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[2015] ZALCJHB 135
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Tuv Sud South Africa (Pty) Ltd v Branders and Another (J736/12) [2015] ZALCJHB 135; (2015) 36 ILJ 2398 (LC) (24 April 2015)
THE
LABOUR COURT OF SOUTH AFRICA,
IN JOHANNESBURG
Not
reportable
Case
no: J736/12
In
the matter between:
TUV
SUD SOUTH AFRICA (PTY)
LTD
.......................................................................
First
Applicant
and
BRANDERS,
RONALD
JOHN
...................................................................................
First
Respondent
EQUITY
CONSULTING ENGINEERS
LIFTS
AND ESCALATORS (PTY)
LTD
...............................................................
Second
Respondent
Heard
:
21 April 2015
Delivered
:
24 April 2015
Summary
:
(Restraint of trade)
JUDGMENT
LAGRANGE,
J
Background
[1]
This is an
urgent
application to restrain the first and second respondents from
breaching the first respondent’s restraint of trade
undertakings
contained in clause 6.1 of his contract of employment
with the applicant, his former employer.
[2]
The applicant is one local operating arm of
an international firm. It describes its business as covering
consulting, testing, certification
maintenance management and
training of vertical transportation systems or, in more everyday
parlance, lifts and escalators. It
first established its presence in
South Africa with the foundation of TUV SUD South Africa (Pty) Ltd in
May 2010. On 1 March 2012,
TUV SUD South Africa holding (Pty) Ltd
acquired WAC Projects (Pty) Ltd. The first respondent, Mr Brander as
a 16% shareholder in
WAC was one of the sellers of the firm in that
transaction. It is common cause that the applicant has 42 years
experience in the
lift industry, 33 years of which he spent working
for Schindler Lifts SA (Pty) Ltd.
[3]
WAC subsequently underwent a change of name
to become the applicant and Branders remained an employee of the
applicant. As the applicant
retains the same corporate identity as
WAC, the contract of employment concluded between Branders and WAC
around the time of the
sale of shares in March 2012 remained a
binding contract between him and the applicant. When he concluded the
agreement selling
his shares in WAC Branders also undertook certain
obligations restraining him from competing with the business for a
period of
three years, but those are of no direct relevance in this
application which is solely concerned with the enforcement of the
restraint
provisions of his employment contract.
[4]
When the contract was concluded, Branders
was appointed as inland regional manager of the company with duties
and responsibilities
determined by the CEO of the applicant from time
to time. He claims that the at some stage his job title was
unilaterally
altered during 2013 to that of maintenance manager a
claim which the applicant does not dispute but merely contends he did
not
pursue as a grievance at the time. In any event, he was obviously
replaced in this capacity at some stage prior to his resignation
by
the deponent to the founding affidavit, Mr Rahim. Ostensibly, this
was one of the reasons which led Branders to hand in his
resignation
on 12
th
of January 2015 with his effective termination being the end of March
2015. What the applicant seeks to enforce is the restraint
provisions
in his employment contract which are applicable for a 12 month period
from 1 April 2015 until 31 March 2016.
[5]
From correspondence between the parties
during February and March 2015 it is clear that the applicant was
reluctant to relinquish
his involvement with clients he had been
servicing and the applicant cautioned him against making any
commitments about his continued
availability to such clients and
against soliciting business from them contrary to the terms of his
restraint. At the same time
the parties did open up discussions to
explore the possibility of Branders becoming a subcontractor to the
applicant. However these
discussions foundered when Branders
presented his counterproposal on 27 March 2015 which would have
required the applicant to waive
any right to enforce the restraint
agreement.
The
extent and reasonableness of the restraint
[6]
The
determination of reasonableness is, essentially, a balancing of
interests that is to be undertaken at the time of enforcement
and
includes a consideration of the nature, extent and duration of the
restraint and factors peculiar to the parties and their
respective
bargaining powers and interests.
[1]
In this instance, the period of the restraint is twelve months from
the termination of Branders’s employment and will expire
on the
31 March 2016. The use of the restraint is countrywide and extends to
any country in Southern Africa in which the applicant
has conducted
business. Applicant’s counsel,
Mr
Makka,
readily conceded that any restraint outside South Africa could not be
enforced in any event by this Court. In summary, the activities
restricted in terms of clause 10.2 of the employment contract concern
the solicitation of orders, canvassing business, rendering
of
services and soliciting appointments as an employee or consultant of
any prescribed customer and in respect of any prescribed
services.
‘Prescribed services’ are defined in the contract as
"…
All services rendered by the
business [of the applicant]
during
the twelve months preceding the termination of the employee’s
employment.”
Similarly,
‘prescribed customers’ are defined as “
...
The customers or clients of the business during the 12 (twelve)
months preceding the termination of the employee’s employment
with the company”.
[7]
In terms of clause 10.6 of his employment
contract, Branders also undertook, during the restraint period, not
to induce or encourage
any other employee of the applicant from
leaving the applicant to join him in a venture in which Branders is
interested. Branders
himself also undertook not to accept employment
in any capacity for any entity that could be considered a competitor
of the applicant
in relation to the prescribed services.
[8]
Lastly, Branders undertook not to prejudice
the applicant’s proprietary rights in its confidential
information. In essence,
the contract described confidential
information as information specific to the business of the applicant.
To ensure the protection
of the applicant’s interests in its
confidential information, Branders effectively agreed not to divulge
or use such information
for any purpose other than that permitted in
the course of his employment by the applicant.
[9]
Having regard to the above, the ability of
the applicant to compete with the applicant by exercising his own
skill and knowledge
acquired independently of the applicant, but
without relying on access and knowledge of its proprietary
confidential information,
in essence, is restricted only to competing
for business of customers of the applicant who were its customers
during his last twelve
months of employment and only in respect of
that type of business in which the applicant had been engaged during
that period. This
does not prevent the applicant from approaching
potential clients who were not customers of the applicant during that
time.
[10]
Clause 10.7 which prevents him from
“accepting” employment in any capacity with any entity
that might be regarded as
a competitor of the company if his
employment relates to any type of services provided by the applicant
during the last twelve
months of Branders’s employment might
appear to impose a wider limitation on Branders’s ability to
engage with potential
clients who were not previously customers of
the applicant, because the mere fact that Branders accepts employment
from a competitor
in the same field as the applicant is enough to
activate the restraint even though the work performed is for a
customer that was
not previously a customer of the applicant during
Branders’s last twelve months of employment. Nonetheless, it
does not seem
this restriction was intended to prevent the applicant
from running his own business in same field as the applicant,
provided that
he does not attempt to offer his service or that of his
company to pre-existing customers of the applicant during his last
twelve
months of employment in respect of any of the types of service
rendered to customers by the applicant during the same time. If the
ambit of clause 10.7 applied to a business established by himself it
would render the more carefully circumscribed area of non-competition
set out in clause 10.2 redundant. That provision states:
“
10.2
The employee hereby undertakes in favour of the Company that neither
he nor any Entity in which he is directly, and/or indirectly
interested will, during the Restraint Period, either alone or jointly
–
10.2.1
solicit orders from Prescribed Customers for the Prescribed Services;
10.2.2
canvass business in respect of the Prescribed Services from
Prescribed Customers;
10.2.3
render any Prescribed Services to any Prescribed Customer;
10.2.4
solicit appointment as a consultant or employee of any Prescribed
Customer is such appointment relates to the Prescribed
Services.”
[11]
The net effect of the restraint is to
protect the applicant’s pre-existing business activities in
which it was engaged and
the customer connections established or
maintained only during the year before the applicant became a
potential competitive threat.
It also prevents him from accepting
employment in any capacity from a third party, excluding one in which
he has a personal interest,that
may be considered a competitor of the
applicant if his employment relates to the prescribed services. As
mentioned above, this
does not prevent the applicant from approaching
non-customers of the applicant for work in which he will be able to
use his accumulated
expertise and training, provided only that he
does not rely on information belonging to the applicant which he
obtained either
in the course of working for it or by copying it.
[12]
The applicant is entitled to protect itself
against the unfair advantage that a recent employee of Branders’s
seniority performing
the role he did, and with the knowledge of the
applicant’s business he had, would have in competing against it
immediately
after leaving its business compared with any other
potential competitor with the same professional expertise as Branders
but without
having the knowledge about the applicant’s business
gained from working for it. It does not seem unreasonable to prevent
Branders from exploiting that unfair advantage for a reasonable
period to allow the value of his current knowledge of the state
of
the applicant’s business which he had at the time of his
departure to diminish. As such knowledge becomes less relevant
in
providing insight to the applicant’s current business
activities so its value to a competitor will be reduced.
Correspondingly,
Branders’s ability to exploit his intimate
knowledge of the activities and client connections of the applicant
as a tool
for competitive advantage will wane as his current
knowledge of the applicant’s business becomes similar to what
other competitors
without inside information of the business would be
able to ascertain. It has not been suggested by Branders that the
applicant
has a monopoly in respect of the engineering consulting
services it supplies in relation to vertical transportation systems
such
as lifts and elevators such that there are no other potential
clients who were not customers of the applicant in the previous
twelve
months that he could approach. What the twelve month period
does prevent is him relying on connections built up whilst working
for the applicant and his knowledge of its contractual commitments to
clients to position himself advantageously as an alternative
supplier
of services to clients whose needs and commitments he
already knows from his prior employment.
[13]
In relation to the geographic scope of the
restraint, the applicant did not set out any facts that could provide
a sound justification
why a restraint applicable throughout the
country was unreasonable.
[14]
In the circumstances, the balance struck by
the provisions of the restraint between Branders’s right to
pursue his profession
using his own skill and expertise acquired over
many years and the applicant’s right not have him use the
knowledge he acquired
of its particular business when he was an
employee pursuing their interests is both reasonable and fair
in my view
Acts
in breach of the restraint and the applicant’s interest in its
confidential information
[15]
The applicant complains of a number of
actions by the first respondent which it maintains are in breach of
the restraint provisions
in his employment contract. But these are
summarised below.
[16]
In July 2014, whilst he was still employed
by the applicant and without its knowledge and the written consent of
the applicant’s
CEO, Branders registered the second respondent
with himself as the sole director. Branders does not dispute that the
second respondent
competes with the business of the applicant or that
his company applied for accreditation for lift inspection with the
South African
National Accreditation System (‘SANAS’): he
only takes issue with the scope of that competition on the basis that
he
only operates in the Johannesburg area whereas the applicant’s
client base is both national and international. Branders also
did not
dispute the applicant’s claim that he knew that he needed the
written consent of the applicant’s CEO to hold
additional
business interests.
[17]
The applicant claims that Branders induced
a number of employees, a Mr Hendricks, to resign and join the second
respondent. Branders
does not deny that the second respondent
recruited Hendricks but denies being instrumental in inducing him to
leave the applicant
to work for his own business. Hendricks resigned
on the same day as Branders. The applicant also contends that
Branders sent Hendricks
emails shortly before they left the
employment of the applicant recommending that Hendricks prints
proprietary information of the
applicant, which the applicant denies
in bald terms.
[18]
According to the applicant, Branders also
solicited orders from its existing customers in respect of services
it currently provided,
canvassed business from, and rendered services
to, prescribed customers. The applicant further accused Branders of
seeking appointment
as a consultant to the existing customer for
existing services provided by the applicant. These claims relates in
particular to
three existing clients of the applicant, namely
Standard Bank, PRASA and Medi-clinic.
[19]
While admitting that he attended a meeting
with Standard Bank and the applicant’s representative on 9
April 2015, in his capacity
as a representative of the second
respondent, together with Hendricks, Branders claims he was there at
the request of the bank
and not because he had solicited business
from it. There was also evidence of a communication between Hendricks
in his capacity
as an employee of the second respondent and Kone
Lifts concerning bi-monthly meetings relating to work for the
applicant’s
client, Standard Bank. From the correspondence it
is apparent that the Kone representative is confused whether the
applicant or
the second respondents are the appointed consultants in
the contract under consideration. Branders’s only explanation
for
this is that once again it was Standard Bank which requested such
meetings. Elsewhere in his affidavit he claims that he agreed
to
assist the bank free of charge as a technical adviser to oversee
rectification of the access control system, something for which
the
applicant had previously been paid.
[20]
In respect of PRASA and Medi-clinic,
Branders claims they approached him as a representative of the second
respondent to complete
vendor application forms.
[21]
Apart from these specific acts directly
relating to competition, Branders also accessed a significant
number of proprietary
documents or containing proprietary information
such as pricelists, lift and escalator item lists, project contract
specifications,
maintenance agreements, audit checklists for lifts
and escalators and the like. Branders admits accessing the documents
in question
and other folders but claims that he accessed the
documents simply in order to assist him in the preparation of
quotations for
the applicant in the event that he and the applicant
agreed on a sub-contracting arrangement. In relation to the folders
he accessed
he alleges that those were accessed in the course of the
performance of his functions while he was still employed by the
applicant.
[22]
In his answering affidavit, the applicant
offers an undertaking not to use any of the information he obtained
and asserts there
is no risk he will do so. The applicant contends
that this undertaking was not given prior to its embarking on the
litigation despite
its attempts to secure the same from him, which it
appears to have sought in its letter of 7 April 2015.
[23]
Branders further does not deny the
significance of having knowledge of the detailed pricing structure of
the applicant but denies
that he had knowledge of ‘all’
margins mark up and pricing strategies for the applicant’s
consulting services.
However he did not attempt to detail the
circumscribed extent of such knowledge. He further admitted, without
qualification, to
having access to the applicant’s confidential
and strategic information and having knowledge of the applicant’s
infrastructural
overheads, marginal overheads and related costs,
product offerings, logistical capabilities, staffing capabilities,
procurement,
equipment capabilities, as well as the usefulness of
such information to a competitor like the second respondent.
[24]
Having regard to the above, it is
reasonable to conclude that Branders breached the provisions of the
restraint prohibiting attempts
to conduct business with prescribed
customers in respect of prescribed services (clause 10.2). His
assertion that he was willing
to work ‘free of charge’
for certain former clients of the applicant, was more probably an
attempt to ingratiate himself
with the applicant’s clients as
an inducement for future business than simply a gesture of goodwill,
in circumstances where
he had taken steps to establish himself in the
same type of business through the creation of the second respondent.
[25]
Branders also most probably induced
Hendricks to terminate his employment with the applicant and join him
in his new business conducted
by the second respondent in breach of
clause 10.6.2. It is also most probable that the applicant is in a
position to use confidential
information of the applicant which he
accessed during the time he was serving his notice period either
directly himself or indirectly
through Hendricks. The applicant did
not explain why he needed all the files accessed except in the
broadest terms and it is difficult
to see why he would have needed
all the detailed information he obtained simply for the purpose of
drafting a sub-contracting proposal.
It is more probable he wanted to
obtain any information about the operations of his erstwhile employer
which he believed would
give him inside information not normally
available to other competitors of the applicant. In the circumstances
and given the timing
when the material was accessed, there is a
strong likelihood Branders has not returned such information in terms
of clause 11.2
of this employment contract.
Urgency
[26]
It is true that the applicant had strong
indications by mid February 2015,that Branders might be preparing to
embark on an enterprise
which would have the effect of breaching the
restraint provisions of contract of employment, once he finally left.
It is also evident
that it sought to prevent this by attempting
to conclude a subcontractor agreement with Branders and it was only
when Branders
made his counterproposal at the end of March 2015 that
it became evident this alternative solution would come to nought. It
was
only on 2 April on the eve of the Easter weekend that the
applicant was made aware that Branders was acting free of charge as a
consultant to Standard Bank that clear evidence of his breach started
to emerge. On the following Wednesday the applicant gave
Branders an
ultimatum to give a written undertaking to comply with the
obligations set out in his restraint. On 8 April, Branders
made it
clear he would not comply. The application was launched a week later
and Branders had four days to prepare his answering
affidavit. Aside
from not being able to get a confirmatory affidavit from Hendriks,
which was still not provided when the matter
was heard on 21 April,
there is no obvious prejudice Branders suffered in having to respond
in the time available.
I appreciate also the difficulty
of launching an application prematurely when no breach has occurred.
In the circumstances, I believe
the requirements of urgency were met.
Conclusion
[27]
In the light of what is set out
above, I am satisfied that the applicant has established that
Branders has acted in breach
of his restraint of trade obligations
and the obligations flowing from his employment contract relating to
the applicant’s
confidential information in which it has a
proprietary interest. It was never in dispute that the applicant has
an interest worthy
of protection by means of the provisions of the
restraint. I am also satisfied that the restraint achieves a
reasonable balance
of the parties respective legal interests in the
sense meant in
Reddy’
s
case.
Costs
[28]
Although Branders clearly believed he could
circumvent the effect of the agreement, I am prepared to accept he
genuinely believed
that the restrictions it imposed on him were
unduly onerous and unreasonable, perhaps because it seemed to him to
prevent him from
operating in the lift and elevator consulting
engineering market altogether. This does not excuse his secret
registration of the
second respondent, or his vain attempt to avoid
appearing to breach the restraint by offering his services, at least
to begin with,
on a non-commercial basis. Nonetheless, I believe an
ordinary cost order is appropriate.
Relief
[29]
The relief granted has been reformulated to
more closely accord with the terms of the restraint and for the
reasons stated above
does not include a blanket prohibition on
Branders competing in the market provided he does so within the
constraints imposed by
his contract of employment. The applicant is
also entitled to relief relating to the applicant’s retention
and potential
use of its confidential information. For reasons which
are not apparent, the applicant sought no relief in respect of
Branders’
enticement of its employees despite the fact that
Branders appears to have acted in breach of his obligations in
relation to Hendricks.
Consequently, no relief has been ordered in
that regard.
Order
[30]
In the circumstances the following order is
made:
30.1
The matter is dealt with as one of urgency
dispensing with the requirements of the Rules of the Labour Court
relating to time periods
for service of process.
30.2
The first respondent is interdicted for a
period of twelve months commencing on 1 April 2015 and ending
on 31 March 2016,
either personally or, directly or indirectly,
through any entity in which he is engaged or has an interest,
including the second
respondent, from :
30.2.1
soliciting orders from prescribed customers
for any prescribed services;
30.2.2
canvassing business in respect of any of
the prescribed services from any prescribed customer;
30.2.3
rendering any prescribed services to any
prescribed customer;
30.2.4
soliciting appointment as a consultant or
employee of any prescribed customer if such appointment relates to a
prescribed service,provided
that the terms ‘prescribed
customers’ and ‘prescribed services’ shall carry
the same meaning as defined
in clauses 1.1.12 and 1.1.13 of the first
respondent’s employment contract of 2012 annexed as “FA2”
to
the founding affidavit.
30.3
The first and second respondents are
interdicted and restrained from directly or indirectly using,
divulging or disclosing confidential
information of the applicant, as
defined in clause 1.1.6 of the first respondent’s employment
contract of 2012 annexed as
“FA2” to the founding
affidavit and specifically including customer information.
30.4
The first and second respondents are
ordered to immediately refrain from using any of the applicant’s
documents, including
customer information.
30.5
The first and second respondents are
ordered to return all copies and extracts of the applicant’s
documents in their possession
(which documents include customer
documents) by 16h00 on 28 April 2015, and to delete all electronic
copies or extracts of the
documents from any database, computer,
internet or other electronic server, electronic storage device of
whatever nature, included
but not limited to the Cloud and Dropbox
virtual storage facilities.
30.6
The first respondent is ordered to provide
the applicant with a list of all contacts and data that he deleted
from the company-issued
cell phone, and to delete all such contacts
and data in his possession by 16h00 on 28 April 2015.
30.7
This order may be served by telefax on the
first and second respondents or by electronic mail (email).
30.8
The first and second respondents must pay
the applicant’s costs on a party and party scale, for which
they are jointly and
severally liable, the one paying the other to be
absolved.
_____________________
R
LAGRANGE, J
Judge
of the Labour Court
Appearances:
For
the Applicant: A Makka
Instructed
by:Webber Wentzel
For
the First and Second Respondents: G Beytel
Instructed
by:Paul Leisher
[1]
See
Reddy v Siemens Telecommunications (Pty) Ltd
2007 (2) SA 486
(SCA)
para 16 at 497F