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[2015] ZALCJHB 427
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Andritz Delkor (Pty) Ltd v Davis and Another (J2345/15) [2015] ZALCJHB 427 (17 December 2015)
THE
LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
JUDGMENT
Not Reportable
Case no: J 2345/15
In the matter between:
ANDRITZ DELKOR (PTY)
LTD
Applicant
and
GRANT DAVIS
First
Respondent
FLSMIDTH (PTY) LTD
Second
Respondent
Heard:
10 December 2015
Delivered:
17 December 2015
Summary:
Urgent application- employer seeking to enforce a restraint of trade
agreement- restraint of trade
agreement enforceable if reasonable and
not contrary to public policy - employee in position to divulge
confidential information
or taking employer’s customers -
employer have protectable interests
JUDGMENT
Nkutha-Nkontwana
AJ
Introduction
[1]
This
is an urgent application in terms of which the Applicant seeks, by
way of final interdict, to enforce the First Respondent’s
obligations arising from a restraint of trade agreement and to
interdict the Second Respondent from employing the First Respondent
in breach of her restraint obligations. The restraint period is
24 months commencing from 30 September 2015 and the scope
thereof is
the whole of South Africa.
[2]
The
First Respondent acknowledges signing the restraint, but opposes the
application on various grounds. The Second Respondent,
on the other
hand, is not opposing the application but has provided certain
undertakings as to the restrictions on the First Respondent’s
employment for the duration of the restraint period.
Factual background
[3]
The
First Respondent was appointed as an After Market Sales/ Engineer in
January 2011. On 1 February 2012, the Applicant and the
First
Respondent concluded a Restraint of Trade agreement and Assignment of
Intellectual Property Agreement (“restraint agreement”).
The First Respondent resigned from the Applicant with a month’s
notice in September 2015. Prior to his departure on 31 September
2015
he attended an exit interview wherein he was advised of and
acknowledged his restraint agreement. He indicated that he understood
that the restraint agreement could limit his future employability and
that it was the Applicant’s policy to enforce it, where
appropriate.
[4]
The
First Respondent refused an offer to meet the Applicant’s
professional advisors who could have answered his questions
on the
provisions of the restraint agreement. He also intimated that he
understood the Applicant could, in appropriate circumstances,
be
willing to relax or release him partially or in totally from the
restraint.
[5]
In
November 2015, a month after the First Respondent’s departure,
it came to the Applicant’s attention that he took
employment
with the Second Respondent, its direct competitor. The applicant did
some investigations and on 11 November 2015 a browse
on the First
Respondent’s Linkedin profile page was undertaken and it
confirmed that he was employed by the Second Respondent
since October
2015.
[6]
A
further investigation revealed that in September 2015, prior to his
departure, the First Respondent had accessed the
Applicant’s server and downloaded certain confidential
information relating to business strategy, sales strategies,
management
wheels, plant strategies, client lists and details, and
presentations.
[7]
On
12 November 2015, the Applicant’s attorneys of record sent a
letter to both the Respondents outlining the restraint agreement
and
the breach thereof. The First Respondent did not respond. Whilst on
19 November 2015, the Second Respondent replied by distancing
itself
from the restraint agreement whilst alleging that it was
unreasonable, unfair and unlawful. On 20 November 2015, the
Applicant’s
attorneys of record made it clear to the Second
Respondent that it would approach the court since the Second
Respondent failed
to make an undertaking that it will terminate the
First Respondents’ services.
[8]
The
Applicant business entails the development of engineering solutions
and production and selling of various products and services
in the
engineering field, including project management. The Applicant
manufactures various engineering products which are subsequently
distributed and sold to customers worldwide. The applicant’s
products include belt and screw presses, belt filters, screens,
drains, centrifuges, conveying system, disc and drum filters, filter
presses, separators, thermal system, thickeners and flocculent
systems, media screen panels and linear screens.
[9]
The
Applicant has vast array of customers in South Africa and worldwide.
The distribution of its products is done in wholesale and
retail to
various engineering houses and firms within South Africa and
worldwide. The Applicant also offers an after-market sale
of spare
parts and servicing of equipment and parts.
[10]
The
First Respondent sold products and aftermarket spares to the
Applicant’s clients during his employment. It is alleged
that
whilst in the employ of the applicant, the First Respondent,
inter
alia
:
10.1 Established
relationship and connections with customers and clients
of the Applicant;
10.2
Was exposed to the Applicant’s trade secrets, skills and
know-how, inventions, costing structures,
strategies, supplier lists,
customers connections, business strategies, and product lists, all of
which were secured and stored
on the First Respondent’s work
computer and synchronised on is laptop; and
10.3
Was required to and did develop relationship with customers,
potential customers, suppliers, and potential
suppliers of the
Applicant.
[11]
It
is common cause that Second Respondent is categorised as one of the
Applicant’s competitors in annexure RTA to the restraint
agreement.
Jurisdiction
[12]
The
First Respondent,
in
limine
,
challenged the jurisdiction of this Court to enforce restraint of
trade agreement in the present matter on the grounds that it
was
concluded a year after his employment and that it was not linked to
his contract of employment. In his written submissions,
the Counsel
for the First Respondent contends the fact that the restraint of
trade agreement is related to the First Respondent’s
employment
and does not bring the matter within the jurisdiction of the labour
Court. To fall within the jurisdiction of the Labour
Court, the
restraint must form part of or at least be related to the contract of
employment, not to the employment relationship
generally, so it was
contended further.
[13]
Clearly,
the First Respondent misconstrued the provisions section 77(3) of the
BCEA, which provides the following:
“
The
Labour Court has concurrent jurisdiction with the Civil Courts to
hear and determine any matter concerning a contract of employment,
irrespective of whether any basic condition of employment constitutes
a term of that contract.”
[14]
In
University
of the North v Franks,
[1]
referred to with approval in
Rand
Water v Stoop & another,
[2]
the LAC opined that there was no indication that section
77(3) was enacted solely to solve the so-called dual claims
problem. It noted that section 77(1) grants exclusive
jurisdiction to the Labour Court in certain matters, but:
“
Section
77(3) goes much wider. It expressly also deals with employment
contracts which have no statutory basic conditions and
thus fall
outside the scope of the Act. Consequently, the legislature had in
mind that the Labour Court should also have jurisdiction
in such
matters … In short, the Labour Court is to have jurisdiction
in respect of all employment contracts and exclusive
jurisdiction in
respect of some. But the jurisdiction is even wider. It is in respect
of any matter concerning a contract of employment…
[including]
termination of an employment contract and the terms and conditions
upon which this is to occur”, it was held, ‘are
clearly
matters concerning such contract.’
”.
[Emphasis
added]
[15]
Moreover,
in
Rand
Water, dealing with contention that Labour Court’s jurisdiction
in terms of
section
77(3) is limited the terms of a contract of employment expressly
provided for therein, the LAC held conclusively that:
“ …
the
argument that s77(3) of the BCEA only permits the Labour Court to
interpret the terms of an employment contract and enforce
it, is
neither reasonable nor logical. This is demonstrably clear when
regard is had to s77A(e) of the BCEA which sets out the
remedy the
Labour Court may grant in respect of a dispute referred to it in
respect of a dispute arising out of an employment contract.
Secondly,
the meaning ascribed to the word “concerning” in the
relevant phrase in s77(3) is acceptable save that attributing
“having
proximity to”, to the word “concerning” cannot be
correct. The word “concerning” while
conveying a cause
and effect does not convey a meaning that some causes and effects are
acceptable and others not or that there
has to be a direct or
indirect link between the contract of employment and the claim.”
[16]
In
the circumstances, the Court is absolutely clothed with the necessary
jurisdiction to hear the present matter.
Urgency
[17]
The
restraint agreement the Applicant seeks to enforce is for a period of
24 months. The Applicant is accused of squandering its
urgency.
According to the First
Respondent,
the Applicant should have approached the court earlier than it did.
I
do not agree. Given the context of this matter, the Applicant
should
be commended its attempts to avoid litigation, rather than rushing to
court as a first option.
[3]
[18]
In
my view the delay is negligible and in any event, the
breaches
of restraint of trade have an inherent quality of urgency.
[4]
The applicable legal
principles
[19]
Public
policy dictates that agreements entered into voluntarily are binding
and enforceable. Agreements in restraint of trade voluntarily
entered
into pursuant to one’s right to freedom to contract, are thus
valid and enforceable unless the party seeking to escape
this
agreement can show that the agreement is unreasonable and therefore
contrary to public policy.
[5]
[20]
Therefore,
an agreement in restraint of trade will generally be considered
unreasonable, and thus contrary to public policy, if
it does not
protect some legally recognisable interest of the party seeking to
enforce it, but merely seeks to eliminate competition.
A party
seeking to enforce a restraint must invoke the restraint agreement
and prove its breach. A respondent who seeks to avoid
the restraint
bears an
onus
to
demonstrate, on a balance of probabilities, that the restraint is
unenforceable because it is unreasonable.
[6]
[21]
In
applying the test set out in
Basson
v Chilwan,
[7]
for determining the reasonableness, the following questions must be
asked:
(a)
Is there an interest of the one-party which is deserving of
protection?
(b)
Is that interest prejudiced by the other party?
(c)
If so, does that interest weigh up qualitatively and quantitatively
against the interest
of the latter party that he or she should not be
economically inactive and unproductive?
(d)
Is there another facet of public policy that requires that the
restraint should be maintained
or rejected?
[22]
Proprietary
interests that are worthy of protection are essentially of two kinds,
namely:
(a)
confidential matter that could be used by a competitor to gain a
competitive advantage,
usually referred to as “trade secrets”;
and
(b)
relationships with customers, potential customers, suppliers and
others that go to make
up what is referred to as the “trade
connections” of the business.
[8]
Disputes of fact in
motion proceedings is applicable
[23]
In
restraint of trade proceedings, it is expected of the Applicant to
anticipate a material factual dispute from the beginning and
accordingly request for the matter to be referred to oral evidence as
an alternative prayer.
[9]
However, there is no such request in the present application.
[24]
In
Jonsson
Workerwear (Pty) Ltd v Williamson and Another,
[10]
Snyman AJ amply dealt with this issue and stated that:
“
The
normal principles to resolve factual disputes in motion proceedings
where final relief is sought was enunciated in the now regularly
quoted judgment of Plascon Evans Paints v Van Riebeeck Paints.
In Thebe
Ya Bophelo Healthcare Administrators (Pty) Ltd and Others v National
Bargaining Council for the Road Freight Industry
and Another
this
test was most aptly described, where the Court said: ‘The
applicants seek final relief in motion proceedings. Insofar
as the
disputes of fact are concerned, the time-honoured rules …. are
to be followed. These are that where an applicant
in motion
proceedings seeks final relief, and there is no referral to oral
evidence, it is the facts as stated by the respondent
together with
the admitted or undenied facts in the applicants' founding affidavit
which provide the factual basis for the determination,
unless the
dispute is not real or genuine or the denials in the respondent's
version are bald or uncreditworthy, or the respondent's
version
raises such obviously fictitious disputes of fact, or is palpably
implausible, or far-fetched or so clearly untenable that
the court is
justified in rejecting that version on the basis that it obviously
stands to be rejected.’
[Footnotes
excluded]
[25]
I
align myself with the legal principles contextualised above. However,
in the present matter there are no real disputes of fact
and as such,
a relief could still be granted on the authority of
Plascon-Evans.
Protectable propriety
interest
[26]
It
is trite that the Applicant seeking to enforce the restraint of trade
must show the existence of the contract and that there
has been a
breach thereof. In the present matter, the existence of in restraint
of trade agreement is common cause. However, the
First Respondent
disputes that he is in breach of the restraint.
[27]
In
the present matter, the First Respondent occupied a sales position at
a reasonably senior level for almost five years and indeed
it is
inescapable that he must have had access to and must have developed
relationships with the Applicant’s customers. The
First
Respondent, however, asserts in his answering affidavit that the
Second Respondent’s division where he is currently
employed
deals with media screens and does not compete with the Applicant.
[28]
The
First Respondent’s assertion is untenable in the light of the
fact that Applicant’s list of its products includes
screens.
Despite the Second Respondent being a listed competitor in the
restraint agreement, the First Respondent still took up
employment
with it.
[29]
In
Experian
South Africa (Pty) Ltd v Haynes and Another
[11]
the
court,
referring
with approval to
Rawlins
and Another v Caravan Truck,
stated
that:
“
In
Rawlins and Another v Caravan Truck (Pty) Ltd
[1992] ZASCA 204
;
1993
(1) SA 537
(A) at 541C-D Nestadt JA, dealing with the issue of a
party’s relationship with customers, stated that 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. The learned judge referred to Heydon The Restraint of Trade
Doctrine (1971) at 108, where it is stated that
the “customer
contact” doctrine depended 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 Saxelby
(1916) 1 AC 88
(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 …
As
I have pointed out above, the onus is on the respondent to
prove the unreasonableness of the restraint. He must establish
that
he had no access to confidential information and that he never
acquired any significant personal knowledge of, or influence
over,
the applicant’s customers whilst in the applicant’s
employ. It suffices if it is shown that trade connections
through
customer contact exist and that they can be exploited if the former
employee were employed by a competitor. 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 were to take up employment, becomes
apparent.”
[12]
[30]
I
am, accordingly, of the view that the Applicant has indeed a
protectable interest. Also, the First Respondent is indeed
in
a position to act to the detriment of the Applicant and that his
loyalty will be to his new employer and the opportunity to access
the
Applicants’ clients and/or disclose confidential information at
his disposal, whether deliberately or not, does exist.
Weighing of interests
[31]
Last,
but not least, the issue for
consideration
is how the Applicant’s interest weighs qualitatively and
quantitatively against the interest of the First Respondent
to be
economically active and productive.
[32]
The
Counsel for First Respondent contended that the Applicant failed to
demonstrate a protectable interest that would justify the
harsh terms
of the order it seeks, which would effectively remove the First
Respondent from the entire mining services for two
years industry.
Also, that the First Respondent’s right to earn a living in the
area of his chosen profession would be severely
restricted when the
undertakings provided by the Second Respondent should suffice in
protecting the Applicant interest.
[33]
The
First Respondent concedes in his answering affidavit that he did not
disclose his prospective employer or avail himself to the
offer to
discuss his restraint during the exit interview. That was so despite
the facts that the restraint agreement specifically
lists the Second
Respondent as a competitor. I agreed with the Applicant’s
Counsel that it would have been a most sensible
thing to do if First
Respondent was genuinely of the view that his employment with the
Second Respondent would not be in breach
of his restraint.
[34]
In
my view, the Second Respondent’s undertaking will be of no
avail. I endorse with the dictum in
Experian
that:
“
The
ex-employer seeking to enforce against his ex-employee a protectable
interest recorded in a restraint, does not have to show
that the
ex-employee has in fact utilised information confidential to it: it
need merely show that the ex-employee could do so.
The very purpose
of the restraint agreement is to relieve the applicant from having to
show bona fides or lack of retained
knowledge on the part
of the respondent concerning the confidential information. In these
circumstances, it is reasonable for the
applicant to enforce the
bargain it has exacted to protect itself. Indeed, the very
ratio underlying the bargain is that the
applicant should not
have to contend itself with crossing his fingers and hoping that the
respondent would act honourably or abide
by the undertakings that he
has given. It does not lie in the mouth of the ex-employee, who has
breached a restraint agreement
by taking up employment with a
competitor to say to the ex-employer “Trust me: I will not
breach the restraint further than
I have already been proved to have
done”.
[13]
The public interest
[35]
Finally,
the public interest dictates that I interrogate the reasonableness of
the restraint period. Better still
,
clause 2.7 of the restraint agreement empowers the court to reduce
the ‘the area and/or duration to and area or duration
that it
regards reasonable, having regard to the contentions of the Company
and the employee’.
Accordingly,
it is my view that the
restraint
period of 24 months is too wide given the fact that the restraint
applies nationally. In the public interest, I deem it
appropriate to
restrict the restraint period to a period of 12 months.
Conclusion
[36]
In
the circumstances, I am satisfied that the Applicant is entitled to
final relief as sought as it has shown a clear right which
is being
infringed by the First Respondent in commencing employment with the
Second Respondent, in breach of the restraint agreement,
on 1 October
2015; and that an injury therefore has been committed or is
reasonably apprehended; and no other satisfactory remedy
is
available.
[14]
Costs
[37]
On
costs, there is no reason why costs should not follow the result.
Order
[38]
I
accordingly make an order in the following:
1.
The
First Respondent is interdicted and restrained from being employed by
or associated with the Second Respondent within the Republics
of
South Africa for a period of 12 (twelve) months from 30
September 2015 to 30 September 2016.
2.
The
First Respondent is interdicted and restrained from being employed by
or associated with any entity (including the Second Respondent)
which
conducts activities in completion with the Applicant for a
period of 12 (twelve) months from 30 September 2015
to 30
September 2016.
3.
The
First Respondent is interdicted and restrained from being employed by
or associated with the supplier to the Applicant within
the Republic
of South Africa for a period of 12 (twelve) months from 30
September 2015 to 30 September 2016.
4.
The
First Respondent is interdicted and restrained from encouraging
and/or enticing any employee of the Applicant to terminate his
or her
employment with the applicant.
5.
The
First Respondent is interdicted and restrained for period of 12
(twelve) months from 30 September 2015 to 30 September
2016
from:
51.
Furnishing any advice or information or advise customers of the
Applicant that he intends to or will,
directly or indirectly, be
interested or engaged in or concerned with or employed by entity in
the Republic of South Africa which
sells products or in the course of
which products are sold after the expiry of the restraint period; and
5.2
Furnishing any advice or information or advise customer or supplier
or using any other means or taking
any other action which is directly
or indirectly designed, or in the ordinary course of events
calculated, to result in such customer
or supplier terminating its
association with the Applicant or transferring its business to or
purchasing any products or services
from any person other than the
Applicant.
6.
The
First Respondent is ordered to pay the Applicant’s costs.
__________________
Nkutha-Nkontwana AJ
Acting
Judge of the Labour Court of South Africa
APPEARANCES:
FOR THE APPLICANT:
Mr D Morgan
Instructed
by:
McLarens attorneys
FOR THE RESPONDENTS:
Advocates G
Fourie
Instructed
by:
Hogan Lovells (SA) Attorneys
[1]
[2002] 8 BLLR 701 (LAC)
[2]
(2013) 34 ILJ 576
(LAC) para 20-21.
[3]
Continuous Oxygen Suppliers (Pty) Ltd t/a
Vital Aire v Meintjes and Another
(J
2073/11) [2011] ZALCJHB 150.
[4]
Mozart Ice
Cream Franchises (Pty) Ltd v Davidoff
and
Another
2009 (3) SA 78
(C) 89A.
[5]
Reddy v Siemens
Telecommunications (Pty)
Ltd
2007 (2) SA 486
(SCA) at paragraph [10];
Magna
Alloys and Research (SA) (Pty) Ltd v Ellis
[1984] ZASCA 116
;
1984 (4) SA 874
(A) and
Hirt
& Carter (Pty) Ltd v Mansfield and Another
2008 (3) SA 512
(D)1 at paragraph [39]).
[6]
New Justfun
Group (Pty) Ltd v Turner & Ors
[2014] LALCJHB 177 (14 May 2014).
[7]
1993 (2) SA 742
(A).
[8]
Sibex
Engineering Services (Pty) Ltd v Van Wyk
1991
(2) SA 482 (T).
[9]
Singh v Adam
(2006)
27 ILJ 385 (LC) at para 15 -16.
[10]
(2014) 35 ILJ 712
(LC) at paras 9 – 10.
[11]
[2012] ZAGPJHC 105;
2013 (1) SA 135
(GSJ); (2013)
34 ILJ 529 (GSJ) at para 18 -20.
[12]
See also an unreported decision of the Labour
Court by Van Niekerk J under case number J786/14 delivered on
14 May 2014.
[13]
Above n 12 at para 22.
[14]
Setlogelo v Setlogelo
1914 AD 221.