[8]
Magna
Alloys v Ellis
at
887I-888E and 893C;
South
African Police Service v Solidarity obo Barnard (Police and Prisons
Civil Rights Union as amicus curiae)
2014
(10) BCLR 1195
(CC) para 100; I Currie and J de Waal
The
Bill of Rights Handbook
6 ed (2013) at 469-470, para 22.4.
[9]
Magna Alloys v
Ellis
at
891H;
Basson
v Chilwan
&
others
[1993] ZASCA 61
;
1993 (3) SA 742
(A) at 762.
[10]
Basson v
Chilwan
at
762.
[11]
Magna Alloys v
Ellis
(Headnote);
Reddy
v Siemens
T
elecommunications
para
10
.
[12]
Basson v
Chilwan
at
771C-E;
Reddy
v Siemens
T
elecommunications
paras
15-16;
[13]
Reddy v Siemens
para
11.
[14]
Everfresh
Market Virginia (Pty) Ltd v Shoprite Checkers (Pty) Ltd
2012 (3) BCLR 219
(CC) para 32 -38, 42, 69-71 However, the majority
dismissed the appeal after finding that
it
would not be the interests of justice to allow Everfresh to raise
the issue of the development of the common law in argument
for the
first time on appeal (para 74).
[15]
First National
Bank of SA Ltd t/a Wesbank v Commissioner, South African Revenue
Service & another; First National Bank of
SA Ltd t/a Wesbank v
Minister of Finance
[2002] ZACC 5
;
2002
(4) SA 768
(CC) paras 41-45.
[16]
Den Braven SA
(Pty) Ltd v Pillay & another
2008
(6) SA 229
(D) para 30.
[17]
D & E
Trading (Pty) Ltd v Hilton Village Centre CC & others
(1342/13) [2013] ZAKZPHC 12 (19 March 2013) paras 15-22.
[18]
Reddy v Siemens
para
15.
[19]
S 9 of the
Constitution.
[20]
S 10 of the
Constitution.
[21]
S 21(1) and (3) of
the Constitution.
[22]
The
ILO definition of ‘decent work’ is summarised thus:
‘
Decent
work sums up the aspirations of people in their working lives. It
involves opportunities for work that is productive and
delivers a
fair income, security in the workplace and social protection for
families, better prospects for personal development
and social
integration, freedom for people to express their concerns, organize
and participate in the decisions that affect their
lives and
equality of opportunity and treatment for all women and men.’
S
ee
http://www.ilo.org/global/topics/decent-work/lang--en/index.htm.
[23]
S 39(2) of the
Constitution
[24]
S 23(2) of the
Constitution.
[25]
Magna Alloys
and Research
(SA) (Pty) Ltd v Ellis
1984
(4) SA 874 (A).
[26]
Magna Alloys v
Ellis
at 891B-C;
JT
Schoombee ‘Agreements in restraint of trade: The appellate
division confirms new principles’
1985 (48)
THRHR
127
at 140, 143.
[27]
Magna Alloys v
Ellis
at
890-891C.
[28]
Magna Alloys
v Ellis
at 887H.
[29]
Reddy v Siemens
Telecommunications (Pty) Ltd
2007
2 SA 486 (SCA).
[30]
Reddy v Siemens
para
14;
Saner
‘
Agreements
in Restraint of Trade in South African Law’ 3-13.
[31]
Minister
of Home Affairs v National Institute for Crime Prevention and the
Reintegration of Offenders (NICRO) & others
2005 (3) SA 280
(CC) para 34.
[32]
I M
Rautenbach
‘
Enforcement’
in
Bill
of Rights Compendium
para
1A97
[33]
Magna Alloys v
Ellis
at
882-883.
[34]
Basson v
Chilwan
at
763.
[35]
Basson v
Chilwan
at
763.
[36]
Basson v
Chilwan
at
763.
[37]
Advtech
Resourcing
v
Kuhn
[2007]
4 All SA 1368
(C).
Contrast
with
Den
Braven v Pillay
above
para 26.
[38]
Affordable
Medicines Trust & others v Minister of Health & others
2006 (3) SA 247
(CC) para 59.
[39]
Reddy v Siemens
para 17.
[40]
Reddy v Siemens
para 17.
[41]
S 36 of the
Constitution.
[42]
Equality (s 9),
human dignity (s 10), freedom and security of the person (s 12),
freedom of association (s 18), freedom of movement
and residence (s
21), freedom of trade and, occupation and profession (s 22), labour
relations (s 23), and property (s 25).
[43]
Housing (s 26),
health care, food, water and social security (s 27) and education (s
29).
[44]
Reddy v
Siemens
para
20-21.
[45]
Townsend
Productions (Pty) Ltd
v
Leech
&
others
2001
(4) SA 33
(C) at 53J-54B;
Mossgas
(Pty) Ltd
v
Sasol
Technology (Pty) Ltd
[1999] 3 All SA 321
(W) at 333F;
Walter
McNaughtan (Pty) Ltd
v
Schwartz
& others
2004 (3) SA 381
(C) at 388J-389B.
[46]
Basson v
Chilwan
at
751B;
David
Crouch Marketing CC v Du Plessis
(2009) 30 ILJ 1828 (LC) para 21.
[47]
Basson v
Chilwan
at
751B.
[48]
Morris
(Herbert) Ltd v Saxelby
[1916] 1 AC 688
at 709);
Rawlins
& another
v
Caravantruck
(Pty) Ltd
[1992] ZASCA 204
;
1993
(1) SA 537
(A) at 541C-I;
Recycling
Industries (Pty) Ltd
v
Mohammed
& another
1981 (3) SA 250
(SE) at 256C-F;
Drewtons
(Pty) Ltd
v
Carlie
1981
(4) SA 305
(C) at 307G-H and 314C-G.
[49]
Aranda Textile
Mills (Pty) Ltd
v
Hurn
& another
[2000] 4 All SA 183
(E) para 33 referred to with approval in
Automotive
Tooling Systems (Pty) Ltd v Wilkens & others
2007
(2) SA 271
(SCA) at 278.
[50]
Skills
Development Act 97 of 1998
, especially
s 2.
[51]
Sibex
Engineering Services (Pty) Ltd v Van Wyk
at
507D-H;
Basson
v Chilwan
at
771C-F and 778D
[52]
Automotive
Tooling Systems (Pty) Ltd v Wilkens
at 277G-278A,
Basson
v
Chilwan
at 748-749;
Reddy
v Siemens
paras 9 and 18.
[53]
S
choombee
1985
THRHR
at 142.
[54]
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
above
.