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[2011] ZALCJHB 150
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Continuous Oxygen Suppliers (Pty) Ltd t/a Vital Aire v Meintjes and Another (J 2073/11) [2011] ZALCJHB 150 (17 October 2011)
REPUBLIC OF SOUTH AFRICA
THE LABOUR COURT OF SOUTH AFRICA
HELD IN JOHANNESBURG
Case No: J 2073/11
Reportable
Of interest to other judges
In the matter between:
CONTINUOUS OXYGEN SUPPLIERS (PTY) LTD
T/A VITAL AIRE
.................................................................................................
Applicant
and
ELIZABETH MEINTJES
.........................................................................
First
respondent
ECOMED (PTY) LTD
.........................................................................
Second
respondent
Heard : 10 October 2011
Delivered : 17 October 2011
Summary: Restraint of trade
JUDGMENT
STEENKAMP J
Introduction
This is an urgent application to enforce a restraint of trade
agreement and to interdict the second respondent from disclosing
confidential information in terms of her contract of employment.
Background
The applicant conducts the business of a respiratory home care
company. It imports, markets, sells, rents and distributes
respiratory
equipment such as oxygen concentrators, impulse system
cylinders and CPAP machines. It refers to these products as “the
equipment”.
The equipment is distributed to patients who suffer from respiratory
problems. It is usually prescribed by a medical practitioner.
Either
the patient will pay for it directly or a medical aid would pay for
the equipment or a portion thereof.
Once payment is approved, the applicant would deliver the equipment
to the patient’s home, demonstrate it to the patient
and offer
after-sales support.
The industry is competitive, with only a limited number of
undertakings operating as importers, distributors and marketers of
similar equipment. At the moment, the applicant is the only one of
its kind with a base in the Limpopo province.
The patients who use the equipment mostly have long term or chronic
illnesses and the applicant customarily establishes a long
term
relationship with the patient.
The first respondent, Ms Elizabeth Meintjes (“the employee”),
has had a working relationship with the applicant for
some 14 years,
dating back to 1999.
The applicant and the employee agreed that she would establish a
branch in Polokwane as from 2003, operating from her residence.
They
agreed to an initial period of three months to establish the
viability of such a branch and entered into a fixed term contract
of
employment for three months, valid until 30 April 2003. The parties
signed the agreement on 11 February 2003.
On the same day, the parties entered into a separate “agreement
of restraint and confidentiality”. The restraint
agreement
does not specify an expiry date, nor does it make any reference to
the fixed term contract of employment or vice versa.
It stipulates
that:
“
This
agreement constitutes the entire contract between the parties with
regard to the matters dealt with in this agreement and no
representative [sic], terms, conditions or warranties not contained
in this agreement shall be binding on the parties.”
The restraint agreement further stipulates:
“
No
agreement varying, adding to, deleting from or cancelling this
agreement shall be effective unless reduced to writing and signed
by
or on behalf of the parties.”
The employee was appointed as branch manager for the Polokwane
branch. At the end of April 2003, it appeared that the branch
was
indeed viable and she continued in that position. On 7 May 2003, the
applicant sent her a new letter of appointment. She
signed it on 12
May 2003. In terms of this letter, her permanent appointment as
branch manager for Polokwane was confirmed as
from 1 May 2003. She
would be remunerated on a commission basis as follows:
R65 per Concentrator patient.
R35 per CPAP patient.
R35 per demonstration.
In 2004 her terms and conditions of employment were amended and
agreed to as follows:
Basic monthly salary: R6800 per month.
Commission: R15 per patient.
The contract of employment (as embodied in the letter of
appointment) contains the following confidentiality clause:
“
All
of the information of a confidential nature, acquired by me during
the course of my employment with the company will be treated
as such
by me and will not be disclosed, without written authority from the
company, to any other persons.
For
the purposes of this clause, confidential information shall be deemed
to include but shall not be limited to:
the
company's trade secrets, business and techniques.
the
identity of the company’s clients or customers, contacts and
referrers.
For
one or more or all the reasons set out above, it is therefore agreed
that I shall not:
Directly
or indirectly, divulge and/or disclose and/or use any confidential
information at all knowledge acquired by me relating
to trade secrets
and / or technical information and / or know-how of the company to
any person whatsoever, whether for my benefit
or otherwise, save to
those officials of the company, whose province it is to know the
same.
For
a period of 12 months after my leaving the employ of the company,
whether voluntary or otherwise, approach, canvasses [sic]
or entice
directly or indirectly, customers or employees of the company away
from it or utilise any third party to do this."
The “referrers” alluded to in the first clause (b) are
referring doctors who would prescribe the equipment.
The separate restraint agreement includes restraint of trade,
confidentiality and non-solicitation clauses. The pertinent extracts
are the following:
“
The
Vital Aire employee undertakes that she shall not, during this
agreement and for a period of two years after the termination
of the
agreement for any reason whatsoever, be directly or indirectly
interested, engaged or concerned, whether as principal, agent,
partner, representative, shareholder, director, employee, consultant,
adviser, financier, administrator, member or any other like
capacity
in any business – carried on within the Republic of South
Africa; which imports, markets and rents/sells oxygen
concentrators,
CPAP machines, impulse system cylinders and other respiratory
equipment. ("the competitive business").”
Under the heading "confidentiality", it is recorded that
the company carries on business, inter alia, as a respiratory
home
care company. It further records that the VitalAire employee, by
virtue of her association with the company will become
possessed of
will have access to the company’s trade secrets and
confidential information, including the following:
manufacturing know-how, processes and techniques;
designs;
knowledge of and influence over the company's customers and business
associates;
the contractual arrangements between a company and its business
associates;
the financial details of the company's relationship with its
business associates;
the financial details (including credit and discount terms) relating
to the company's customers;
the names of prospective customers and their requirements;
details of the company's financial structure and operating results;
details of the remuneration paid by the company to its various
employees and their duties; and
other matters which relate to the business of the company and in
respect of which information is not readily available in the
ordinary course of business to a competitor of the company.
The restraint agreement then stipulates:
"If,
on termination of the Vital Aire employee's employment for any reason
whatsoever, the employee takes up employment or
otherwise becomes
associated with or interested in a competitor of the company, the
company's proprietary interests in its trade
secrets will be
prejudiced."
It goes on to record an undertaking that the employee will not
divulge any of the company’s trade secrets or solicit any
of
its employees to join a competitor.
On 16 September 2011, the employee resigned with effect from 30
September 2011. It is common cause that she did so in order to
take
up employment at higher remuneration with the second respondent,
Ecomed (Pty) Ltd.
Ecomed operates in the same industry as the applicant and offers
similar equipment, albeit under different brand names. Up to
now, it
has not had a presence in Polokwane or in Limpopo. Although the
employee maintains that she will have “additional
duties”
to those she fulfilled at the applicant, she does not deny that the
substance of her job will be the same. It appears
that she will
continue to operate from the same premises, but she will now offer
Ecomed’s products rather than those of
the applicant. The
inference is inescapable that Ecomed intends to obtain a foothold
for a competing business in Limpopo by using
the services of the
employee. The question is whether the applicant has an interest
worthy of protection; whether the restraint
is enforceable; and
whether the employee has confidential information that she would be
able to use to the advantage of Ecomed
and to the detriment of the
applicant.
But first, I need to deal with the question of urgency.
Urgency
This application was brought on an urgent basis during the court
recess. The application was launched on 27 September 2011. The
respondents submit that the applicant should have approached the
court earlier, ie on 22 September 2011, when it learnt that
she
intended to take up employment with Ecomed.
In my view, litigants should be encouraged in any attempts to avoid
litigation, rather than rushing to court as a first option.
Litigation is costly and often unnecessary. In this case, the
applicant wrote to the employee on 22 September 2011 in the
following
terms:
“
You
are reminded and warned that you are prohibited from being employed
by the competitors [sic] in terms of your restraint of trade.
You are
further requested not to commence employment with the competitors as
such action will amount to the breach of your restraint
of trade
agreement with the company. Should you proceed to join the competitor
company will have no option but to enforce the restraint
of trade.
You are therefore requested to undertake in writing that you will not
be joining the competitor in breach of your restraint
of trade.”
She did not respond. Although the applicant did not impose a
deadline on her to do so, it launched its application within a very
short time – five days after it had sent the letter to the
employee – when it became apparent that no undertaking
would
be forthcoming. Had the letter had the desired effect, any
litigation and the attendant costs would have been unnecessary.
And
the application was launched before the employee had left the
applicant’s employment and before she could take up employment
with Ecomed.
In my view, the applicant has established sufficient grounds for
urgency.
The law pertaining to restraints of trade
I recently summarised the position with regard to restraints of
trade in our law, having considered the position before and after
the Constitutional dispensation, in
Esquire System Technology
(Pty) Ltd t/a Esquire Technologies v Cronjé and Another.
1
I do not intend to repeat that extensive discussion. In summary,
though, the position appears to me to be the following:
“
1
Covenants in restraint of trade are generally enforceable and valid.
Like all other contractual stipulations, however, they are
unenforceable when, and to the extent that, their enforcement would
be contrary to public policy. It is against public policy to
enforce
a covenant which is unreasonable, i.e. one which unreasonably
restricts the covenantor’s freedom to trade or to work.
2
Insofar as it has that effect, the covenant will not be enforced.
Whether it is indeed unreasonable must be determined with reference
to the circumstances of the case.
3.
Such circumstances are not limited to those that existed when the
parties entered into the covenant. Account must also be taken
of what
has happened since then and, in particular, of the situation
prevailing at the time the enforcement is sought.
4.
Where the onus lies in a particular case is a consequence of
substantive law on the issue.
5
What that calls for is a value judgement, rather than a determination
of what facts have been proved, and the incidence of the
onus
accordingly plays no role.
6
A court must make a value judgement with two principal policy
considerations in mind in determining the reasonableness of a
restraint:
6.1
the first is that the public interest requires that parties should
comply with their contractual obligations, a notion expressed
by the
maxim
pacta sunt servanda;
6.2
the second is that all persons should in the interests of society be
productive and be permitted to engage in trade and commerce
or the
professions.
Both
considerations reflect not only common-law but also constitutional
values. Contractual autonomy is part of freedom informing
the
constitutional value of dignity, and it is by entering into contracts
that an individual takes part in economic life. In this
sense,
freedom to contract is an integral part of the fundamental right
referred to in s 22.”
2
A clear right?
The applicant is seeking relief in the form of a final interdict.
Therefore, it has to show a clear right; the absence of an
alternative remedy; and that, if the interdict should not be
granted, that it will suffer irreparable harm.
In order to establish a clear right, the court has to consider
whether there is an interest deserving of protection; if so, whether
the employee is in a position to threaten those interests; and if
so, that must be weighed up against the interest of the employee
not
to be economically inactive and unproductive. The court must also
consider whether any other facet of public policy plays
a role.
3
But the respondents raise an initial defence to the application,
even before those factors are to be considered; and that is
that the
employee alleges that the restraint agreement has lapsed.
Is the restraint agreement still extant?
The employee maintains that she signed the restraint agreement on
the same day as her fixed term contract of employment; that
the
fixed term contract expired on 30 April 2003; that the restraint was
ancillary to that contract; and that, therefore, the
restraint
lapsed on 30 April 2003. If that is so, the two year restraint
period lapsed on 30 April 2005. Her fixed term contract
of
employment from 1 May 2003, she says, did not incorporate the
restraint agreement.
This argument cannot be sustained. Firstly, on the plain language of
both agreements, there is no cross-referencing leading to
an
inference – much less so a clear indication – that the
restraint agreement was incorporated in the fixed term
contract and
not in the permanent contract of employment. The restraint was
always incorporated in a separate agreement with
no termination
date, other than to stipulate that it will apply for a period of two
years “after the termination of this
agreement” and “on
termination of the VitalAire employee’s employment”.
Secondly, the employee’s
employment with VitalAire did not
terminate on 30 April 2003; she became a permanent employee
immediately thereafter and remained
one until she resigned with
effect from 30 September 2011.
The terms of the restraint agreement must be considered in terms of
the parol evidence rule. As this court stated in
Swissport SA
(Pty) Ltd v Smith NO and Others
4
:
“
It
is a fundamental principle of our law of contract that, once parties
have decided to reduce a contract to writing, the resulting
document
will be accepted as the sole evidence in terms of the contract. This
is known as the parol evidence rule and was expressed
in the
following terms in
Johnson
v Leal
1980 (3) SA 927
(A) at 934B:
‘
The
aim of the rule is to prevent a party to a contract which has been
integrated into a single and complete written memorial from
seeking
to contradict, add to or modify the writing by reference to extrinsic
evidence and in that way to redefine the terms of
the contract.’”
5
There can be no doubt that the restraint agreement still applied to
the employee when she resigned from the applicant’s
employ to
take up employment with Ecomed on 30 September 2011.
The question remains whether it is enforceable.
A protectable interest?
As I pointed out in
Esquire Technologies,
6
a restraint is valid if there is a proprietary interest which
justifies protection. Those interests are usually in the nature
of
trade secrets, know-how, pricing or customer connections. Therefore,
a restraint would be an enforceable restriction on the
activities of
an employee who (for example) had access to the company’s
customers and could use his/her relations with
the company’s
customers to the advantage of a competitor and to the detriment of
the company.
The interest that the applicant seeks to protect is primarily its
customer connections, ie the connections with prescribing doctors
and patients; and the know-how regarding its products, pricing and
users (ie patients).
The employee, in her position as branch manager, had intimate
knowledge of these factors. She is married to a doctor in Polokwane
and knows the medical practitioners in town well. They prescribe the
applicant’s products to patients, and the employee
personally
interacts with those patients – some 292 at present – on
a regular basis.
In terms of her conditions of employment, as specified in her
current contract of employment with the applicant, the employee
had
the following duties:
to visit patients to install and maintain the applicant’s
equipment, for which she was paid an agreed fee for each visit;
to create market awareness of the applicant's equipment and
service;
to demonstrate the equipment to physicians, general practitioners,
clinics, pharmacies, old age homes and retirement villages;
to regularly visit patients and assist them with support and
maintenance of equipment;
to remain available to patients in her area [ie, Limpopo] and to
attend to emergencies; and
to keep and maintain personal records of patients, patient
contracts, and all equipment and stocks.
The employee also fulfilled the functions of a so-called "home
care adviser", entailing support and advice to patients
and
developing a trust relationship with them.
As summarised in
Esquire Technologies,
7
with reference to
Rawlins and Another v Caravantruck (Pty) Ltd:
8
“
A
protectable customer or supplier relationship exists where an
employee has personal knowledge of, and influence over, the customers
(or suppliers) of his employer so as to enable him, if the
competition were allowed, to take advantage of his former employer’s
trade connections.”
That is certainly the case here. The employee has intimate knowledge
of the applicant’s products and pricing; she is intimately
acquainted with the prescribing doctors and the patients who use the
products; and she is ideally situated to persuade those
doctors and
patients to use the products of her new employer – ie similar
products under a different brand name, supplied
by Ecomed –
rather than the products supplied by her old employer that they had
been using hitherto.
Ecomed is a direct competitor of the applicant, distributing the
same type of equipment under different brand names. By utilising
the
services of the applicant’s former branch manager, operating
from the same premises, it will be ideally situated to
obtain a
foothold in Polokwane. It will have access to dispensing doctors and
existing patients through the very same person
who had serviced them
before.
There can be no doubt that the employee is in a position to act to
the detriment of the applicant, in accordance with the second
question posed in
Basson v Chilwan.
9
The employee finds herself in a similar position as the one in
Reddy
v Siemens Telecommunications (Pty) Ltd,
10
where the Supreme Court of Appeal noted:
“
Reddy
[the employee] is in possession of confidential information in
respect of which the risk of disclosure by his employment with
a
competitor, assessed objectively,(footnote omitted) is obvious...
Reddy will be employed by Ericsson, a ‘concern which
carries on
the same business as the applicant’ in a position similar to
the one he occupied with Siemens. His loyalty will
be to his new
employer and the opportunity to disclose confidential information at
his disposal, whether deliberately or not, will
exist.(footnote
omitted) The restraint was intended to relieve Siemens precisely of
this risk of disclosure. In these circumstances
the restraint is
neither unreasonable nor contrary to public policy.”
11
Lastly, there is no aspect of public policy that militates against
the enforcement of the restraint. The employee was employed
in a
senior position as branch manager and willingly entered into the
agreement. This is not a matter where the restraint is
so
unreasonable as to make it unenforceable.
I say this with one
caveat
in mind, though. The scope of the
restraint, with regard to its duration and area, also has to be
considered.
The area is the whole of South Africa. I asked Mr
Snyman
, for
the applicant, whether it would not have been reasonable to restrict
it to Limpopo. He pointed out, and I think fairly so,
that if that
were the case, it would still be relatively easy for Ecomed to
employ the employee at its head office in Gauteng,
and from there to
use her intimate knowledge of the applicant, its products, patients
and the prescribing doctors in order to
gain an unfair advantage in
Limpopo and the rest of the country.
That leaves the period of the restraint. A period of two years, when
weighed up against the Constitutional right to choose her
occupation
or trade freely, does seem to me to be overbroad. This court has, in
the past, remarked that it is undesirable to
cut and trim a
manifestly overbroad restraint at the behest of the party who
drafted it.
12
But in circumstances where the period of the restraint seems to me
to be the only unreasonable part of it, and where the restraint
agreement stipulates that each part of it (eg the period, area and
activity) is separate and independent, it seems to me to be
in the
public interest to restrict that separate part of the restraint to a
period of 12 months. Mr Snyman
,
for the applicant, did not
object to such a restriction.
I find, then, that the applicant has established a clear right for
the relief sought, subject to the limitation of the operative
period
of the restraint to 12 months.
Irreparable harm?
I have come to the conclusion that the restraint of trade agreement
is enforceable and that the applicant has interests worth
protecting. It is axiomatic that the applicant will suffer
irreparable harm if it is not enforced. The potential harm caused
by
an employee who is in a position to divulge trade secrets to and
exploit customer connections in favour of her new employer
cannot be
easily remedied by a damages claim in due course.
Alternative remedy?
As I said in
Esquire Technologies,
13
this criterion overlaps to a great extent with irreparable harm in
restraint of trade cases. The obvious alternative remedy of
a
damages claim is cold comfort to an applicant that seeks to enforce
a legitimate restraint of trade covenant. By the time a
damages
claim is likely to be heard, the horse would have altered and the
harm would have been done. That harm is very difficult
to repair.
The alternative remedy of a damages claim in due course. In a case
such as this one is more apparent than real. The
urgent relief
sought should not be disallowed because the applicant has an
alternative remedy in due course.
Conclusion
I conclude that the restraint of trade agreement is valid and
enforceable; and that the applicant has satisfied the requirements
for urgency and for the granting of a final interdictory relief. It
is not necessary for me to decide whether the applicant is
also
entitled to the alternative remedy based on the confidentiality
clause in the contract of employment.
With regard to costs, I take into account that the applicant warned
the employee that, should she commenced employment with a
competitor, she would be in breach of her restraint of trade
agreement. She nevertheless continued to do so. Once the application
had been launched, the second respondent similarly did not refrain
from assisting the employee in the breach, but rather assisted
her
by imposing the relief sought. There is no reason in law. In law or
fairness why the respondents should not be ordered to
pay the
applicant's costs.
Order
The first respondent is interdicted from directly or indirectly, for
a period of 12 months calculated from 30 September 2011,
within the
Republic of South Africa:
competing with the business of the applicant, being the business of
importing, marketing, renting or selling of oxygen concentrators,
CPAP machines, impulse system cylinders and respiratory equipment;
soliciting or accepting any business or custom from any existing
customers of the applicant;
being employed by any business or entity or person which conducts
business, which is similar to or competes with that of the
applicant, and in particular the business of the second respondent;
revealing or disclosing or in any way utilising, whether for the
first respondent's own purposes, or for the purposes of any
third
party, any of the applicants confidential information.
The second respondent is interdicted and restrained from employing
or being associated with the first respondent in breach of
the
restraint of trade agreement between the applicant and the first
respondent.
The respondents are ordered to pay the applicants costs jointly and
severally, the one paying, the other to be absolved.
_______________________
Steenkamp J
Appearances:
For the applicant : Mr S. Snyman of Snyman Attorneys
For the respondents : E.S.J. van Graan SC
Instructed
by : Naude & Britz Attorneys
1
(2011)
32 ILJ 601 (LC).
2
Id
at para [37].
3
These
questions were formulated in
Basson v
Chilwan and Others
1993 (3) SA 742 (A)
767 G-H.
4
(2003)
24
ILJ
618
(LC).
5
Id
at para [12]
6
supra
n 1 at
para [27].
7
I
d
at para [31].
8
[1992] ZASCA 204
;
1993
(1) SA 537
(A) 541E; 543 C-G.
9
Above
n 3
at 767.
10
2007
(2) SA 486
(SCA); (2007) 28
ILJ
317
(SCA), cited in
Esquire Systems (supra)
para [35].
11
Reddy
above n 11 at para [20].
12
Henred
Freuehauf (Pty) Ltd v Davel and Others
(2011)
32
ILJ
618
(LC) at para [22];
Sasfin (Pty) Ltd v
Beukes
1989 (1) SA 1
(A) at 16H - I;
Advtech Resourcing (Pty) Ltd t/a
Communicate Personnel Group v Kuhn and Another
2008
(2) SA 375
(C) at paras [40] – [44].
13
Supra
n 1 at
para [40].