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[2015] ZALCCT 74
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Sign and Seal Trading 154 (Pty) Ltd t/a Davidson's Discount Boards v Sebastian and Another (C649/2015) [2015] ZALCCT 74 (30 September 2015)
REPUBLIC
OF SOUTH AFRICA
Not reportable
THE
LABOUR COURT OF SOUTH AFRICA, CAPE TOWN
JUDGMENT
C
ase
no: c 649/2015
In
the matter between:
SIGN
AND SEAL TRADING 154 (PTY) LTD
t/a
DAVIDSON’S DISCOUNT
BOARDS
APPLICANT
and
ROCHELLE
SEBASTIAN
FIRST
RESPONDENT
SPECTACULAR TRADING CC t/a
BORDWORX
SECOND RESPONDENT
Heard
:
18 September 2015
Delivered
:
30 September 2015
JUDGMENT
VAN
NIEKERK J
Introduction
[1]
The first respondent was employed by the applicant in 2001. She
resigned on 22 May 2015 and commenced employment with the second
respondent on 2 July 2015. The applicant and the second respondent
are competitors. In this application, brought on an urgent basis,
the
applicant seeks to enforce restraint and confidentiality undertakings
given by the first respondent in its favour, against
both her and the
second respondent.
[2]
Neither of the respondents disputes that if the restraint is valid,
the first respondent’s employment by the second respondent
would breach the terms of the restraint agreement. In essence, the
application turns on whether the restraint agreement is valid
and
enforceable.
Jurisdiction
and
locus standi
[3]
The respondents raised a number of preliminary points. Not all of
these were pursued at the hearing of the application. Notably,
those
points in relation to the onus of proof, duress and urgency were
either expressly abandoned or not advanced. The primary
points
persisted with relate to the jurisdiction of the court to hear the
application, and the applicant’s
locus
standi
to sue.
[4]
The respondents contend that the court lacks the requisite
jurisdiction to entertain the application since s 77 (3) of the Basic
Conditions of Employment Act, 75 of 1997 (BCEA), confers jurisdiction
on this court only to determine matters concerning a contract
of
employment. They do so on the basis that the restraint agreement in
question is not an agreement between the first respondent
and the
applicant, her erstwhile employer. The respondents also contend that
the restraint agreement was concluded between the
first respondent
and an entity that is a party other than the applicant, i.e. Kaydav
Group Limited (Kaydav). It is not disputed
that the applicant is a
subsidiary of Kaydav, but in the respondents’ submission, this
does not make it a party to the restraint
agreement and the applicant
accordingly lacks any contractual basis on which it can sue.
[5]
There is of course a conceptual overlap between the jurisdictional
and
locus standi
points referred to above. The single issue raised by both points is
whether the restraint agreement can be enforced by the applicant
(a
subsidiary company of Kaydav Group Ltd) where the agreement is
concluded in favour of the latter. The answer to that question,
in my
view, is to be determined by reference to the wording of the
agreement itself.
[6]
The signatories to the restraint agreement are Kaydav Group Limited
and the first respondent. The agreement was signed by the
first
respondent on 29 September 2014, and on behalf of the Kaydav Group
Ltd on 23 October 2014. That part of the agreement which
restrains
the first respondent from entering into employment with the
applicant’s competitors after the termination of her
employment
with the applicant reads follows:
3.2.4
On Employment
3.2.4.1
On
the basis of the acknowledgements contained in clause
3.1.2, the
Employee agrees that it is firm reasonably necessary for the
protection of the Company’s and/or the Group’s
business
and proprietary interests that she should be restrained from
competing with the business actively carried on by the Company
and
the Group for a reasonable period.
3.2.4.2
The employee accordingly undertakes not, (unless otherwise
agreed to
by the company in writing):
3.2.4.2.1
At any time while she is employed in any capacity by the Company
or
the Group; and
3.2.4.2.2
should she leave the employ of the company with the group, for a
period of 12 months after the date upon which her employment
terminates, to be interested or engaged, whether directly or
indirectly,
and whether as proprietor, partner, shareholder, member,
director, employee, Employee (sic), employee, agent, consultant or
otherwise,
in any firm, business or agreement which carries on any
activity, either solely or in conjunction with any other party, in
competition
with the business actively carried on by the company or
the group at the date on which employment terminates, including but
not
limited to, the business of the wholesale and retail
distribution, upgrading and value adding to any wooden board panel
products
(and related products), any product manufactured or sold by
Sonae Novoboard, Masonite, William Tell and PG Bison, any imported
wooden board panels and related products.
[7]
Also relevant for present purposes is clause 3.2.6.3. That clause
reads as follows:
‘
The
Employee agrees that the undertakings furnished in that terms of this
agreement are given to each of the companies which form
part of the
Group on its behalf and for the benefit of its successors in title
and assigns. Accordingly, the provisions of this
agreement shall be
construed as separate stipulations in favour of each of such
companies, it successors in title and assigns,
each of which shall be
capable of accepting the rights conferre’d by this agreement at
any time by written notice to that
effect to the Employee.
[8]
In consideration for the restraint undertaking, the applicant agreed
to pay the first respondent a restraint payment, payable
monthly in
arrears, together with the first respondent’s monthly
remuneration. It is not disputed that a letter was addressed
to her
headed ‘Confirmation of appointment’ which recorded,
amongst other things:
‘
Kindly
ensure that you sign the Restraint of Trade as it forms part of your
conditions of employment. All your other terms and conditions
of
employment will remain the same.’
[9]
The letter was addressed to the first respondent on a letterhead of
‘Sign and Seal Trading 154 (Pty) Ltd t/a Davidson’s
Manufacturing’, reflected as a subsidiary of Kaydav Group Ltd.
Although the first respondent endorsed the foot of the letter
with
the following ‘
Hi Please relook as
companies made me much better offers then this (R5000-00 more)
’
(sic), it is not disputed that she accepted the new terms introduced
by the letter and that an additional amount of R3000.00
per month was
paid to her in consideration for the restraint.
[10]
In clause 2 of the agreement, the “Company’ is defined as
Kaydav Group Ltd. The ‘Group’ is defined
to mean
‘the Company’
and all of the
subsidiaries and associated companies of the Company,
from time to time…’ (emphasis added).
[11]
The respondents contend that the restraint has two parties –
‘the Company’ (defined as Kaydav) and the ‘Employee’,
being the first respondent. The applicant, a separate legal
entity, is not a party to the agreement, nor did it become so
by
virtue of its relationship with Kaydav. Further, they contend that
the applicant’s inclusion in the definition of ‘Group’
is of no consequence. ‘Group’ is not a party to the
agreement – the agreement was not signed between the ‘Group’
and the first respondent; the agreement is one concluded between ‘the
Company’ (Kaydav) and the first respondent. To
the extent that
the agreement contemplates that certain rights enforceable by Kaydav
may benefit the applicant, the respondents
submit that the terms of
the agreement are such that the applicant ought necessarily to have
accepted the offer to contract with
the first respondent in terms of
clause 3.2.6.3 of the restraint agreement.
[12]
The court is required to describe a sensible meaning to the agreement
which is consistent with the apparent purpose of the
document. The
starting point is the language of the document itself, but this
should be construed in the light of its context,
the apparent purpose
to which it is directed and the material known to those responsible
for its production. In other words, the
purpose of the document and
the background to its production are fundamental to the process of
interpretation. (see
Natal Joint
Municipal Pension Fund v Ndumeni Municipality
2012 (2) SA 593
(SCA) and
Dex Group v Trust
Group Co Group International
2013 (6) SA 520
(SCA)). As I have indicated, clause 2.1.3 of the restraint agreement
defines ‘Group’ to mean the company and all of
its
subsidiaries and associated companies. The terms of the various
restraints contained in the agreement are in favour of the
company
and\all the group. Clause 3.1.2.7.1 specifically provides that the
provisions of the restraint agreement must be construed
as imposing a
separate and independent restraint in respect of each of the
companies which form part of the group. This being so,
sensible
construction of the agreement is that the applicant, a subsidiary of
Kaydav, is the beneficiary of a separate and independent
restraint
established by the terms of the agreement. In short, it is clear from
the terms of the agreement that the designation
of the “Group”
as the principal contracting party is a matter of convenience as to
ensure uniform restraint agreement
applicable in all of the group’s
subsidiary and associated companies. The applicant’s intention
to exercise the rights
conferred on it under the restraint agreement
evident from the wording of the restraint, the applicant’s
letters of appointment
in the circumstances in which the documents
were signed.
[13]
Even if clause 3.2.6.3 would be construed so as to require separate
written notice by any company, such as the applicant, which
forms
part of the group so as to accept the rights conferred by the
restraint agreement, I am satisfied that the written notice
given in
terms of the replying affidavit is adequate notice of acceptance of
the rights conferred by the agreement on the applicant
and that the
applicant accordingly has locus standi to sue on the agreement.
[14]
In my view, for the above reasons, in my view, this court has
jurisdiction (by virtue of s 77 (3) of the BCEA to entertain
the
present application, and the applicant has locus standi to sue.
The
applicable legal principles and the merits
[15]
The respondents contend that even if the court finds that the
applicant is a party to the restraint agreement and that the
agreement was validly incorporated into the first respondent’s
contract of employment, the application should fail because
the
restraint agreement is unduly wide and oppressive and because the
applicant lacks any interest worthy of protection. In other
words,
the respondents contend that any agreement found to exist between the
applicant and the first respondent is unreasonable.
[16]
It is well-established that an agreement in restraint of trade is
enforceable unless it is unreasonable, and will generally
be
considered unreasonable, and thus contrary to public policy, if it
does not protect some legally recognisable interest of the
party in
whose favour the restraint is granted, but merely seeks to eliminate
competition (see
Automotive Tooling Systems
(Pty) Ltd v Wilkens & others
2007 (2) SA
271
(SCA),
Reddy v Siemens Telecommunications
(Pty) Ltd
2007 (2) SA 406
(SCA),
Den
Braven v Pillay & another
2008 (6) SA 229
(D)).
[17]
A party seeking to enforce a contract in restraint of trade is
required only to invoke the restraint and to prove a breach
of its
terms. Once a restraint agreement has been invoked and a breach of
the agreement proved, the onus is on the respondent to
prove on a
balance of probabilities that the restraint agreement is
unenforceable because it is unreasonable (see
Magna
Alloys and Research SA (Pty) Ltd v Ellis
[1984] ZASCA 116
;
1984
(4) SA 874
(A)).
[18]
In
Basson v Chilwan
1993 (2) SA 742
(A), the court held the
determination of the reasonableness or otherwise of a restraint
requires, in addition to the existence
of an interest deserving of
protection, a consideration of the following:
(a)
whether that interest is being prejudiced by the
other party;
(b)
if so, whether the interest weighs up
qualitatively and quantitatively against the interest of the latter
party that he or she should
not be economically inactive and
unproductive; and
(c)
whether there are any considerations founded in
public policy which require that the restraint should either be
maintained or rejected
(at 767 G-H).
[19]
Proprietary interests that are legitimately capable of protection by
a restraint agreement extend both to confidential matters
which are
useful for the carrying on of the business and which could be used by
a competitor, if disclosed, to gain a relative
competitive advantage,
and to relationships with customers, potential customers, suppliers
and others that go to make up what is
referred to as the ‘trade
connection’ of the business. The second kind of proprietary
interest capable of protection
is that which comprises confidential
matter useful for the carrying on of the business, and which could be
used by a competitor,
if disclosed, to gain a relative comparative
advantage. These are referred to as ‘trade secrets’ (see
Sibex Engineering Services (Pty) Ltd v Van Wyk
1991 (2) SA 482
(T)).
[20]
Not every contact between an employee and the employer’s
customers constitutes or forms the basis of a protectable interest
in
the form of customer connection. The need of an employer to protect a
trade connection arises where the employee has access
to customers
and is in a position to build up a particular relationship with the
customer. It is sufficient for the applicant to
show that the
customer contacts exist and that they can be exploited by the former
employee. In
Rawlins v Caravan Truck (Pty) Ltd
[1992] ZASCA 204
;
1993 (1) SA 537
(A) at 541 C-D it was said
that the need of an employer to protect its trade connections arises
where the employee has access to
customers and is in a position to
build up a particular relationship with the customers, and could
easily induce the customers
to follow him or her to a new business.
Once that conclusion has been reached and it is demonstrated that the
prospective new employer
is a competitor of the applicant, the risk
of harm to the applicant if its former employee would take up
employment becomes apparent.
[21]
As the Labour Appeal Court recently observed
in
Ball v Bambela Bolts (Pty) Ltd & another
[2013] 9 BLLR 843
(LAC), the enforceability of the restraint
essentially hinges on the nature of the activity that is prevented,
the duration of
the restraint, and the area of operation of the
restraint. The court also emphasised that the determination of
reasonableness in
essence, is a balancing of interests 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 the respective bargaining powers and interests
(see paragraph
17 of the judgment).
[22]
In the present instance, it is not disputed that:
(a)
the first respondent signed the restraint
agreement, incorporating those clauses which correspond with the
relief sought in the
notice of motion;
(b)
the first respondent resigned from the
applicant’s employ to take up employment in a similar position
with the second respondent;
and
(c)
the applicant and the second respondent are
competitors.
[23]
It follows that in order for the first respondent to escape
enforcement of the restraint, it is incumbent on her to establish
that the restraint agreement is unreasonable. It is not disputed that
the first respondent had been employed by the applicant for
some 14
years. It is also not seriously disputed that she knew the names of
the applicant suppliers, the contractual agreements
and arrangements
between the applicant and it suppliers, the materials that the
suppliers were able to supply, the quality and
availability, the
manufacturing methods used by the applicant and the names of the
applicant’s customers and their specific
requirements and
preferences. It is not sufficient, as the first respondent is done,
simply to assert that she would not have had
knowledge of all that
the applicant claims that she knew. The principles outlined above
make it clear that all the applicant need
to show is that there is
confidential information to which the first respondent had access and
which, in theory, she could transmit
to the second respondent should
she wish to do so.
[24]
In the answering affidavit, the applicant does not dispute that she
has made contact with a number of the applicant’s
customers to
solicit business on behalf of the second respondent. The first
respondent’s stance would appear to be that she
has no
intention of complying with the contractual obligations contained in
the restraint agreement as she does not regard them
as binding. In
the circumstances, in my view, there is a clear and substantial
threat to the respondent’s predictable interests
which are
being prejudiced by the first respondent’s conduct.
[25]
Of some significance is the provision for a restraint payment. The
undisputed evidence is that the first respondent had at
least three
meetings with members of the applicant’s management or with its
consultants at which the nature and content of
the restraint of the
restraint agreement were explained. The first respondent was offered
an additional amount of R 3000 per month
on condition that she
accepted the terms of restraint. The first respondent signed the
document and accepted the payment. Further,
the restraint is narrowly
tailored both in respect of time and area to protect the applicant’s
legitimate interests. Insofar
as the prejudice to the applicant
weighs up as against the first respondent’s interest in being
economically productive,
the first respondent has not made out a case
to show why she, as an obviously skilled and experienced salesperson,
could not obtain
employment pending the expiry of the restraint with
an employer does not compete with the applicant. In my view, the
threat to
the applicant’s predictable interests far outweigh
the interest which the first respondent may have in continuing to be
employed
by the second respondent. The second respondent’s
contention that it would be prejudiced by losing a third salesperson
(in
the form of the first respondent) can hardly weigh heavily since
this is not the sort of prejudice ordinarily considered in the
present context.
[26]
Insofar as costs are concerned, there is no reason why costs should
not follow the result. This is not one of those cases (such
as
Ball
v Bambela Bolts
referred to above) in which
the court set aside a costs order made against an individual employee
labouring under a misperception
as to the nature and extent of the
restraint and not in a position to afford legal representation. There
is no reason in the present
instance why the applicant should not be
entitled to its costs nor why a costs order ought not to be made
jointly and severally
as against both respondents.
I
make the following order:
1.
The first respondent is interdicted, until 30
June 2016, from:
1.1
being interested or engaged, whether directly or
indirectly, and whether as a partner, shareholder, member, director,
employer,
employee, agent consultant or otherwise, in the second
respondent or any firm, business or agreement which carries on any
activity,
solely or in conjunction with any other party, in
competition with the business actively carried on by the applicant or
the Kaydav
Group including but not limited to, the business of the
wholesale and retail distribution, upgrading and value adding to any
wooden
board panel products and related products;
1.2
approaching the applicant’s suppliers,
customers and clients with a view to soliciting them to procure any
goods or services
supplied by the applicant or the Kaydav Group at
the date of the termination of employment with the applicant,
from the second
respondent or any other competitor of the applicant
of the Group.
2.
The first respondent is ordered to keep secret
and holding confidence and not to disclose, divulge or pass on to any
other third
party any information, documentation or other data which
has come to the knowledge, or which she may have received or come
into
possession of by virtue of her employment with the applicant.
3.
The second respondent is interdicted and
restrained, until 30 June 2016, from employing or associating with
the first respondent
as an employee, manager or agent or being
otherwise engaged in or being concerned with the first respondent in
breach of the restraint
of trade agreement between the applicant and
the first respondent.
4.
The first and second respondents are to pay the
costs of the application, jointly and severally, the one paying the
other to be
absolved.
ANDRÉ
VAN NIEKERK
JUDGE
OF THE LABOUR COURT
REPRESENTATION
For
the applicant: Adv. Colin Kahanowitz SC, instructed by Webber Wentzel
For
the first and second respondents: Adv. BL Studti, instructed by
Bellairs Solomons