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[2015] ZALCJHB 199
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Pinnacle Technology Shared Management Services (Pty) Limited and Another v Venter and Another (J1095/15) [2015] ZALCJHB 199 (14 July 2015)
THE
LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
JUDGMENT
Case
No: j1095/15
DATE:
14 JULY 2015
Reportable
PINNACLE
TECHNOLOGY SHARED
MANAGEMENT
SERVICES (PTY)
LIMITED
..........................................................
First
Applicant
PINNACLE
MICRO (PTY) LIMITED t/a PINNACLE AFRICA
and
t/a PINNACLE SECURITY
(PINNSEC)
...........................................................
Second
Applicant
And
YVETTE
VENTER
......................................................................................................
First
Respondent
REDITRON
(PTY)
LIMITED
................................................................................
Second
Respondent
Heard:
18 June 2015
Delivered: 14
July 2015
Summary:
Urgent application to enforce restraint of trade agreements-
restraint provisions unreasonable.
JUDGMENT
WHITCHER, J
Introduction
[1]
The first and second applicants are wholly owned subsidiaries of
Pinnacle Technology Holdings. The first respondent was employed
by
the first applicant but was deployed to render services to the second
applicant. These services included that of an external
accounts
manager from August 2012 to 28 May 2015.
[2]
The business of the second applicant entails the assembly, sale,
marketing, support and distribution throughout South Africa
of
computer hardware, software, peripherals and related products and
services in the security industry. The job of the first respondent
entailed designing a complete system package for customers combining
the second applicant’s products, services, pricing and
discount
structures and the customer’s creditworthiness and sales
history with the second applicant.
[3]
On 6 October 2014 the first respondent signed a new contract of
employment with the first applicant, which incorporated restraint
of
trade undertakings in favour of the first and second applicant. In
April 2015 she resigned from the employment of the first
applicant to
take up employment as an accounts manager with the second respondent
from 1 June 2015. The applicants contend that
the second respondent
is a competitor of the second applicant and in taking up employment
with the second respondent the first
respondent is in breach of the
restraint of trade agreement.
[4]
Based on the provisions of the restraint of trade agreement, the
applicants seek an urgent interdict preventing the first respondent,
for a period of twelve months from 1 June 2015, throughout South
Africa, from being employed by the second respondent and/or having
a
direct or indirect interest in a competitor of the applicants and
from approaching or soliciting orders from customers of the
applicants. They also seek an order interdicting and restraining the
second respondent for a period of twelve months from 1 June
2015 from
employing the first respondent.
Issues
in dispute
[5]
The following issues are in dispute:-
5.1
Urgency.
5.2
Whether the first respondent was compelled to sign the restraint of
trade agreement under circumstances of duress and whether
this
constitutes a basis for the first respondent to avoid the
consequences of the agreement.
5.3
Whether there is a protectable interest that warrants the enforcement
of the restraint of trade undertakings. The reasonableness
of the
area and duration of the restraint of trade provisions is also in
dispute.
Urgency
[6]
I am satisfied that the application is urgent. The period of the
restraint of trade provisions that the applicants seek to enforce,
i.e. 12 months, will expire on 31 May 2016. By reason thereof and
having regard to the time that it takes to enrol an opposed motion
before this Court the applicants evidently cannot seek redress in the
ordinary course. If the breach and reasonableness of the
restraint of
trade provisions are proved, the harm occasioned by the breach is
on-going. A breach of a restraint of trade is invariably
of an urgent
nature
[1]
.
It is also evident that once the applicants became aware that the
first respondent intended to take up employment with the second
respondent, they proceeded as expeditiously as possible.
Evaluation
of evidence
[7]
The applicants seek a final interdict on application. In terms of the
rule laid down in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
,
[2]
the application is to be decided on the first respondent’s
version together with the admitted facts in the applicants’
founding affidavit (this rule applies even where a respondent bears
an onus
[3]
)
and the facts stated in the first respondent’s answering
affidavit are to be accepted unless the first respondent’s
versions are so far-fetched or clearly untenable that the court would
be justified in rejecting such version merely on the papers.
[8]
In the context of a restraint of trade, Malan AJA in
Reddy
v Siemens Telecommunications (Pty) Ltd
[4]
held further as follows:
“
[14]
. . .For in the present case the facts concerning the reasonableness
or otherwise of the restraint have been fully explored
in the
evidence, and to the extent that any of those facts are in dispute
that must be resolved in favour of Reddy (these being
motion
proceedings for final relief). If the facts disclosed in the
affidavits, assessed in the manner that I have described, disclose
that the restraint is reasonable, then Siemens must succeed: if, on
the other hand, those facts disclose that the restraint is
unreasonable then Reddy must succeed. What that calls for is a value
judgment, rather than a determination of what facts have been
proved,
and the incidence of the onus accordingly plays no role.”
[5]
[9]
Reddy v Siemens
alerts us to the fact that making a determination on the
enforceability of a restraint of trade involves
making a value
judgment on the reasonableness of the restraint. Competing
constitutional and policy values permeate disputes
of this nature.
It is not simply a question of deciding, using evidentiary rules,
what version to accept with the result
automatically following.
Alleged
duress
[10]
It is the first respondent's case that the restraint of trade
agreement upon which the applicants rely was induced by duress
entitling her to avoid same.
[11]
Corbett J in
Arend
v Astra Furnishers (Pty) Ltd
[6]
held
that duress may take the form of inducing in a contracting party a
fear by means of threats and that where a person seeks to
set aside a
contract, or resist the enforcement of a contract, on the ground of
duress based on fear, the following elements must
be established:
(i)
a reasonable fear that the threat might
eventuate;
(ii)
that the fear was caused by the threat of
some considerable evil to the ex-employee;
(iii)
that the threat was of imminent or
inevitable evil;
(iv)
that the threat or intimidation was
unlawful or
contra bonos mores
;
(v)
that the moral pressure exerted by the
threat has caused damage.
[12]
In
Medscheme
Holdings (Pty) Ltd and Another v Bhamjee
[7]
the SCA stated the following:
"[18] English
and American law both recognise that economic pressure may, in
appropriate cases, constitute duress that allows
for the avoidance of
a contract. As pointed out by Van den Heever AJ in
Van den Berg &
Kie Rekenkundige Beamptes v Boomprops
1028 BK
1999 (1) SA 780
(T), that principle has yet to be authoritatively accepted in our
law. While there would seem to be no principled reason
why the
threat of economic ruin should not, in appropriate cases, be
recognised as duress, such cases are likely to be rare. (The
point is
underlined by the dearth of English cases in which economic duress
was found to have existed.) For it is not unlawful,
in general, to
cause economic harm, or even to cause economic ruin, to another, nor
can it generally be unconscionable to do so
in a competitive economy.
In commercial bargaining the exercise of free will (if that can ever
exist in any pure form of the term)
is always fettered to some degree
by the expectation of gain or the fear of loss. I agree with Van den
Heever AJ (in
Van den Berg & Kie Rekenkundige Beamptes
at
795E - 796A) that hard bargaining is not the equivalent of duress,
and that is so even where the bargain is the product of an
imbalance
in bargaining power. Something more - which is absent in this case -
would need to exist for economic bargaining to be
illegitimate or
unconscionable and thus to constitute duress."
[13]
In her answering affidavit, the first respondent describes the
circumstances surrounding her signature to the restraint
of trade
agreement. In September 2014 the sales manager, Fred Saayman,
informed her that all staff would be required to sign new
contracts
of employment. At the beginning of October 2014, his personal
assistant, Zessica Zuppa, informed her that if she did
not sign the
new contract of employment incorporating the restraint of trade she
would not be paid her salary. This communication
was followed up by
an email from Zuppa to all staff confirming that if they did not sign
the new agreement, they would not be paid
their salaries. The sales
manager often issued instructions through Zuppa so she considered the
threat of non-payment of salary
to be serious and imminent. She
signed the agreement in fear that her failure to do so would result
in her being unable to meet
her monthly financial commitments. She
was especially concerned because her husband had taken a cut in
salary and her family was
thus dependant on her. At the time of
signing the agreement, she was seeking alternative employment and was
reluctant to bind herself
to a restraint of trade.
[14]
The applicants contend that the first respondent’s allegations
should be rejected as far-fetched and untenable
because the first
respondent has never previously alleged that she was compelled to
sign the contract of employment with the threat
that if she did not
do so she would not be paid her salary. The first time she made this
allegation was in her answering affidavit.
Moreover, her allegations
are completely at odds with the contents of her letter of
resignation. In her resignation letter, the
first respondent thanks
the applicants for being good to her and for everything she learnt
whist in their employ.
[15]
I accept the first respondent's version of the factual events
surrounding her signature of the restraint of trade
agreement because
the applicant’s refutation of her version is not substantiated
by a confirmatory affidavit from Zuppa or
a relevant staff member.
This omission is not explained in their affidavits. The timing of her
complaint and a courteous resignation
letter are not so strange to
render her version far-fetched and improbable.
[16]
I am, however, not convinced that the circumstances under which the
first respondent signed the agreement amount
to duress contemplated
in
Arend
or
Medscheme supra
.
Although the first respondent was entitled to payment of her salary
because she was already in the employ of the applicants when
she was
asked to sign the contract and the threat emanating from the
applicants’ representative was one of material financial
harm,
s
omething more (
as
contemplated in
Medscheme
)
,
which is absent in this case, would
need to exist for the applicant’s conduct to be considered an
illegitimate or unconscionable
threat and for the first respondent to
have reasonably felt induced thereby to sign to the contract. In this
case, that something
would have been, prior to the threat, a clear
indication from the first respondent to the first applicant that she
does not accept
the restraint of trade provisions in her contract.
[17]
Having said that, I do note that the first applicant was able to
obtain the first respondent’s signature on the contract
using
its considerable advantage in terms of bargaining power. While
there was no proverbial gun to the first respondent’s
head, the
table on which the restraint of trade was signed leaned heavily
against her.
[18]
I also take note of the fact that the first respondent was neither
offered nor paid any amount in excess of her remuneration
at the time
the restraint was signed as potential compensation for future lack of
earnings should she wish to leave the employ
of the applicants.
Breach
of agreement
[19] It is evident,
having regard to the evidence before me, that the second respondent
is a competitor of the second applicant.
Both companies sell computer
hardware, software, peripherals and related products and services,
including those related to the
security industry, and deal with
information technology software.
[20]
This finding however does not end the matter. The issue is whether
the restraint provisions are reasonable and thus enforceable.
Approach
of the courts in regard to protectable interest
[21]
The enforceability of a restraint of trade agreement is to be
considered at the time at which enforcement is sought.
[8]
[22]
The test set out in
Basson
v Chilwan and Others
[9]
for
determining the reasonableness or otherwise of the restraint of trade
provision is the following:
a.
Is there an interest of the one party which
is deserving of protection at the determination of the agreement?
b.
Is such interest being prejudiced by the
other party?
c.
If so, does such interest so weigh up
qualitatively and quantitatively against the interest of the latter
party that the latter
should not be economically inactive and
unproductive?
d.
Is there another facet of public policy
having nothing to do with the relationship between the parties, but
which requires that
the restraint should either be
maintained or rejected?
[23]
In
Kwik
Kopy (SA) (Pty) Ltd v Van Haarlem and Another
[10]
Wunsh
J added a further enquiry, namely whether the restraint goes further
than is necessary to protect the interest.
[24]
Policy consideration is also a factor. In
Reddy v Siemens supra
Malan AJA stated as follows:
“
A
court must make a value judgment with two principal policy
considerations in mind in determining the reasonableness of a
restraint.
The first is that the public interest requires that
parties should comply with their contractual obligations, a notion
expressed
by the maxim
pacta
servanda sunt.
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 of contract is an integral part of the
fundamental right referred to in s 22. …In
applying these two
principal considerations, the particular interest must be examined. A
restraint would be unenforceable if it
prevents a party after
termination of his or her employment from partaking in trade or
commerce without a corresponding interest
of the other party
deserving of protection. Such a restraint is not in the public
interest. Moreover, a restraint which is reasonable
as between
parties may for some other reason be contrary to the public
interest.”
[11]
[25]
Proprietary
interests capable of protection fall into two categories, namely
trade connections of the business, and which is made
up of goodwill
and relationships with customers, potential customers, suppliers and
trade secrets, consisting of confidential matters
which would be
useful for the carrying on of the business and which could therefore
be used by a competitor if disclosed to it.
[12]
[26]
The cases are clear, however, that mere customer contact does not
miraculously create a protectable interest. The connection
between
the former employee and the customer must be such that it will
probably enable the former employee to induce the customer
to follow
him or her to a new business.
[27]
In
Rawlins
and Another v Caravantruck (Pty) Ltd
,
[13]
Nestadt JA stated the position as follows:
"The
need of an employer to protect his trade connections arises where the
employee has access to customers and is in a position
to build up a
particular relationship with the customers so that when he leaves the
employer's service he could easily induce the
customers to follow him
to a new business (Joubert General Principles of the Law of Contract
at 149). Heydon The Restraint of Trade
Doctrine (1971) at 108,
quoting an American case, says that the 'customer contact' doctrine
depends on the notion that 'the employee,
by contact with the
customer, gets the customer so strongly attached to him that when the
employee quits and joins a rival he automatically
carries the
customer with him in his pocket'. In
Morris (Herbert) Ltd v
Saxelby
[1916] 1 AC 688
(HL) at 709 it was said that the
relationship must be such that the employee acquires 'such personal
knowledge of and influence
over the customers of his employer . . .
as would enable him (the servant or apprentice), if competition were
allowed, to take
advantage of his employer's trade connection . . .'
This statement has been applied in our Courts … Whether the
criteria
referred to are satisfied is essentially a question of fact
in each case, and in many, one of degree. Much will depend on the
duties
of the employee; his personality; the frequency and duration
of contact between him and the customers; where such contact takes
place; what knowledge he gains of their requirements and business;
the general nature of their relationship (including whether
an
attachment is formed between them, the extent to which customers rely
on the employee and how personal their association is);
how
competitive the rival businesses are; in the case of a salesman, the
type of product being sold; and whether there is evidence
that
customers were lost after the employee left . …"
[28]
The categories of protectable confidential information were set out
in
Dickinson
Holdings (Group) (Pty) Ltd and Others v Du Plessis and Another
[14]
as
follows:
a.
Customer lists drawn by a trader, and kept
confidential for the purposes of his own business.
b.
Information received by an employee about
business opportunities available to an employer.
c.
The information received in confidence by
an employee whilst in employment with a particular employer remains
protected by a legal
duty, implied by the contract of employment.
d.
Information which, although in the public
domain is nevertheless protected as confidential when skill and
labour have been expended
in gathering and compiling it in a useful
form, and when the compiler has kept his useful compilation
confidential, or has distributed
it upon a confidential basis.
e.
Information relating to the marketing of a
new product, if such proposals are the product of skill and industry
and have been kept
confidential.
f.
Information relating to the specifications
of a product, and a process of manufacture, either of which has been
arrived at by the
expenditure of skill and industry or has been kept
confidential.
g.
Information relating to the prices at which
one person has tendered competitively to do work for another is
confidential in the
hands of one who stands in a fiduciary
relationship to the tenderer.
[29]
It was also stated in
Dickson
that the type of information
alone does not necessarily establish its confidentiality. All of the
relevant circumstances must be
considered. Furthermore information
must be objectively useful to a competitor in order to be
confidential as between ex-employee
and an ex-employer.
[30]
The position regarding trade secrets and confidential information is
summarised by Saner as follows:
"For
an employer to succeed in establishing that its trade secrets and
confidential information are interests justifying protection
by the
restraint, it should demonstrate in reasonably clear terms that the
information, know-how, technology or method, as the
case may be, is
something that is unique and peculiar to the employer and which is
not public property or public knowledge and
which is more than just
trivial."
[15]
[31]
In
Reddy
(
supra
),
Malan AJA stated:
“
However,
all the facts must be considered. Siemens and Ericsson are
competitors providing services to telecommunication network
operators. Although Vodacom and Cell C are customers of Siemens,
Ericsson does some business with them. Siemens still has to acquire
any of MTN's business. Reddy is in possession of trade secrets and
confidential information of Siemens. Moreover, shortly before
his
resignation from Siemens, he attended a training course updating his
knowledge of the processes, methodologies and systems
architecture
developed by Siemens. Information of this kind, if disclosed, could
be used to the disadvantage of Siemens. This is
not a case such as
Basson v Chilwan
where
an employer's application to assert a protectable interest in respect
of customer connections against an ex-employee who had
no such
connections was dismissed. Reddy is in possession of confidential
information in respect of which the risk of disclosure
by his
employment with a competitor, assessed objectively, is obvious. It is
not that the mere possession of knowledge is sufficient,
and this is
not what was suggested by Marais J in BHT Water: Reddy will be
employed by Ericsson, a 'concern which carries on the
same business
as [Siemens]' in a position similar to the one he occupied with
Siemens. His loyalty will be to his new employers
and the opportunity
to disclose confidential information at his disposal, whether
deliberately or not, will exist. 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. I agree with the remarks of Marais J in
BHT
Water
:
'In
my view, all that the applicant can do is to show that there is
secret information to which the respondent had access, and which
in
theory the first respondent could transmit to the second respondent
should he desire to do so. The very purpose of the restraint
agreement was that the applicant did not wish to have to rely on the
bona fides
or lack of retained knowledge on the part of the first respondent, of
the secret formulae. In my view, it cannot be unreasonable
for the
applicant in these circumstances to enforce the bargain it has
exacted to protect itself. Indeed, the very ratio underlying
the
bargain was that the applicant should not have to content itself with
crossing its fingers and hoping that the first respondent
would act
honourably or abide by the undertakings he has given. …In my
view, an ex-employee bound by a restraint, the purpose
of which is to
protect the existing confidential information of his former employer,
cannot defeat an application to enforce such
a restraint by giving an
undertaking that he will not divulge the information if he is
allowed, contrary to the restraint, to enter
the employment of a
competitor of the applicant. Nor, in my view, can the ex-employee
defeat the restraint by saying that he does
not remember the
confidential information to which it is common cause that he has had
access. This would be the more so where the
ex-employee, as is the
case here, has already breached the terms of the restraint by
entering the services of a competitor.’”
[32]
As contended by the applicants, the reality of the situation is that
an employee who intends
to use his or her ex-employer’s
confidential information will not do so overtly as he or she does not
want to be “caught
out”, to put it colloquially, by his
or her erstwhile employer. Thus, in order to claim an infringement of
its proprietary
interests an employer need only prove that its
erstwhile employee is potentially able to exploit its confidential
information or
customer connection in his or her new employment. It
will be sufficient to create the real probability that the employee
will consciously
or unconsciously do so in the new employment,
because of the loyalty he owes to his or her new employer.
Analysis of facts
[33] The two
categories of protectable interests relied upon by the applicants is
customer connections and confidential information.
[34]
It is common cause that in her capacity as accounts manager for the
second applicant the first respondent liaised with customers
and
prepared quotations, which included
designing
a complete system packages for the customers combining the second
applicant’s products, services, pricing and discount
structures
and the customer’s creditworthiness and sales history with the
applicant. The applicants contend that in the process
she forged
influential relationships with the second applicant’s customers
and became privy to confidential information of
the second applicant.
On account of this they allege the first respondent is in a position
to
cause the second applicant’s
existing customers to take their custom to the second respondent.
They contend that she could
use the information to undercut the
second applicant’s pricing.
[35] It is not
disputed that the first respondent has been in the security industry
throughout her working life and has gained knowledge
and experience
in this field. She said that by virtue of her experience she acquired
knowledge of methodology, capability, logistical
arrangements and
sales patterns of equipment used in the industry; information which
she alleges is freely available in the public
domain. I would add
that it is also obvious that she acquired a skill for designing
product and service packages for customers.
Common sense dictates
that this skill and knowledge would be useful to a competitor of the
second applicant. However, the basis
of the application is not her
skills or her ability to act upon information in the public domain
which she may now use to assist
her new employer to compete with her
old. The issue is whether any relationships and confidential
information she acquired
while working for the old employer are
likely to assist her new employer.
Trade and
customer connections
[36] I accept the
first respondent’s contention that there is no credible
evidence that she created customer connections whilst
in the employ
of the applicants which are of such a nature that they constitute a
protectable interest in the hands of the applicants.
[37] It is common
cause that a company called Integriton is the second applicant’s
most important customer and biggest contract
(amounting to
approximately R100 million) and, according to the applicants’
own version, was “the first respondent’s
key account”
during the last year of her employment with the applicants. In her
resignation letter, this is the only account
mentioned by the first
respondent.
[38] In her
answering affidavit, the first respondent describes the trade
connections surrounding the Integriton contract. She states
that the
customer relationship between the second applicant and Integriton was
developed at the level of the directors of the two
companies and not
at her level as an accounts manager. Moreover, the contract was
already in established in 2013 and is at an advanced
stage. The
applicants did not refute these claims in any meaningful manner and
even describe the two Chief Executive Officers of
the respective
companies as business associates as well as friends. The first
respondent thus demonstrated that her relationship
with Integriton is
not such as to place her in a position to influence the company to
take their custom to the second respondent.
[39] The first
respondent further demonstrated that there is no prospect of the
second respondent undercutting the relationship
between the
applicants and Integriton. It is common cause that the tender awarded
to Integriton is to supply security systems to
the Department of
Correctional Services. The first respondent alleged that the tender
required that Bosch products be utilised
and as a result the
applicants, through its holding company, acquired a Bosch agency to
secure the supply of goods to Integriton.
According to the first
respondent, the second respondent does not supply Bosch products and
thus cannot compete with the applicants
in this regard. In their
replying affidavit the applicants merely contend that the tender also
made provision for other ‘brands
of computer and
computer-related products” but do not suggest that the second
respondent competes with the applicants in
this field.
[40] The first
respondent also alleged that approximately 80% of the Integriton
contract has already been fulfilled. This was not
refuted by the
applicants.
[41] I find that the
first respondent has established that there is no potential threat
from the respondents to the applicants’
biggest and most
significant client.
[42] It is common
cause that the first respondent dealt with 18 other customers of the
second applicant. The first respondent alleges
that during her last
year with the applicants her primary focus was on the Integriton
account and she had no opportunity to develop
influential
relationships with the other 18 clients. These contentions are not
seriously disputed by the applicants who merely
allege that she did
deal with other customers. The applicants make no attempt to describe
the nature and extent of the customer
connections which the first
respondent may have had with these customers. The applicant does not
identify a single person with
whom the first respondent has allegedly
created a relationship which is of such a nature that that will
divert the business from
the applicants to the second respondent.
[43] Eight of the 18
customers were already customers of the second respondent before the
first respondent went to work for the
second respondent. The
applicants contend that the first respondent, armed with confidential
information acquired from the applicants,
place her in a position to
take these clients away completely from the applicants. This
issue is dealt with below.
Confidential
information
[44] The second
category of protectable interest relied upon by the applicants is
trade secrets and confidential information.
[45]
The applicants in their founding affidavit describe the information
they allege the first respondent acquired whilst in their
employ and
conclude that this information is "confidential". The
information can be boiled down to a list of the second
applicant’s
customers (this list was however disclosed in the application),
knowledge of all products, services,
pricing, quotation packages, discounting structures and profit
margins (the difference between
the second applicants landed costs of
stock and the second applicant’s selling prices) of the second
applicant, cost of stock
from the second applicant’s suppliers
and the creditworthiness and historical sales of their customers.
[46] It is difficult
on the papers in these proceedings to make a finding on each and
every item of information the applicants claim
is confidential and in
which they thus have a protectable interest. This is especially
since the first respondent contests
each of these claims.
[47] The first
respondent’s denials are not all untenable. Some of the
information seems easily ascertainable in the
field by a person, such
as the first respondent, who has been in the security industry
throughout her working life. Product
knowledge and services
provided by security suppliers would fall into this category.
[48] If by
creditworthiness of customers, the applicants mean any formal
defaults in payment as opposed to lateness, this is also
objectively
determinable without too much effort.
[49] The fact that
some information was kept in the applicants’ password protected
computer system does not, on its own, render
it confidential. There
is also no allegation that the first respondent removed this
information from the computer system.
[50] However, it
stands to reason that, at least, the second applicant’s
pricing, discounting structures, profit margins
and historical sales
constitute the kind of knowledge the first respondent cannot tenably
and plausibly deny is confidential information.
It is also
information into which she most likely had good insight while working
at the applicants.
[51] Having said
that, the first respondent did demonstrate that information used to
process quotations and prices changed over
time. In this regard, she
made reference to an email from the office manager of the second
application which records that due to
the volatility of the rand
against the dollar, quotations are only valid for 48 hours from the
time of quoting. Accordingly, the
value of any information relating
to landing costs or quoted prices dissipates with time and would be
of little value to the respondents
at this stage.
[52] Historical
sales information, as I understand it, may provide a competitor with
certain information about the second applicant’s
customers’
needs, for instance when they buy stock and how much. How
useful this may be to a competitor, it is difficult
for this court to
say on the papers, but it does seem to constitute confidential
information.
[53]
This then leaves profit margins and discounting structures which,
together with historical sales information, seem to make
up a list of
confidential information in which the applicants do have a
protectable interest.
Interest
Prejudiced
[54] I find that an
interest of the applicants is being prejudiced by the first
respondent. This is not in the actual sense
that the first
respondent has imparted confidential information to the second
respondent. I respectfully align myself with the
view of the court in
Reddy
that the prejudice includes the “risk of
disclosure” of information that a former employee working at a
competitor
may openly or even unconsciously impart to his or her new
principals. This, however, does not end the matter.
Balancing
Interests
[55] In applying the
next part of the test set out in
Basson v Chilwan
, a court
will inevitably use the accepted evidence to make a value judgment.
This value judgment must chart a way between
competing policy
objectives and be sensitive to constitutional values, as set out
earlier on.
[56] The crisp
question at this point is how the applicants’ protectable
interest weighs up, qualitatively and quantitatively,
against the
interest of the first respondent that she should not be economically
inactive and unproductive for twelve months?
[57] It seems to me
that, where a company has competitors, adjustments to its profit
margins and discount packages will be made
fairly often. Unlike a
‘secret recipe’, the exact amount of profit a company
sets out to make or gives up by way of
discount to attract business
on any given deal is not an immutable piece of information.
Likewise, knowing this information
does not give a competitor a
permanent advantage.
[58] If the second
respondent were to come to know this information, there is nothing to
suggest that it would be able to better
the prices the applicants
already offer their customers. While it is not ideal that a
competitor knows the applicant’s
exact mark-up, it strikes me
that undercutting, itself, is a routine business threat.
[59] It is
difficult to calculate the applicants likely prejudice should their
historical sales to the other 18 customers the first
respondent dealt
with be disclosed the second respondent. It seems to me that
the value of this information would principally
be to alert a
competitor when a customer’s stock was low or equipment needed
replacement. While undoubtedly confidential,
this information
is unlikely to be a deciding issue in winning customers away.
[60] On the other
hand, considering the interests of the first respondent, the terms of
the restraint of trade would exclude her
from the sector of the
economy in which she has worked since entering the labour market. The
geographic extent of the restraint
is throughout the whole South
Africa and the period of the restraint is for 12 months.
[61]
The applicants contend that a period of twelve months would allow
for the second applicant to replace the first respondent
and for the
usefulness of the information within the knowledge of the first
respondent to diminish. I do not agree.
Twelve months
considerably exceeds, in my view, the period during which any
intelligence she has about the applicants would be
of much use to the
second respondent. I also do not see a competitive applicant
choosing a replacement who will need an entire
year to replace the
first respondent. The 12 month period thus unreasonably restricts the
first respondent’s freedom of occupation.
[62] A quantitative
balancing of interests is also instructive. If the restraint were to
be enforced, it is quite conceivable that
the first respondent will
remain without any income for at least twelve months before she may
re-enter the sector in which she
has specialised. Enforcing the
restraint could thus cause her to lose 100% of her possible income
over twelve months.
I am satisfied that the applicants’
interests are, proportionally, unlikely to be affected by nearly as
much should the restraint
not be enforced.
[63] In assessing
the relative harm to the interests of both parties in enforcing the
restraint, I pause to note that, had the applicants,
in order to
obtain agreement to the restraint, offered the employee financial
compensation which meaningfully lessened the financial
prejudice of
her compliance upon leaving the applicants’ employ, the
applicants’ prospects of successfully obtaining
interdictory
relief would have been strengthened.
[64]
The reasoning in
Medscheme
to the effect that hard bargaining, even to the point of threatening
harm or economic ruin, does not necessarily constitute duress
is,
with respect, correct. However, when the applicants drove so
hard a bargain with the first respondent as they did, they
perhaps
did not realise that, while she could not, in a contract law sense,
avoid compliance with the restraint, the reasonableness
of that
restraint may nevertheless later be tainted by the manner in which it
was procured.
[65] I do so find
in this case. The first respondent was not a job seeker being
confronted with a ‘take it or leave
it’ contract of
employment with a restraint of trade. She had an employment
contract with the applicants. They wanted
to alter the terms of their
agreement with her entirely to their benefit. They informed her
that if she did not sign the
contract of employment incorporating the
restraint of trade she would not be paid her salary. Although
not duress, this high-handed
threat of a potentially unlawful action
had the desired effect. However, the one-sided terms of the
restraint agreement is
an important factor affecting the balancing of
interests that this court must perform.
[66] I do not wish
to suggest that the freedom to contract will usually bend its knee to
the freedom of occupation. It is
very important that people are
held to agreements that they enter into. Predictability and
accountability in commercial activity
is a social value not lightly
to be subordinated to the specious claims to ‘freedom’ by
rule breakers. However, on
the facts of this case, considering how
the restraint of trade agreement came into existence in the first
place, it does sound
rather strange in the mouth of the applicants to
complain about the first respondent’s attempt to unilaterally
vary the terms
of an existing agreement, entirely in her favour.
[67] I therefore
find that, notwithstanding the existence of a protectable interest as
well as a threat to that interest posed by
the first respondent
taking up employment with the second respondent, the nature of the
interest established on the papers is ephemeral
and the
countervailing interests of the first respondent outweigh those of
the applicants, such that it would be unreasonable to
enforce the
restraint.
[68] I award costs
against the applicants, not only because of my findings but also
because at the commencement of these proceedings
they refused to
accept a ‘with prejudice’ undertaking from the
respondents that they will abide with the terms of the
restraint in
respect of the applicants’ customers.
Order
[69]
The application is dismissed with costs.
Whitcher J
Judge
of the Labour Court of South Africa
APPEARANCES:
On
behalf of the Applicant: Adv L Hollander
Instructed
by: M J Hood & Associates
On
behalf of the Respondent: Adv NPG Redman SC
Instructed
by: Fairbridges Wertheim Becker Attorneys
[1]
See
Advtech
Resourcing (Pty) Ltd t/a Communicate Personnel Group v Kuhn
2008
(2) SA 375
(C) para [4] at 378. In
Mozart
Ice Cream Franchises (Pty) Ltd v Davidoff
2009
(3) SA 78
(C) Davis J stated at 88J-89A that breaches of restraint
of trade have an inherent quality of urgency. See also
L'Oreal
South Africa (Pty) Ltd v Kilpatrick and Another (J1990/2014) [2014]
ZALCJHB 353 (16 September 2014)
para
[44] at 23;
FMW
Admin Services CC v Stander & Others
(2015) 36 ILJ 1051 (LC) para [28] at 1061;
ARB
Electrical Wholesalers (Pty) Ltd v Grove and Others (C335/14) [2014]
ZALCCT 31 (3 June 2014)
para
[20] at 7;
Care
for Cars CC v Rabe (J1744/14) [2014] ZALCJHB 295 (6 August 2014)
para
[9] at 3, 4.
[2]
[1984] ZASCA 51
;
1984
(3) SA 623
(A) at 634H-635C.
[3]
BHP
Billiton Inc and Another v De Lange and Others
2013
(3) SA 571
(SCA) para 51 at 587;
Reddy
v Siemens Telecommunications (Pty) Ltd
2007
(2) SA 486
(SCA) para [4] at 491.
[4]
2007
(2) SA 486 (SCA).
[5]
See
also
L'Oreal
supra
para
[4], pp 4, 5;
Jonsson
supra
para [9] at 718, 719;
FMW
Admin Services CC v Stander & others supra
para [4] at 1055, 1056.
[6]
Arend
v Astra Furnishers (Pty) Ltd
1974 (1) SA 298
(C) at 305-306B
[7]
2005
(5) SA 339 (SCA)
[8]
See
Reddy
supra
para [16] at 497;
Magna
Alloys
at 894F-G, 895D-I, 897C-E, 898C-E.
[9]
[1993] ZASCA 61
;
1993
(3) SA 742
(A) at 776H – 777B.
[10]
1999
(1) SA 472
(W) at 484E.
[11]
Para
[16].
[12]
Sibex
Engineering Services (Pty) Ltd v Van Wyk and Another
1991 (2) SA 482
at 502D-F
[13]
[1992] ZASCA 204
;
1993
(1) SA 537
(A) at 541
[14]
2008 (4) SA 214
(N) (Full bench)
para
[33]-[35] at 225, 226.
[15]
At
7-14(1)