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[2014] ZALCJHB 120
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Sanlic House of Locks (Pty) Ltd v Strydom (J482/14) [2014] ZALCJHB 120; (2014) 35 ILJ 2287 (LC) (8 April 2014)
REPUBLIC
OF SOUTH AFRICA
INTHE LABOUR COURT OF
SOUTH AFRICA, JOHANNESBURG
JUDGMENT
Reportable
Case no: J482/14
In the matter between:
SANLIC HOUSE OF LOCKS
(PTY)
LTD Applicant
And
STRYDOM JOHANNES
THEODORUS Respondent
Heard: 13 March 2014
Date of judgment:
8 April 2014
Summary: Urgent
application – restraint of trade. Transfer of business as a
going concern. Onus to show merger of two companies
triggered the
provisions of
section 197
of the
Labour Relations Act of 1995
.
Locus
standi
to enforce the restraint of trade by a third party and not
the employer of the employee bound by the restraint of trade.
JUDGMENT
MOLAHLEHI, J
[1]
This
is an urgent application in terms of which the applicant seeks to
enforce the restraint of trade agreement provided for in
the
employment contract of the respondent. The restraint of trade
agreement which the applicant seeks to enforce applies across
the
country and extends over a period of two years.
[2]
The
respondent in opposing the enforcement of the restraint of trade
contends firstly that the matter is not urgent as the urgency
is
self-created and secondly that:
i.
The
applicant does not have
locus
standi
to enforce the restraint of trade clause of the employment contract.
ii.
The
restraint of trade is not enforceable because its duration is
excessively long and covers the whole country.
iii.
Applicant
has not established a protectable interest.
Background facts
[3]
The
applicant, Sanlic House of Locks (Pty) Ltd, is a private company duly
registered in terms of the company laws of South Africa
and is
involved in the business of importing and distributing motor vehicle
keys across South Africa. The market in which the applicant
conducts
its business in is highly competitive and involves amongst others
Massmart Group, the Mica chain hardware and Jack’s
paint.
[4]
It
is common cause that the applicant previously operated under the name
of House of Locks (Pty) Ltd (the House of Locks) under
the
registration number 2003/025 1143/09. During February 2012, the House
of Locks concluded a merger agreement with another private
company
known as Sanlic Intentional Pty Ltd with the registration number
1944/017219/07 (1994 registration).The merger was finalised
in
September 2012. And thereafter Sanlic International changed its name
and became known as the Sanlic House of Locks (Pty) Ltd
(Sanlic).
[5]
It
is common cause that before the two companies merged the House of
Locks distributed a range of blank keys including key cutting
machines manufactured by Errebi a company based in Italy. Sanlic
International on the other hand distributed similar products
manufactured by a company known as Silca Line also based in Italy.
The two companies based in Italy were in direct competition with
each
other. Subsequent to the merger agreement, the applicant took a
decision to exclusively distribute only Silca products and
to
gradually discontinue the relationship with Errebi Lines. It is
apparent that upon hearing about the decision to terminate the
distribution of the Errebi products, the respondent decided to set up
a business that would distribute those products in South
Africa.
[6]
It
is common cause that the respondent was prior to the merger employed
by the House of Locks as a sales manager. There is, however,
a
dispute as to whether his employment contract was transferred to
Sanlic upon the conclusion of the merger agreement.
[7]
The
provisions of clause 3 of the employment contract deals extensively
and set out in a detailed manner the terms and conditions
of the
restraint of trade.
[8]
It
is common cause that the respondents resigned from his contract of
employment during January 2014. Prior to his resignation,
he informed
the respondent that he intended setting up a business that would take
over the distribution of the Errebi products
in South Africa.
[9]
On
5 January 2014, the applicant under the letter head of Sanlic House
of Locks (registration 1944) addressed a letter to the respondent
reminding him of the restraint of trade agreement and that his plan
of distributing the Erebi products would amount to a breach
of the
restraint of trade agreement.
[10]
On
12 February 2014, the applicant charged the respondent with the
following misconduct:
‘
TRANSGREESION:
BREACH OF CONTRACT: ALTERNATIVELY INTENTION TO COMPETE AGAINST THE
EMPLOYER.’
Preliminary points
raised by the respondent
[11]
The
respondent has raised two preliminary points in his opposition to the
urgent application. The first point relates to urgency
and the second
to
locus
standi
.
[12]
In
relation to urgency the respondent contends that the urgency pleaded
by the applicant is self-created because the applicant knew
about his
plan at the beginning of January 2014 and did nothing until the end
of February 2014.
[13]
It
was conceded on behalf of the respondent that in general, matters
involving allegations of breach of the restraint of trade are
by
their nature urgent. It was, however, contended on behalf of the
respondent that in the present matter the applicant delayed
in
instituting the proceedings and thus agency was self-created.
[14]
In
the circumstances of this matter, the delay occasioned by having to
wait for the outcome of the disciplinary hearing, is in my
view, not
unreasonable. Although he was serving notice as at the end of January
2014, the respondent was still an employee of the
applicant. The
intention of competing with the applicant, if at all, became more
pronounced on the date of the termination of the
contract. It is for
this reason that I am of the view that the applicant’s
application deserve to be treated as one of urgency.
Locus standi
[15]
The
respondent contends that the applicant lacks
local
standi
to
enforce the provisions of the employment contract because he was not
employed by the applicant but by the House of Locks (2003
registration).
[16]
The
applicant on the other hand contends that it took over the employment
contract between the respondent and the House of Locks
when the two
companies merged. In this respect, the applicant contends that
subsequent to it and the House of Locks merging the
respondent’s
employment contract was transferred to it in terms of
section 197
of
the Labour relations Act of 1995 (the LRA).
[17]
The
issue that arises from the above is whether the provisions of section
197 of the LRA came into operation by virtue of the merger
of the two
companies. Section 197 (1) of the LRA defines “business”
and “transfer” in the following terms:
‘
Transfer
of contract of employment
.
– (1) In this section and in
section
197
A
(a)
business” includes the whole or a part of any business, trade,
undertaking or
service; and
(b)
“transfer’ means the transfer of a business by one
employer (“the
old employer”) to another employer (“the
new employer”) as a going concern.
(2)
If a transfer of a business takes place, unless otherwise agreed in
terms of subsection
(6) –
(a)
the new employer is automatically substituted in the place of the old
employer in
respect of all contracts of employment in existence
immediately before the date of transfer;
(b)
all the rights and obligations between the old employer and the
employee at the time
of the transfer continue in force as if they had
been rights and obligations between the new employer and the
employee;
(c)
anything done before the transfer by or in relation to the old
employer, including
the dismissal of an employee or the commission of
an unfair labour practice or act of unfair discrimination, is
considered to have
been done by or in relation to the new employer,
and
(d)
the transfer does not interrupt an employee’s continuity of
employment, and
an employee’s contract of employment continues
with the new employer as if with the old employer.’
[18]
In
considering the concept “going concern” as envisaged in
section 197 of the LRA, the Constitutional Court in
NEHAWU
v University of Cape Town (NEHAWU)
[1]
held that:
‘
The
phrase “going concern” is not defined in the LRA. It must
therefore be given its ordinary meaning unless the context
indicates
otherwise. What is transferred must be a business in operation “so
that the business remains the same but in different
hands.”
Whether that has occurred is a matter of fact which must be
determined objectively in the light of the circumstances
of each
transaction. In deciding whether a business has been transferred as a
going concern, regard must be had to the substance
and not the form
of the transaction. A number of factors will be relevant to the
question whether a transfer of a business as a
going concern has
occurred, such as the transfer or otherwise of assets both tangible
and intangible, whether or not workers are
taken over by the new
employer, whether customers are transferred and whether or not the
same business is being carried on by the
new employer. What must be
stressed is that this list of factors is not exhaustive and that none
of them is decisive individually.
They must all be considered in the
overall assessment and therefore should not be considered in
isolation.’ [footnotes omitted]
[2]
[19]
The
question of whether the merger between Sanlic and House of Locks
resulted in the transfer of the business as a going concern
as
envisaged in
section 197
of the
Labour Relations Act (the
LRA) has to
be determined objectively from the facts as presented by the parties
in these proceedings. It is also those facts that
will determine
whether Sanlic has
locus
standi
to enforce the restraint as set out in the employment contract.
[20]
It
is trite, as stated in
Primedia
Outdoor, Devision (Pty) Ltd v Phala NO and Others
,
[3]
that the onus rests on the party instituting and prosecuting a claim
to show that it has
locus
standi.
Therefore,
in the present instance, the onus rests on the applicant to show that
it has
locus
standi
to enforce the employment contract concluded between the respondent
and the House of Locks.
[21]
It
is common cause that Sanlic and House of Locks merged. In my view,
the merger on its own does not on the authority of
Ndima
and Others,
Sithukuza
and Others
v
Waverly Blankets Ltd
,
[4]
automatically trigger the provisions of
section 197
of the LRA. The
authorities that have followed
Ndima’s
decision draw a distinction between ‘possession and control of
business.’ In this respect Sandi AJA in
Long
v Prism Holdings
,
[5]
had the following to say:
‘
The
transfer of possession and control do not trigger the operation of
section 197
of the LRA.’
[22]
In
Schutte
v Powerplus Performance (Pty) Ltd
,
[6]
the Court held that the proper approach when dealing with the issue
of “whether transfer as a going concern has taken place
is to
examine substance and not form.” The question of whether the
provisions of
section 197
of the LRA have been triggered entails an
objective assessment of the facts of each case.
[7]
[23]
The
meaning and the factors to take into account when assessing whether
“transfer as a going concern” has taken place
is
summarised by Tlaletsi JA, in
Hydro
Colour Inks (Pty) Ltd v CCEPAWU
,
[8]
as
follows:
‘
(i)
Since the phrase “going concern” is not defined in the
Act, it must be
given its ordinary meaning unless the context
indicates otherwise;
(ii)
What is transferred must be a business in operation so that the
business remains
the same but in different hands;
(iii)
A determination of whether a business has been transferred as a going
concern is
a matter of objective determination in the light of the
circumstances of each transaction;
(iv)
In deciding whether a business has been transferred as a going
concern, regard must be
had to the substance and not the form of the
transaction,
(v)
There are a number of factors that are relevant in determining
whether or not a business
has been transferred as going concern, such
as, but not limited to: what will happen to the goodwill of the
business, stock-in-trade,
the premises of the business, contracts
with clients or customers, the workforce, the assets of the business,
the debts of the
business, whether there has been interruption of the
operation of the business and if so, the duration thereof, whether
same or
similar activities are continued after the transfer or not.
(vi)
All the factors referred to above are not exhaustive and none of them
is decisive individually.
(vii)
These factors must all be considered in the overall assessment and
should therefore not
be considered in isolation.’
[24]
The
question in this matter was pertinently raised in
Securicor
(SA) (Pty) Ltd and Another v Lotter and Others
,
[9]
where Froneman J in dealing with facts very similar to those of the
present held that:
‘
[7]
In
Carapax
it was held that ordinarily the restraint of trade is entered into
for the benefit of the business itself, as distinct from the
personal
benefit for the owner of the business. In such a case the benefit of
the restraint is incidental to the business, and
part of its
goodwill. The owner of the business is vested with the
contractual right to enforce the restraint and when
he sells or
disposes of the goodwill of the business the merx of the sale or
disposition embraces the contractual right. The transfer
of this
contractual right takes place by way of cession. The cession consists
of an obligatory agreement (to sell or dispose of
the right) and an
agreement of transfer (the delivery of the business to the new
owner). The new owner then becomes entitled
to enforce the
contractual restraint.”
What is comprised in the
sale of goodwill is a business, and whether it includes the right to
enforce a restraint, is however, the
question of fact: “there
is no fixed or invariable rule by which the benefit of an agreement
in restraint of trade passes
to the purchaser of the goodwill of the
business (footnote omitteds).…”’
[25]
In
answering the question raised in this matter, namely whether the
business of House of Locks was disposed of to Sanlic as a going
concern, Froneman J in
Securicor
held that:
‘
[12]
The legal position (consonant with
Carapax,
NEHAWU
and
Telkom
)
is thus that, in order to determine whether the restraint agreement
survives the transfer of a business under
section 197
of the
Labour
Relations Act, it
needs to be determined as a matter of fact whether
the restraint form part of the goodwill of the business and whether
that will
form part of the business been transferred as a going
concern in terms of the section. This is an objective factual enquiry
which
will depend on the circumstances of each case.
If
this factual enquiry establishes that the restraint form part of the
transfer of a business, the employee’s obligations
under the
restraint are owed to the new employer and the new employer is
entitled to enforce the restraint against the employee.
The content
of the right so ceded and the obligations so delegated do not become
greater or lesser by virtue of the provisions
of
section 197.
What
may happen is that, by virtue of the fact that this rights and
obligations attached to the transferred business, their exercise
and
performance will be determined to some extent by the fortunes of the
business after its transferred.’
[10]
Analysis
[26]
The
essential question to answer, prior to considering the merits of this
matter, is whether the of House of Locks was disposed
of to Sanlic as
a result of the merger and thus resulting in the contract of
employment of the respondent also being transferred
as a consequence.
Put in another way, the question is whether the merger between the
applicant and House of Locks triggered the
provisions of
section 197
of the LRA.
[27]
The
onus is on applicant to show that as a result of the merger the
business of the House of Locks was transferred as a going concern
to
it. In this respect, the applicant relies essentially on four points
in support of its contention that the merger triggered
the provisions
of
section 197
of the LRA and those points can be summarised as
follows:
a.
upon
the conclusion of the merger during September 2012 the House of Locks
“was subsumed” by Sanlic.
b.
the
respondent’s employment contract was transferred to the
applicant as a result of the merger.
c.
The
respondent was a member of the executive of the applicant and was
intimately involved in the discussion about the merger.
[28]
In
response to the issue of
locus
standi
as raised by the respondent in its answering affidavit the applicant
simply denies the averment that the respondent was not employed
by
it. The respondent contends in this respect that the applicant
tendered his services and received remuneration from it.
[29]
In
my view, the evidence tendered by the applicant is insufficient to
determine whether objectively speaking it can be said that
a transfer
as a going concern and particularly as envisaged in
section 197
of
the LRA has taken place. Except for stating that there was a merger
with the House of Locks the fact as provided by the applicant
are
lacking to form a basis for characterising the transaction of the
merger as having disposed of the business of the House of
Locks as a
going concern. There is in this respect no evidence as to whether the
assets and liabilities of the House of Locks pooled
into those of the
applicant.
[30]
It
follows that the applicant has failed to show that the merger that it
relies on triggered the provisions of
section 197
of the LRA. In
other words, the applicant has failed to show that it has a right to
enforce the restraint of trade by virtue of
the merger.
[31]
In
light of the above, the preliminary point raised by the respondent
concerning the
locus
standi
of the applicant to enforce the restraint is up held. There is no
reason in law and fairness why the costs should not follow the
results.
Conclusion
[32]
The
applicant’s failure to establish its
locus
standi
sufficient
to enable it to enforce the restraint agreement entered into between
the respondent and the House of Locks, which is
a separate legal
entity, renders it non-suited herein and in the result, the
respondent’s preliminary point stands to be
upheld. In the
result the applicant’s application to restrain the respondent
stands to fail. It is also for this reason that
I do not deem it
necessary to deal with the other issues raised in this matter.
[33]
In
the circumstances, the following order is made:
1.
The
matter is treated as one of urgency and accordingly failure to comply
with the rules relating to time frames is condoned.
2.
The
applicant does not have
locus
standi
to enforce the employment contract between the respondent and the
House of Locks (Pty) Ltd.
3.
The
applicant’s claim is dismissed with costs.
_____________
Molahlehi, J
Judge
of the Labour Court of South Africa
Appearances:
For the
Applicant:
Advocate
M A Lennox
Instructed
by: David
Morgan Inc Attorneys.
For the Respondent:
Advocate
G Kairiaos
Instructed
by: A
Du Plessis Attorneys.
[1]
(2003)
24
ILJ
95
(CC) at para 56.
See
also
Aviation
Union of South Africa v SA Airways (Pty) Ltd
(2011)
32 ILJ 2861 (CC)
at
47
where
Jafta J
-
in dealing with whether a transfer can be regarded as one envisaged
in
section 197
of the LRA had the following to say:‘
But
whether a transfer as contemplated in
section
197
has
occurred or will occur is a factual question. It must be determined
with reference to the objective facts of each case.’
[2]
The
LAC in dealing with what constitutes transfer of a business as a
going concern in
NEHAWU
v University of Cape Town and Others (2002) 23 ILJ 306 (LAC)
at 338F, per Zondo JP, as he then was, stated the following:
“Accordingly, each transaction must, in my view, be
considered
on its own merits in the light of all the surrounding circumstances
of the transaction before a determination can
be made whether they
constitute the transfer of a business as a going concern.”
[3]
(JR
157/2011)
[2012]
ZALCJHB 94 (LC)
(31
August 2012) at para 11
.
[4]
(1999)
20 ILJ 1563 (LC) at para 66.
[5]
[2012]
7 BLLR 672
(LAC) at para 32.
[6]
[1999]
2 BLLR (LC).
[7]
See
Aviation
Union of South African v SA Airways (Pty) Ltd
[2012] 2 BCLR 117 (CC).
[8]
[2011]
7 BLLR 637
(LAC) at para 12. This is a summary of the principles
set-out in both
the
minority judgment of Zondo JP in
National
Education Health and Allied Workers Union v University of Cape Town
and Others 2002 23 ILJ 306 (LAC), and the Constitutional Court on
appeal in the same matter,
National
Education Health and Allied Workers Union v University of Cape Town
Others
(2003)
24
ILJ
95
(CC).
[9]
[2005]
10 BLLR 1032
(E) at para 7. In
Securicor
,
Froneman J relied on the case of
Botha
and Another v Carapax Shadespots (Pty) Ltd
[1991] ZASCA 134
;
1992 (1) SA 202
(AD), a case which was decided before the
introduction of
section 197
of the LRA. The Learned Judge found that
although the case was decided before the introduction of
section
197
, the principles enunciated therein apposite the interpretation
of the provisions of
section 197.
He further found that the
principles as set out in that judgment were in line with the
decisions in
NEHAU
v University of Cape Town and Telkom SA Ltd
and
Others v Blom and Others
(2003) 7 BLLR 638
(SCA).
[10]
Ibid
at para 12.