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[2010] ZALCJHB 331
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Henred Freuhof (Pty) Ltd v Davel and Another (J91/2010) [2010] ZALCJHB 331 (14 September 2010)
IN
THE LABOUR COURT OF SOUTH AFRICA
(HELD
AT JOHANNESBURG)
CASE
NO: J91/2010
In
the matter between
HENRED
FREUHOF (PTY)
LTD 1st
Applicant
and
DAVEL,
DONOVAN 1st
Respondent
JMR
TRAILERS
(CC) 2nd
Respondent
JUDGMENT
LAGRANGE,
J
Introduction
1.
This is an urgent application to enforce a contract in restraint of
trade. The applicant seeks to prevent the first respondent
from
directly or indirectly:
1.1.
competing with its business for a period of three years, starting
from the 31 December 2009;
1.2.
soliciting or accepting any business or custom from any existing
customers or clients, or
1.3. taking
employment with any business or entity conducting business similar
to, or competing with, that of the applicant.
Background.
2.
The first respondent was employed on 29 April 2006. He worked
as a sales representative, and his principal duty was to
obtain sales
of spare parts for vehicle trailers, which were either manufactured
or distributed by the applicant.
3.
On 3 August 2006, at the same time that he was employed permanently,
he signed a restraint of trade agreement in which he agreed
not to be
interested in any way whatsoever including employment in any
competing business in the whole of the country.
4.
The restraint was to operate for a period of three years commencing
on the date of the applicant’s termination of employment.
5.
The restraint agreement also provided that each undertaking in the
agreement was independent, separate and divisible and that
should a
court of law find that any restraint in the agreement was
unenforceable, it would not lapse but would be regarded as having
been amended to the extent necessary to render it enforceable in
terms of the court’s judgment.
6.
On 1 December 2009, the first respondent resigned from his employment
with the applicant. The applicant alleges that on
11 January
2010 it received information that the first respondent had taken up
employment with the second respondent. The
second respondent,
JMR trailers, is a Vryheid based business selling trailer parts
including ones manufactured by the applicant.
The respondent
denies that the applicant only had knowledge of his employment with
the second respondent as late as January 2010.
In support of this, he
attaches a letter from the applicant to JMR Trailers, dated 3
December 2009, warning it against its possible
employment of him.
Thus it appears that the applicant did indeed have information about
the prospective employment of the first
respondent by the second
respondent in early December, though it would seem that it was only
in January 2010 that this prospect
became a reality.
7.
The first respondent worked for the applicant in Vryheid until the
end of March 2009, after which he was transferred to work
in the same
capacity in Durban where he remained until the termination of his
services in December 2009.
8.
The applicant portrayed its business as a very specialized and unique
one, which was very capital intensive and an undertaking
of an
extensive nature. It further claimed that the industry in which
it operates is very specialized with only a handful
of undertakings
operating as manufacturers and distributors of such truck trailers.
On this basis, it asserts that it operates
in an extremely
competitive sector. The first respondent doesn't dispute the
capital intensive nature of the industry but
disputes the uniqueness
of the applicant's products. According to him, the trailer
parts manufactured or imported by the
applicant are also used on
other trailers it does not make.
9.
The applicant further claimed that it was only through long-term
operation in the industry that contacts were established with
customers and potential customers, in order to service its customer
base. The first respondent, by contrast, claims that a knowledge
of
the various spare parts that trailers need can be acquired in a very
short period of time. The spare parts that trailers
require are
wearing parts, and there is nothing specialised about knowledge of
such parts: any person in the transport business
would know what the
wearing parts of a trailer are. According to the first respondent’s
experience, he would be phoned by
a customer requesting a price on a
particular part and would then be told that the client could obtain
the part at a cheaper price
from another supplier. After
obtaining the necessary authority he could then offer the client a
discount. The price of the
applicant’s products can be obtained
merely by a phone call to the applicant.
10.
The applicant claimed that the sales staff are required to have "a
detailed knowledge of and relationship with such
customers" and
that in order to expand the applicants business the sales staff
needed to have intimate knowledge of
the pricing products and
operational activities in of the business and in particular its
margins. The first respondent denied
that he had any knowledge
of the applicant's margins. The applicant claimed that
possession of this knowledge is the very
basis of its business and
having it would confer a competitive advantage in the industry on the
holder.
Urgency.
11.
The original application was launched on 27 January 2010 and set down
for a hearing at 10h00 the following day.
On 28 January 2010,
the hearing was adjourned in order to permit the filing of answering
and replying affidavits. The issue
of a cost order was
reserved. In this regard, it should be mentioned that the
application was launched at the Johannesburg
seat of this court and
not in Durban. The Durban court would have been a more accessible
venue for the respondents, as both are
based in Vryheid.
Although it is true that this is a court of national jurisdiction,
and in principle, a party is not confined
to launching proceedings at
the seat of the court closest to the location of the respondent, if a
party does choose to initiate
proceedings at a more remote seat of
the court, which is more inconvenient for the respondent, this may be
a consideration when
it comes to determining an award of costs.
The court might also in the management of its own proceedings, direct
that the
matter be heard at the seat of the court which it considers
to be the most convenient.
12.
The first respondent attacks the contention that the application
motion. I accept that the applicant may have had
intimations
that the first respondent was going to take up employment with the
second respondent as early as 3 December 2009, but
there is nothing
to contradict the applicant's assertion that it only became aware
that he had taken up employment with the second
respondent by 11
January 2010. When it first became aware of the possibility
that the first respondent might take up employment
with the second
respondent it immediately warned the second respondent against doing
so. Once it was aware that this had
in fact occurred. It
acted with reasonable speed. Had the matter not been adjourned
on 28 January 2010, the notice
to the first respondent would
undoubtedly have been to short to warrant an interdict been granted
on that date. However,
the first respondent then had ample
opportunity to respond because of the adjournment, and any
inconvenience it might have suffered
as a result of the original
short notice was cured by the adjournment.
13.
In the result, I am satisfied that urgency was justified, and the
respondents were not ultimately prejudiced in their
ability to deal
with the allegations in the founding papers.
Prima
Facie Right
14.
As both parties filed comprehensive affidavits, and had an
opportunity to prepare for argument on the matter by the time
it was
third on 25 February 2010, there is no reason why a final order could
not have been determined at that stage, but the matter
was not before
me on that basis.
15.
The general principles governing the enforcement of the restraint of
trade were set out in
Basson v Chilwan
[1993] ZASCA 61
;
(1993) 3 SA
742
(A)
at 767 G-H. The four issues, which were identified
in that judgment as central to the enforceability of a restraint of
trade
agreement were: [a] Does the one party have an interest that
deserves protection after the termination of the agreement? [b]
If so, is that interest threatened by the other party? [c] If
there is a protectable interest which is threatened, how does
that
interest weigh qualitatively and quantitatively against the interest
of the other party not to be economically inactive and
unproductive?
[d] Is there any aspect or public policy having nothing to do with
the relationship between the parties that
requires the restraint be
upheld or not?
16.
On the first issue, the applicant contends that it clearly had an
interest worthy of protection on the basis that the
industry is
specialised, there was fierce competition and therefore a
long-standing and close business relationship between the
applicant,
its sales personnel, and the applicant’s customers. It
further elaborates that "as a sales representative,
the first
respondent in fact has intimate knowledge of all the applicant's
customers, their requirements and needs, and the pricing
and margins
of the applicant’s products." On the evidence before
me, I am not persuaded that this is in fact the
case. It would
appear that knowledge of the spare parts component of the applicant’s
business is something that can
be acquired in a relatively short
period. The first respondent had no demonstrable knowledge of
the applicant's margins,
and the information about the applicant's
prices appears to have been something that was freely available.
There was nothing
to suggest that the market for trailer parts is one
that requires specialist technical skills and access to confidential
information
in order to pursue a successful sales strategy.
17.
In so far as the first respondent might have been acquainted with the
applicant's customers in the Vryheid area, there
was nothing to
suggest that his prior relationship with those customers was
something to which much value could be attached by
the applicant,
when typical sales transaction, as outlined by the first respondent,
is considered. The customer would typically
phone to find out
the price of a particular part, and if the price offered was higher
than the price offered by another competitor,
the sales person would
be asked if they could obtain a discount, which could only be
authorized by a supervisor. It is difficult
to see how any
customer goodwill was intrinsically generated by such elementary
transactions. Such goodwill that might have
been generated is
more likely to have been a consequence of the personality of the
salesperson than the nature of the service provided
by the applicant,
or the salesperson's intimate knowledge of the applicant's product
line. There was also no evidence that
the applicant's
relationship with customers was one in which knowledge of the
customers needs, could only be acquired after extensive
dealings with
that customer, or that an extensive training was needed before a
salesperson could deal directly with customers on
their own.
18.
On this basis, I believe that the applicant has failed to establish a
protectable interest.
19.
On the question of whether or not the applicant's interests were
threatened by the first respondent taking up employment
with a
competitor, there was no evidence that the applicant had actively
solicited any of the applicant's customers in the Vryheid
area.
I accept that the first respondent had been employed by a competitor
of the applicant contrary to the restraint of
trade agreement, but
merely because the agreement had been breached does not mean that the
first respondent had encroached on the
legitimate protectable
interests of the applicant. Moreover, a feature of this case is
that the second respondent not only
supplied spare trailer parts
produced by other manufacturers, but also sold the applicant’s
own parts as part of its sales
line. It is by no means clear,
that the first respondent's prior engagement by the applicant would
have meant that his employment
by the second respondent would
probably have caused a loss of sales to the applicant in the Vryheid
area.
20.
On the third question, assuming that the applicant did have a
protectable interest, did that outweigh the interest of
the first
respondent in not being allowed to use these skills he had acquired
as a salesperson in the industry? The first
respondent was
engaged by a competing supplier in an area where he had previously
acquired some knowledge of the applicant's customers
in that region.
However, for a period of nine months, he had no dealings with those
customers on behalf of the applicant,
which could only have been
handled by someone else. The applicant makes no allegation that
when the first respondent was
transferred to work in Durban, it
suffered a drop in sales in the Vryheid area, which might have been
expected if the first respondent's
knowledge of the applicant's
customers in the area was crucial to its sales success. There
is accordingly no reason to believe
that customers would then switch
readily to the second respondent's business simply because the first
respondent had moved there.
Against this, must be weighed the
restraint imposed on the first respondent, which effectively sought
to bar him from employment
in the industry throughout the country for
a period of three years.
21.
At the hearing on the matter, Mr Snyman for the applicant, submitted
that the applicant would be content if the restraint
were to be
imposed for a period of only 12 months in the Durban and Vryheid
regions. If the restraint with a modified in
this fashion, the
first respondent would still be required to relocate if he wished to
pursue employment in the industry.
Given the slender nature of
any protectable interests that the applicant might have, even a more
circumscribed restraint would
not justify the limitations placed on
the first respondent's ability to work in the industry.
22.
Moreover,
the practice of cutting and trimming a manifestly over-broad
restraint at the behest of the party which drafted it, is
not a
practice the court should encourage.
[1]
It would be wrong to promote the practice of drafting wide ranging
restraints, which are only reformulated into more reasonable
prohibitions when the matter comes to court, whereas up to that point
the sweeping scope of the provision hangs over the employee
like an
exaggerated sword of Damocles.
23.
On the last question, it is not necessary in the light of the
discussion above to make a finding on this issue in order
to
determine the success or otherwise of the application.
Conclusion.
24.
In the circumstances, I conclude that the applicant has failed to
demonstrate it has an interest worthy of protection.
Even if such an
interest might have been established, the applicant failed to
demonstrate a reasonable apprehension that its sales
in the Vryheid
area would be negatively affected by the first respondent's
employment with the second respondent. In the light
of this, there
can hardly be a reason for denying the first respondent the right to
remain employed with the second respondent.
Order
25.
In the circumstances, the urgent application is dismissed, and the
applicant must pay the first respondent's costs including
any
disbursements for transport incurred by the first respondent or his
legal representatives in preparing for the application.
ROBERT
LAGRANGE
JUDGE
OF THE LABOUR COURT
Date
of hearing : 25 February 2010
Date
of judgment: 14 September 2010
Appearances:
For
the Applicant
Snyman
Attorneys Inc.
For
the First Respondent
Mr
M Van As
Instructed
by G J Vonkeman Attorneys
[1]
Sasfin
(Pty) Ltd v Beukes
1989
(1) SA 1
(A)
at
16H-I and
Advtech
Resourcing (Pty) Ltd t/a Communicate Personnel Group v Kuhn
and Another
2008 (2) SA 375
(C)
at 392-393, [40] – [44]