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[2014] ZALCJHB 177
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New Justfun Group (Pty) Ltd v Turner and Others (J786/14) [2014] ZALCJHB 177; (2018) 39 ILJ 2721 (LC) (14 May 2014)
REPUBLIC
OF SOUTH AFRICA
THE
LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
JUDGMENT
NOT
REPORTABLE
OF
INTEREST TO OTHER JUDGES
CASE
NO: J 786/14
In
the matter
between:
NEW JUSTFUN GROUP
(PTY)
LTD APPLICANT
and
TURNER,
C
1
ST
RESPONDENT
KIDSII
SOUTH AFRICA (PTY) LTD
2
ND
RESPONDENT
SHEBAB,
C
3
RD
RESPONDENT
Heard: 9 May 2014
Judgment delivered:
14 May 2014
JUDGMENT
VAN
NIEKERK J
[1]
The first respondent (Turner) was employed by the applicant until 30
April 2014. On 1 May 2014, she commenced employment with
the second
respondent. In this application, brought on an urgent basis, the
applicant seeks by way of a final order to enforce
restraint and
confidentiality undertakings given by Turner in favour of the
applicant.
[2]
On 23 April 2014, Tlhothalemaje AJ postponed the application to 9 May
2014 to enable the filing of further affidavits by Turner
and the
applicant. Specifically, Turner was granted leave to file a further
affidavit and the applicant granted leave to file a
‘supplementary
reply’ to the extent that it deems necessary. On the same
date, the second respondent filed an
affidavit stating that it would
abide by the decision of the court. The filing of further affidavits
was occasioned by new matter
raised in reply - in particular, an
averment relating to emails not previously referred to as to what the
applicant contended to
be confidential information, and a with
prejudice tender by the applicant that dramatically reduced the scope
of the relief sought.
[3]
The applicant is the sole distributor in South Africa of the Mattel
brand of toys and family products, and has been since November
1999.
Turner was employed in 2009 as a key account executive in the
applicant’s Just Baby division. During 2011, she was
transferred to the applicant’s toys division, which included
the Mattel brand. The fisher price products and goods that are
material to the present applicant were dealt with by the Just Baby
division. In 2012, the applicant’s operations were
restructured.
Mattel became a separate division, and the Just Baby
division ceased to exist. The fisher price products and goods, which
comprise
mainly baby toys, continue to be dealt with in the Mattel
division.
[3]
In the capacity of a key accounts executive, the applicant was
required to manage the applicant’s relationship with particular
customer accounts. In her capacity as a key accounts executive,
it is not disputed that Turner was required to participate
in
strategic account planning, monthly customer meetings, sales
management meetings, showroom presentations, and marketing planning
and implementation. These tasks were performed in collaboration with
the buyers of retailers, with whom the applicant does business.
In is
not disputed that the customers with whom Turner had dealings were
Shoprite, Baby Boom, Baby City and Toy Kingdom.
[4]
The restraint agreement that is the subject of these proceedings was
signed in June 2009. In terms of the agreement, the
first
respondent undertook in favour of the applicant not at any time
during the restraint period
inter alia
to be employed by any
entity in any of the prescribed areas in any competitive activity or
any business which sells prescribed
goods or competing goods, or
which renders prescribed or competing services. The restraint period
was defined to mean each of the
24 months immediately following the
date of termination of employment, for any reason. The prescribed
area was defined to mean
each magisterial district in the Republic of
South Africa, and a number of neighboring countries. ‘Prescribed
goods’
and ‘prescribed services’ were respectively
defined to include any goods dealt with by Just Baby at the
termination
date and any services rendered by the company as at that
date. “Competitive activity’ was defined to mean ‘
any
activity pertaining to, connected with and/or relating to the bicycle
industry or any activity similar thereto…
’ The
reference to the ‘bicycle industry’ and its relevance to
the present proceedings have not been explained
but, as I have
indicated, ‘competing goods’ is defined to mean any goods
sold in competition with the prescribed goods,
the latter defined as
‘
any goods which are dealt in by the company Just Baby at
the termination date in the ordinary course of business and includes
but
is not limited to Toys and accessories
’.
[5]
In addition to the restraint of trade, Turner agreed to certain
confidentiality undertakings. When she resigned and indicated
that
she intended taking up employment with the second respondent, the
first respondent gave an undertaking that she would have
no dealings
with the customers with whom she had established relationships while
in the applicant’s employ. On 20 March 2014,
Turner signed a
written undertaking, without prejudice to the applicant’s
rights under the restraint agreement, in terms
of which she would
not, for the remainder of her employment with the applicant, provide
any competitor of the company with information,
or make contact with
competitors or discuss with them the business or the customers of the
applicant.
[6]
On 15 April 2014, Turner’s attorney addressed a letter to the
applicant’s attorney in which Turner undertook for
a period of
12 months and in respect of the customers Shoprite, Baby Boom, Baby
City and Toy Kingdom, not to solicit orders from
the customers,
canvass business in respect of goods and services from the customers,
render any services to any of the customers,
encourage, entice,
incite, persuade or induce any of the applicant’s employees to
terminate his or her employment, furnish
any confidential information
or advice to any of the applicant’s employees calculated to
result in the employee terminating
his or her employment, or furnish
any information or advice to any customer, or take any action
designed to result in a customer
terminating its association with the
applicant or transferring its business away from the applicant. In
her answering affidavit,
Turner made clear that she understood that
her undertaking extended to the utilisation, transfer and sharing of
knowledge with
the second respondent in so far as the applicant’s
Mattel division is concerned. Further, the applicant consented to
having
her undertaking made the subject of an order of court.
[7]
The applicant does not consider that the undertaking is sufficient,
rejected it, and in reply made a counter-proposal on a with
prejudice
basis. In terms of the counter-proposal, the applicant proposed that
the restraint period be reduced from 24 to eight
months, and that the
prescribed goods and services be limited respectively to those goods
sold and services rendered under the
Mattel and fisher price brands.
Applicable
legal principles
[8]
There is no dispute as to the applicable principles. It is
well-established that an agreement in restraint of trade is
enforceable
unless it is unreasonable, and will generally be
considered unreasonable, and thus contrary to public policy, if it
does not protect
some legally recognisable interest of the party in
whose favour the restraint is granted, but merely seeks to eliminate
competition
(see
Automotive Tooling Systems (Pty) Ltd v Wilkens &
others
2007 (2) SA 271
(SCA),
Reddy v Siemens
Telecommunications (Pty) Ltd
2007 (2) SA 406
(SCA),
Den Braven
v Pillay & another
2008 (6) SA 229
(D)).
[9]
A party seeking to enforce a contract in restraint of trade is
required only to invoke the restraint and to prove a breach of
its
terms. Once a restraint agreement has been invoked and a breach of
the agreement proved, the onus is on the respondent to prove
on a
balance of probabilities that the restraint agreement is
unenforceable because it is unreasonable (see
Magna Alloys and
Research SA (Pty) Ltd v Ellis
[1984] ZASCA 116
;
1984 (4) SA 874
(A)). In a matter
such as the present, where a final order is sought, any disputes of
fact stand to be resolved by the application
of the
Plascon Evans
rule.
[10]
In
Basson v Chilwan
1993 (2) SA 742
(A), the court held the
determination of the reasonableness or otherwise of a restraint
requires, in addition to the existence
of an interest deserving of
protection, a consideration of the following:
(a)
whether that interest is being prejudiced by the other party;
(b)
if so, whether the interest weighs up qualitatively and
quantitatively
against the interest of the latter party that he or
she should not be economically inactive and unproductive; and
(c)
whether there are any considerations founded in public
policy
which require that the restraint should either be maintained or
rejected (at 767 G-H).
[11]
Proprietary interests that are legitimately capable of protection by
a restraint agreement extend both to confidential matters
which are
useful for the carrying on of the business and which could be used by
a competitor, if disclosed, to gain a relative
competitive advantage,
and to relationships with customers, potential customers, suppliers
and others that go to make up what is
referred to as the ‘trade
connection’ of the business. The second kind of proprietary
interest capable of protection
is that which comprises confidential
matter useful for the carrying on of the business, and which could be
used by a competitor,
if disclosed, to gain a relative comparative
advantage. These are referred to as ‘trade secrets’ (see
Sibex Engineering Services (Pty) Ltd v Van Wyk
1991 (2) SA 482
(T)).
[12]
Not every contact between an employee and the employer’s
customers constitutes or forms the basis of a protectable interest
in
the form of customer connection. The need of an employer to protect a
trade connection arises where the employee has access
to customers
and is and in a position to build up a particular relationship with
the customer. It is sufficient for the applicant
to show that the
customer contacts exist and that they can be exploited by the former
employee. In
Rawlins v Caravan Truck (Pty) Ltd
[1992] ZASCA 204
;
1993 (1) SA 537
(A) at 541 C-D it was said that the need of an employer to protect
its trade connections arises where the employee has access to
customers and is in a position to build up a particular relationship
with the customers, and could easily induce the customers
to follow
him or her to a new business. Once that conclusion has been reached
and it is demonstrated that the prospective new employer
is a
competitor of the applicant, the risk of harm to the applicant if its
former employee would take up employment becomes apparent.
[13]
Whether confidential information is properly the subject of
protection is a factual question. The respondent must establish
that
he or she had no access to that information or that he or she had
never acquired any significant personal knowledge of, for
instance,
the applicant’s customers while in the applicant’s
employ. All that an applicant need show is that there
is secret
information to which the respondent had access and which in theory
the respondent could transmit to the new employer
should he or she
desire to do so. Where the ex-employer seeks to enforce against an
ex-employee a protectable interest recorded
in a restraint, the
ex-employer does not have to show that the ex-employee has in fact
utilised information confidential to it;
it is sufficient to show
that the ex-employee could do so. Indeed, the very purpose of a
restraint agreement is that the applicant
does not wish to have to
rely on the bona fide's or lack of retained knowledge on the part of
the respondent, of the confidential
information.
[14]
In the present instance, it is not disputed that:
(a) Turner signed
the restraint agreement, incorporating those clauses which correspond
with the relief sought in the notice
of motion;
(b) Turner resigned
from the applicant’s employ to take up employment in a similar
position with the second respondent;
and
(c) The applicant
and the second respondent are competitors, at least in so far as the
applicant’s Fisher Price brand
and the second respondent’s
Bright Starts brands are concerned.
[15]
It follows that in order for Turner to escape enforcement of the
restraint, it is incumbent on her to establish that the restraint
agreement is unreasonable. The applicant contends that it has a
protectable interest both in relation to the risk to its customer
connection and the risk of disclosure of confidential information,
and in respect of the applicant’s customer connections
and its
confidential information.
[16]
I deal first with an objection to the applicant ‘whittling
away’ of the scope of the restraint during the course
of these
proceedings. As I understood the submission, the applicant, having
elected to enforce the full ambit of the restraint
in its founding
affidavit, is not entitled to make out a new case in reply for a
pared down restraint. As I have indicated, the
truncated relief
sought (which was reflected in a draft order filed with the reply)
seeks to limit the scope of the restraint,
broadly speaking, to an
eight month restraint in the Republic of South Africa, in respect of
any entity selling goods or providing
services in respect of the
Mattel and fisher price brands in competition with the applicant.
There are at least two reasons why
the applicant ought not to be
bound to its attempt to enforce the full ambit of the restraint.
First, it is well-established that
the court is entitled to enforce a
restraint partially, by restricting the scope of its operation to
reflect what is found to be
reasonable (see
National Chemsearch
(SA) (Pty) Ltd v Borrowman & another
1979 (3) SA 1092
(T) at
1116D-G;
Den Braven SA (Pty) Ltd v Pillay & another
2008
(6) SA 229
(D&CLD), at 263 A-C). The nature and extent of any
partial restraint is a matter to be determined from the papers; I do
not
understand the applicable authorities to preclude an applicant
from seeking a partial restraint only because the applicant has
sought in its founding affidavit to enforce the full ambit of the
agreed restraint. In any event, the extent to which any restraint
agreement ought to be pared down is ultimately the decision of the
court, having regard to all of the facts and circumstances,
to grant
more limited relief than that initially sought. Secondly, the tender
made by the applicant in its replying affidavit is
one made in the
spirit of compromise. At no stage did the applicant seek to waive its
rights during the course of the engagement
on the prospect of a
mutually agreeable resolution of the dispute between the parties –
the context of the agreement to the
partial restraint was the tender
made by Turner, and a counter proposal made by the applicant’s
attorney on 17 April 2014.
The court should not be seen to reproach
parties who express willingness to compromise, or who act on that
willingness by tendering
to accept less than what was originally
sought.
[17]
It is not in dispute that the second respondent is a competitor of
the applicant, at least in the sense that the restraint
defines
‘prescribed goods’ to include any goods dealt with by
Just Baby, to include toys and accessories. The restraint
in essence
is against involvement, directly or indirectly, in any business which
sells prescribed goods. It may well be, as Turner
avers, that the
second respondent’s Bright Starts products are aimed at a lower
end of the market (being cheaper than the
fisher price products
marketed by the applicant), and that the second respondent’s
current target market is the 0 to 36 month
age group, but she
concedes in her answering affidavit that the applicant and the second
respondent compete in respect of ‘certain
products’ in
that category, which the Turner states to amount to approximately 20%
of the Mattel division’s business.
It is however not disputed
that the value of the applicant’s fisher price business alone
is some R43 million per annum, hardly
an amount or interest that
might be described as negligible. Once it is established that the
second respondent is a competitor
of the applicant the risk of harm
to the applicant, if Turner were to take up employment, becomes
apparent.
[18]
In her capacity as a key accounts executive, as I have indicated, it
is not disputed that Turner was required to participate
in strategic
account planning, monthly customer meetings, sales management
meetings, showroom presentations, and marketing planning
and
implementation. These tasks are performed in collaboration with the
buyers of retailers, with whom the applicant does business.
In is
also not disputed that in the customers with whom Turner had dealings
were Shoprite, Baby Boom, Baby City and Toy Kingdom.
Much of Turner’s
time was spent in ensuring that a strong bond and relationship
developed and was maintained between her
and key persons at retailers
of the applicant’s products. Indeed, that was the very purpose
of her employment. It is not
unreasonable to assume that should
Turner leave and take up employment with one of the applicant’s
competitors, she would
be in a position to take advantage of these
relationships for the benefit of the competitor.
[19]
Turner also became aware, during the course of her employment by the
applicant, of confidential information in the form of
pricing
strategies, marketing strategies and strategic account plans,
including customer plans. She is also aware of which products
to
source to meet the applicant’s customer current and future
requirements, the price at which products have to be sourced,
the
applicant’s business challenges, product related problems,
stock levels, the contact persons and decision maker of the
applicant’s major customers, the applicant and Mattel’s
marketing and advertising strategies and the like. Turner was
also
involved in the preparation and maintenance of a customer plan, is
aware of the applicant’s practices regarding catalogues,
and
was part of the applicant’s participation in toy fairs at which
customer plans and annual trade agreements are negotiated.
Even if I
were to exclude from consideration the new material introduced in the
applicant’s supplementary affidavit relating
to “pull”
or information used to ensure that customers are drawn to the
applicant’s products (referred to as
the Mattel consumer-led
strategy), and the applicant’s concerns regarding undercutting
(on the basis that the second respondent
sells products priced below
those in the fisher price range), it remains ultimately for Turner to
establish that she had no access
to confidential information and that
she never acquired any significant personal knowledge of, or
influence over, the applicant’s
customers while she was in the
applicant’s employ. In my view, she has failed to do so.
Implicit in Turner’s version
is that even though she was privy
to confidential information, she has not and does not intend to use
it.
[20]
The undertakings given by Turner and underwritten by the second
respondent (effectively consenting to an order in terms of
prayers 3
and 4 of the notice of motion with some minor modification, and an
undertaking not to deal with the applicant’s
customers with
whom Turner had dealt - specifically, Shoprite, Baby Boom, Baby City
and Toy Kingdom) would ordinarily address any
legitimate concern by
the applicant, especially in relation to the confidentiality of
information. However, my understanding of
the relevant authorities is
that once the applicant has shown that there is confidential
information to which the applicant had
access and which in theory
Turner could transmit to the applicant should she desire to do so,
then the applicant is entitled to
the protection afforded by the
restraint. The enforcement of a restraint, the purpose of which is to
protect confidential information,
cannot be defeated by an
undertaking that the employee will not divulge the information if he
or she is permitted, contrary to
the restraint, form entering into
employment with a competitor
. BHT Water Treatment (Pty) Ltd v
Leslie
1993 (1) SA 47
(W), at 57 J – 58B. This approach was
recently affirmed in
Experian SA (Pty) Ltd v Haynes & another
(2013) 34 ILJ 529 (GSJ) and by the Labour Appeal Court in
Ball
v Bambela Bolts (Pty) Ltd & another
(2013) 34 ILJ 2821 (LAC),
where Coppin AJA noted that the fact that an employee had stated that
she did not intend and did not use
confidential information for the
benefit of her new employer is irrelevant in determining whether a
restraint is reasonable, or
whether it has been breached (at
paragraph [25] of the judgment). The purpose of a restraint
agreement, as the court observed
in
Reddy v Siemens
Telecommunications (Pty) Ltd
(2007) 28 ILJ 317 (SCA), is to
relieve the applicant of having to rely on Turner’s
bona
fides
. This is not to cast any aspersions on Turner’s
bona
fides
or those of the second respondent, but as the authorities
make clear, the very purpose of a restraint agreement is to relieve
the
enforcing party from the obligation to police undertakings such
as those given by Turner and the second respondent. In any event,
Turner provides no undertaking that she will not be concerned with,
or transfer information to, or assist a competitor like the
second
respondent who pursues the same clients, once she is employed by it.
The threat to the applicant’s interests is further
patent in
the circumstances of the case. The second respondent has up until the
present only had one employee, the third respondent,
who is an
ex-employee of the applicant.
[21]
In so far as the respective interests of the applicant and Turner are
concerned, Turner may be employed elsewhere for so long
as she does
not breach provisions of the restraint. (She was previously employed
in the cosmetics industry.) As I have indicated,
the applicant seeks
enforcement only in the Republic of South Africa, the area in which
the prescribed goods are sold. Both the
applicant and the second
respondent operate on a national basis and deal with large retailers
who operate in the same area. The
duration of the restraint sought is
a period of 8 months from the date of the termination of Turner’s
employment, i.e. 31
December 2014. Finally, public policy requires
ultimately that contracts be enforced. There is nothing in the papers
before me
to suggest that Turner signed the restraint involuntarily,
or that she failed to appreciate its significance. In the absence of
any considerations related to public policy that dictate otherwise,
in my view, the restraint sought is reasonable and stands to
be
enforced.
[22]
Section 162 of the LRA confers a broad discretion on the court to
make orders for costs according to the requirements of the
law and
fairness. The Labour Appeal Court has recently affirmed (in
Ball v
Bambela Bolts (Pty) Ltd & another)
that the rule ordinarily
applicable in the civil courts to the effect that costs follow the
result does not apply in this court.
In the exercise of the
discretion conferred by s 162, other factors must necessarily be
taken into account. This would appear to
apply even in a matter such
as the present, where this court exercises a jurisdiction it enjoys
concurrently with the High Court,
and where its jurisdiction is
founded in the contract of employment rather than unfair conduct on
the part of a party to an employment
relationship. In the present
instance, Turner is an individual employee, who has not defended
these proceedings out of ill-will
or malice. Also relevant is the
fact that Turner was prepared to provide undertakings which had the
effect of narrowing the issues
in dispute. There was a suggestion in
the papers that her efforts were being funded by the second
respondent, but I cannot make
any definitive finding in that regard.
On balance, in my view, the requirements of the law and fairness
dictate that there should
be no order as to costs.
For
these reasons, I make the following order:
1.
The First Respondent is interdicted and restrained for a period
commencing on the date of granting of this
order until 31
December 2014 (being the restraint period) whether as proprietor,
partner, director, shareholder, member,
employee, consultant,
contractor, financier, agent, representative, assistant, trustee or
beneficiary of a trust or otherwise and
whether for reward or not,
directly or indirectly, from carrying on or being interested or
engaged in or concerned with or employed
by any company, closed
corporation, firm undertaking or concern including but not limited
to, the Second Respondent, within the
Republic of South Africa, which
directly or indirectly, is or are engaged in any competitive activity
or engaged in any business
which sells any goods sold by the
Applicant under the” Mattel” and “fisher price”
brands (being the prescribed
goods) or renders any services in
respect of the Mattel and fisher price brands (being the prescribed
services) or competing services
(being any service rendered in
competition with the prescribed services or in the course of which
prescribed goods or competing
goods (being any goods sold in
competition with the prescribed goods) are sold or prescribed
services or competing services are
rendered in the Republic of South
Africa in competition with the Applicant.
2.
The First Respondent is interdicted and restrained during the
restraint period whether directly or indirectly,
as herself or as
proprietor, partner, director, shareholder, member, employee,
consultant, contractor, financier, agent, representative,
assistant,
trustee or otherwise, in any part of the Republic of South Africa and
in competition with the Applicant, whether for
reward or not, from:-
2.1. soliciting orders
from prescribed customers (being any person who was a customer of the
Applicant’s business in respect
of its “Mattel” and
“fisher-price” brands at the termination date ; or who
was prospective customer of
the Applicant’s business in respect
of its “Mattel” and “fisher-price” brands at
the termination
date as defined herein whom the First Respondent had
approached to do business with the Applicant; or who purchased
prescribed
goods from the Applicant at any time preceding the
termination date; or to whom prescribed services were rendered by the
company
at any time preceding 30 April 2014 (being the termination
date), for prescribed goods or competing goods and/or for prescribed
services or competing services;
2.2. canvassing business
in respect of prescribed goods or competing goods and/ or prescribed
services or competing services;
2.3. selling or otherwise
supplying prescribed goods or competing goods to a prescribed
customer;
2.4 rendering any
prescribed services or competing services to a prescribed customer;
2.5. purchasing any
prescribed goods or competing goods from any prescribed supplier
(being any person who is or was a supplier
of prescribed goods and/or
prescribed services, or is or was a supplier of prescribed goods
and/or services as at the termination
date whom the First Respondent
approached to do business within a period of 1 (one) year
preceding the termination date;
or supplied goods and services to the
Applicant within a period of 1 (one) year preceding the termination
date) in respect of prescribed
goods and/or prescribed services;
2.6. soliciting
appointment as a distributor, licensee, agent or representative of
any prescribed supplier in respect of any prescribed
goods or
services.
3.
The First Respondent is interdicted and restrained during the
restraint period, whether directly or
indirectly, for reward or not, from:-
3.1. encouraging,
enticing, inciting, persuading or inducing any other employee of the
Applicant, who was in the Applicant employ
whilst the first
Respondent was in the Applicant’s employ, and who was or is
engaged or participates in the sale or other
marketing by the
Applicant of the prescribed goods, or in any material respect in the
rendering or in the marketing of the prescribed
services, to
terminate his or her employment by the Applicant; and/or
3.2. furnishing any
information or advice to any employee of Applicant or to any
prospective employer of any such employee or use
any other means
which are directly or indirectly designed, or in the ordinary course
of events calculated, to result in any such
employee terminating his
employment by the Applicant and/or becoming employed by or directly
or indirectly in any way interested
in any or associated with any
other company, close corporation, firm, undertaking or concern;
3.3. furnishing any
information or advice (whether oral or written) to any prescribed
customer, or using any other means, or taking
any other action which
is directly or indirectly designed, in the ordinary course of events
calculated, to result in any such prescribed
customer terminating his
association with the Applicant and/or transferring his business to or
purchasing any prescribed goods
or competing goods or accepting the
rendering of prescribed services or competing services from any
person other than the Applicant,
or attempting to do so.
4.
There is no order as to costs.
ANDRE
VAN NIEKERK
JUDGE
OF THE LABOUR COURT
Appearances
For
the applicant: Adv. F Strydom, instructed by Stewart-Garden Attorneys
For
the first respondent: Adv. C Whitcutt SC, instructed by Norton Rose
Fulbright