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[2015] ZALCJHB 282
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Interwaste Holdings Limited v Mahoney and Another (J1619/15) [2015] ZALCJHB 282 (8 September 2015)
REPUBLIC OF SOUTH
AFRICA
THE LABOUR COURT
OF SOUTH AFRICA, JOHANNESBURG
JUDGMENT
CASE NO: J1619/15
DATE: 08
SEPTEMBER 2015
In the matter
between:
INTERWASTE
HOLDINGS
LIMITED
.................................................................................
Applicant
And
MAHONEY,
BRENT
....................................................................................................
First
Respondent
WASTEMAN HOLDINGS
(PTY)
LTD
..................................................................
Second
Respondent
Heard: 27 August
2015
Delivered: 08
September 2015
Summary:
(Restraint of trade – confidential information – partial
enforcement)
Judgment
LAGRANGE J
Introduction
[1]
This is an urgent application to enforce a
restraint of trade agreement. The applicant is a listed company
operating in a wide range
of activities in the waste removal and
disposal industry. The first respondent was employed as a general
manager by the applicant
and performed a variety of functions set out
in more detail below.
[2]
It is common cause that the first
respondent, Mr B Mahoney (‘Mahoney’) entered into a
restraint of trade agreement with
the applicant as part of his
contract of employment on 22 January 2013. He resigned from the
applicant on 27 July 2015 and on 3
August 2015 started work with the
second respondent (‘Wasteman’), an undisputed competitor
of the applicant. Wasteman
is not opposing the application.
[3]
The main issues in dispute are whether:
3.1
Mahoney has confidential or proprietary
information of the applicant that would be of value to a competitor
and therefore constitute
a protectable interest of the applicant;
3.2
Mahoney was responsible for the customer
connection between Mahoney and three of its major customers, Sappi,
Kimberley-Clarke and
Prosep Chemicals, which could be exploited by a
competitor of Mahoney, such as Wasteman;
3.3
Mahoney’s appointment as a waste
facilities’ manager by Wasteman requires him to perform duties
which are very different
from anything he previously performed at
Mahoney and therefore does not involve him using any previous
expertise or knowledge gained
from employment with Mahoney.
[4]
Interwaste argued that since the restraint
agreement was in place and that Mahoney had gone to work for a
competitor, Mahoney was
in breach of the restraint and he had failed
to discharge the burden on him to demonstrate that it would be
unreasonable to enforce
it.
[5]
Interwaste emphasised Mahoney’s
alleged lack of a protectable interest as his primary objection to
the attempt to enforce
the restraint. He also contends in effect that
his appointment as a waste facility manager of the second respondent
does not entail
him working in an area in which he acquired expertise
or knowledge when he worked for the applicant, and that such
knowledge which
he did acquire in the course of working for the
applicant is of no value to him in his present role. Mahoney also
contested that
the application was not urgent because the applicant
had known since the end of July that he would be working for Wasteman
from
early August. He also questioned the authority of Mahoney’s
financial director, Mr A P Broodryk, to depose to the founding
affidavit.
Challenge
to Authority
[6]
The
procedure for dealing with challenges to the authority of a director
to launch proceedings on behalf of a company has been authoritatively
laid down in the judgement in
Eskom
v Soweto City Council
[1]
and confirmed and
contextualised in the SCA decision of
Unlawful
Occupiers, School Site v City of Johannesburg
.
[2]
The approach has also been followed in this court in
SA
Post Office v Govender & others
.
[3]
Although the applicant did raise the issue in his answering
affidavit, it should have been brought by way of a separate
interlocutory
application in terms of Rule 7 of the Uniform Rules of
Court. Quite apart from that, the act of deposing to an affidavit,
does
not in itself require authority, and the real issue insofar as
there is good cause to doubt whether the application is duly
authorised by the applicant is whether the applicant’s
attorneys of record have the necessary power of attorney to proceed.
Their authority to launch the application was not challenged. It is
clear from the papers that the applicant made clear its intention
to
enforce the restraint before it was launched and the deponent is a
director of the applicant. On the face of it, there is no
good reason
to doubt that the application was authorised by the applicant.
Urgency
[7]
Mahoney made known his intention of taking
up employment with Wasteman on 27 July 2015, which is the same day he
handed in his resignation.
He was advised in writing the same day
that he did not have to work his notice and at the same time was
expressly reminded of the
restraint agreement. When he handed in his
resignation he had intended to work his notice and commence
employment with Wasteman
in September, but having been relieved
earlier he started his new employment on 1 August. The only issue is
whether Interwaste
knew this and ought to have acted earlier than
when it actually launched the application on 14 August 2015. Whether
the applicant
knew on 27 July that Mahoney would start immediately or
not, it did not delay in seeking to prevent his employment by
Wasteman.
Apart from the parting letter to Mahoney, it advised
Wasteman the same day of its concerns that Mahoney’s employment
by Wasteman
would be in breach of the restraint.
[8]
It is clear that the applicant acted
pre-emptively by issuing the letters on 27 July to stop the
respondents acting in breach of
the restraint. It pursued
communications with Wasteman in the days that followed and warned it
of pending litigation to enforce
the restraint.
Albeit
that the correspondence was at that stage with Wasteman’s
attorneys of record, it seems inconceivable that Mahoney, who was
represented by the same attorneys in these proceedings was not aware
thereof. In any event, I do not think a two week delay in
launching
the application was unduly dilatory and the week provided for the
respondents to oppose was adequate. There is nothing
to suggest that
they were not able to deal with the issues in the time available and
Mahoney also filed an additional affidavit
after receiving the
applicant’s replying affidavit, to which the applicant did not
object. In the circumstances, I am satisfied
that the applicant acted
sufficiently promptly. I am also satisfied that a damages claim in
due course would be unlikely to provide
substantially the same relief
which the applicant had contracted for in the restraint agreement.
Merits
[9]
For the purposes of addressing the merits,
the judgment follows the suggested approach in
Basson
v Chilwan and Others
1993 SA 742
(A) at 767C-H.
Existence
of a protectable interest
[10]
Mahoney held the position of on-site
general manager of Inter-Waste Cleaning and was a director of
Enviro-Waste SA (Pty) Ltd, a
wholly owned subsidiary of the
applicant. He was also for a while the manager of the group’s
largest single operational depot,
Gauteng Logistics, but was relieved
of this responsibility in 2014 at his request. It is common cause
that those roles involved
him in liaising with the group operations
and with customers regarding waste management solutions as well as
negotiating and concluding
contracts with clients. He also reported
to Inter-Waste (Pty) Ltd Exco and attended Exco meetings from
September 2013 until November
2014.
[11]
The Exco comprised all executive directors
of the applicant, divisional directors,senior general managers. The
Exco is charged with
the overall management of the group’s
business and for recommending short, medium and long-term strategic
planning to the
board. The most important operational decisions are
made at that level. The applicant claims that it is the strategic
medium and
long-term planning that is performed in the body that
allows it to achieve a competitive edge, as the basic cost structure
and
regulatory environment affecting the applicant and its
competitors is the same for all of them. Consequently, it contends
that
the applicant would have acquired knowledge of its medium and
long-term planning, which would obviously be confidential proprietary
information of value to a competitor. The strategies Mahoney was
privy to included sales and pricing strategy. He would also have
acquired knowledge of the sales pipeline, pending tenders, tenders
awarded, most profitable operations and customer profiles. The
timeframes involved in the different planning scenarios are not
identified.
[12]
Mahoney does not dispute the information he
may have obtained through his participation in Exco, but maintains
that because he had
not been sitting on that body since November 2014
and claimed to have no recollection of the content of information
packs circulated
at such meetings, such knowledge that he had was no
longer accessible to him at best or, at worst, was of very limited
current
value to the extent that he still retained any of it, as that
information was now outdated. He also contends that simply by reading
information on the applicant’s website a competitor or
experienced businessmen could work out the applicant’s
short-term,
medium-term and long-term strategy. Lastly, he had not
been a participant in the most recent executive strategy and sales
conference
held in 2015.
[13]
Apart from insights into group plans, the
applicant maintained that Mahoney had acquired knowledge of the
applicant’s operational
matters, such as the financial
management system which contained customer details, logistics
management, supplier details and historic
financial information and
pricing. He was also privy to strategic planning sessions with other
managers.
[14]
Although Mahoney does not deny that he was
exposed to the applicant’s “Navision” financial
management system containing
customer details, historic financial
information, pricing and supplier details, he points out that it is
not possible to download
such information from the system. He further
makes the point that the applicant's financial statements are public
knowledge by
virtue of it being a listed company. However, the
applicant emphasised that Mahoney did have access to the system until
the day
he resigned. Mahoney minimises the significance of his
meetings with other managers, which he claims had a narrow focus on
day
to day operations and did not deal with strategic matters.
Somewhat enigmatically, also Mahoney claimed that his knowledge of
vehicle
management and the routing of drivers was common knowledge.
[15]
Lastly, the applicant maintains that of
Mahoney had developed relationships with many of its key customers
including large manufacturing
corporations, mining houses and many
others. He also was responsible for managing the relationship between
the entities he worked
for and their key customers, whom he met on a
regular basis and for whom he would have constituted the most
important contact with
the applicant.
[16]
By contrast, Mahoney says that he only had
three customer accounts being SAPPI, Kimberley Clarke and Prosep
Chemicals. Moreover,
he maintains that there is nothing secretive
about customer pricing in the waste services industry as companies
regularly tender
to provide such services and customers will often
disclose the terms of competing tenders to competitors in order to
negotiate
a better deal. Besides arguing that the pricing of such
tenders is a relatively complex one and not simply a matter of
comparing
prices, the applicant contends that it is the very
competitive nature of the industry and Mahoney’s knowledge of
its inner
workings which would give the second respondent a distinct
advantage if it employed Mahoney. The applicant also maintains that
by virtue of his position “those with keys to the other
customers” reported to him and he had in-depth knowledge of
customer details and their requirements.
[17]
It must be said that in evaluating the
extent of the applicant’s protectable interest, both parties
set out their factual
averments at a relatively high level of
generality, making it frustratingly difficult for the court to gain
much insight into the
real depth of Mahoney’s knowledge or to
what extent that knowledge would be of real current or lasting
economic value. What
can be gleaned with some degree of
certainty based on the respective factual averments is that:
17.1
Mahoney did have access to the applicant’s
customer and supplier details and pricing information up to the time
of his resignation,
though he was not in the ordinary course of his
work performing the kind of duties that would mean that he was
intimately familiar
with much of the detail thereof except in
relation to the three customers that he dealt with;
17.2
He has some knowledge of other customers
based on persons reporting to him, though the extent of the knowledge
of the applicants
customer network he might have acquired in this
fashion does not amount to significant personal knowledge and he is
not the applicant’s
contact person for customers other than the
three he dealt with himself;
17.3
He was privy to strategic thinking of the
group at least until November 2014, but has no knowledge of changes
that might have occurred
afterwards or of the outcome of the
applicant’s most recent strategy and sales conference in 2015;
17.4
In the course of the time he spent on Exco
he acquired an overview of the different operational divisions of the
applicant’s
group reporting in that forum and gained some
understanding of their respective contributions to the group at the
time;
17.5
As a member of Exco he would have been
exposed not merely to group financial reports but to more
disaggregated financial information
relating to divisions reporting
to Exco
17.6
He is familiar with the way service
offerings are priced, not simply with the typical prices of such
offerings;
[18]
Barring the general information he might
have had about customers, other than the three he had direct dealings
with, the information
mentioned is obviously information pertaining
to the inner workings of the applicant’s business and is
information acquired
by Mahoney by virtue of the managerial position
he occupied and the functions he performed, which would not normally
be made available
to the public. The more current the information in
question the more valuable it would be to a competitor wishing to
gain insight
into the applicant’s business. The applicant is
entitled to protect itself against the risk of such confidential
information
being disclosed.
Is
the applicant’s interest being prejudiced by Mahoney taking up
employment with the second respondent?
[19]
The information acquired by virtue of his
membership of Exco was only seven months’ out of date by the
time he joined the
second respondent. He had established work
relationships with three significant clients of the applicant who
could potentially
follow him to his new employer. Although there is
no suggestion he had taken customer lists or that he was approaching
former customers
of the applicant he did have recent access to
customer and supplier details and current pricing of the services
provided to them.
[20]
Mahoney contends that he is not employed in
any capacity by the second respondent in which the information he had
access to would
be utilised. His role as a facilities manager is not
one he performed at the applicant and is one he has no prior
experience in.
By implication, the skills and knowledge he is
required to exercise in his new position cannot benefit from
knowledge obtained
about the applicant’s business when he
worked for it. Moreover, he expressed his willingness both in his
answering affidavit
and in an open tender in court to abide by the
confidentiality obligations he has towards the applicant under
contract and common
law.
[21]
There
is ample authority for the proposition that the party seeking to
enforce a restraint to protect its legitimate interest in
preserving
the confidential nature of information pertaining to its business,
does not have to wait for the former employee to
actually breach the
obligation to preserve it. The purpose of entering the restraint
agreement is at least in part so the employer
does not have to run
the risk of relying on the
bona
fides
of the employee not to breach his duty to preserve the
confidentiality of business information acquired in the course of his
employment.
In
Reddy
v Siemens Telecommunications (Pty) Ltd
,
[4]
Malan AJA reiterated the principle:
“
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.' “
[5]
[22]
In the light of this authority, the actual
role currently performed by Mahoney as a Facilities Manager does not
detract from the
fact that the risk the applicant sought to protect
itself against by preventing Mahoney from working for a competitor
such as the
second respondent still exists. In this regard I also
note the somewhat vague assurance given by the second respondent
about Mahoney’s
appointment that his position “…
is
likely focused on facilities management and is to a large extent
distinguishable from the role he occupied at Interwaste Holdings.
”
Further, the failure of the second respondent to provide any greater
specificity about Mahoney’s post including his
job
specification, role and functions despite being asked for the same by
the applicant, does not inspire confidence in the undertakings
Mahoney was willing to give.
Does
the applicant’s interest weigh up qualitatively and
quantitatively against the interest of Mahoney in not being
economically
inactive and unproductive?
[23]
The applicant argues that the agreement
only prevents Mahoney from working for its competitors. Mahoney
contends that most of the
last fourteen years of his work experience
is in the waste sector and he should not be barred from finding
employment in his chosen
field. In the light of the discussion above,
the difficulty Mahoney has is to overcome the applicant’s right
to immunise
itself against the risk his knowledge of its business
might become available to the second respondent. The only meaningful
way
this can be done is not to allow him to work for the second
respondent for a reasonable period, even if this does limit his
ability
to pursue his chosen field of work for a while.
[24]
This
raises the further question whether the restraint goes further than
necessary to protect the applicant’s interest?
[6]
.
It is at this juncture that the scope of the restraint does raise
concerns. It is true that the respondent does not make averments
about the specific period over which any knowledge of confidential
business information he acquired would be rendered valueless.
His
essential contentions are that most of information he may have been
privy to by virtue of his position on Exco is about ten
months’
out of date. However, the applicant in rebuttal provides few
specifics why this would not make any difference to
the continued
value of such information. In the founding affidavit it makes a vague
reference to the fact that the award of tenders
can sometimes be a
drawn out process lasting in excess of a year or more, without even
alleging that there are any tenders currently
pending, or pending at
the time he left Exco, that he is, or would have been aware of.
[25]
I accept that there was other current
information the applicant may have had access to on the financial
system at the time he left,
but in the absence of any evidence that
he could have retained copies of such information, there is no basis
for believing he will
retain any useful memory of that information
for as long as two years.
[26]
In the circumstances, while I am satisfied
that the applicant is entitled to enforce the restraint, I think the
two year period
of the restraint is unduly onerous and goes
further than is necessary to protect the applicant’s legitimate
interests.
A period of one year should suffice to protect the
applicant’s legitimate interests adequately.
Costs
[27]
As both parties have been partially
successful, it would not be appropriate or fair in my view to make a
costs order.
Order
[28]
The application is heard as one of urgency
in terms of rule 8 and the applicant’s failure to comply with
the court rules to
bring the application on an urgent basis is
condoned.
[29]
The first respondent is ordered not to
disclose to any person any confidential information concerning the
activities of the applicant.
[30]
The first respondent is ordered not take up
employment with the second respondent for a period of one year
calculated from 27 July
2015.
[31]
Each party must pay its own costs.
Lagrange J
Judge of the
Labour Court of South Africa
APPEARANCES
APPLICANT:
C Whitcutt SC assisted by H A Van der Merwe
Instructed
by Fluxmans Inc.
FIRST
RESPONDENT: O Cook SC
Instructed
by Norton Rose Inc.
[1]
1992
(2) SA 703 (W)
[2]
2005 (4) SA 199
(SCA) at 206-207, paras [13] – [16].
[3]
(2003)
24
ILJ
1733
(LC) at 1735,paras [1] – [5].
[4]
2007
(2) SA 486 (SCA)
[5]
At 500, para [20].
[6]
See
Kwik
Kopy (SA) (Pty) Lted v van Haarlem & Another
1999 (1) SA 472
(W) at 484E