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[2018] ZALCJHB 240
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Profibre Products (Pty) Ltd v Govindsami (J1448/18) [2018] ZALCJHB 240 (5 June 2018)
THE
LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
JUDGMENT
Not
reportable
CASE NO: J1448/18
In the matter between:
PROFIBRE
PRODUCTS (PTY)
LTD
Applicant
and
ALLEN
GOVINDSAMI
Respondent
Application heard: 1 June 2018
Judgment delivered: 5 June 2018
JUDGMENT
VAN
NIEKERK J
[1] This is an application to enforce
restraint undertakings furnished by the respondent to the applicant
in terms of a contract
of employment.
[2] The respondent was employed on 15
December 2005 as a quality and product support manager. In 2011, he
was appointed to the position
of key accounts executive, the position
he held at the time of his resignation on 6 March 2018.
[3] It is not disputed that as the key
accounts executive, the respondent was responsible for managing sales
activities, spearheading
sales growth, ensuring that monthly targets
were met, managing customer relations and needs, and the like. The
respondent does
not dispute that he had built up sound professional
relationships with the applicant’s clients, and that it was his
responsibility
to secure new clients and take care of the applicant’s
existing clients. He was, in short, integrally involved with the
applicant’s
business.
[4] The applicant avers that during
the latter part of 2018, it is to engage in a tender process, and
that the respondent’s
knowledge of its business model and his
relationship with its existing clients threatens to undermine its
business.
[5] The respondent does not deny that
while he was in the employ of the applicant, he had access to
strategic information that included
product costs methodology,
customer price lists, customer information and price lists, details
pertaining to new and prospective
customers, product development and
costing and profitability.
[6] Clause 25.1 of the contract
provides that the respondent is not for a period of three years after
the termination of his employment
to be employed by or consult for
any other concern that trades in competition with the applicant.
Clause 25.2 provides that the
respondent shall not disclose any trade
secrets or confidential information to third parties. These are the
provisions that the
applicant seeks to enforce.
[7] When he resigned, the applicant
advised the respondent’s manager that he intended to provide
consulting services for his
own account. The applicant sought
undertakings to comply with the restraint, which were not
forthcoming. During April 2018,
the respondent was observed at the
premises of Fibre Panels. It is not disputed that the respondent has
since been employed by
Fibre Panels. It is also not in dispute that
Fibre Panels competes directly with the applicant.
[8]
The principles applicable to onus in disputes such as the present are
well-established. A party seeking to enforce a contract
in restraint
of trade need only invoke the contract and prove a breach of its
terms. Thereafter, any respondent who seeks to avoid
the restraint
bears an onus to demonstrate, on a balance of probabilities, that the
restraint agreement is unenforceable because
it is unreasonable (see
Basson V Chilwan
[1993] ZASCA 61
;
1993 (3) SA 742
(A);
Siemens
Telecommunications (Pty) Ltd
2007 (2) SA 486
(SCA)).
[9]
The starting point is that public policy requires that parties should
comply with contractual obligations that have been
G
freely and voluntarily undertaken
(often referred to as the freedom of contract doctrine or expressed
by the maxim
pacta sunt servanda
).
Essential to this doctrine is the idea that individuals should be
left free to conclude contracts and that the role of the courts
is
merely to enforce contracts and that judicial intervention should be
kept to a minimum. That notwithstanding, it is generally
accepted
that a restraint will be considered to be unreasonable (and thus
contrary to public policy and unenforceable), if it does
not protect
some legally recognisable interest of the employer but merely seeks
to exclude or eliminate competition. Ordinarily,
a restraint will be
unenforceable if it does not protect a trade connection and/or
confidential information to which the ex-employee
was exposed. (For a
recent summary of the relevant principles, see the judgment of the
Labour Appeal Court in
Labournet (Pty)
Ltd v Jankielson & another
(2017)
38
ILJ
1302 (LAC) at paragraphs 39 to 45.)
[10]
It warrants emphasis that all an applicant in an application such as
the present need do is show that there is confidential
information to
which the employee had access and which he or she could transmit if
so inclined. It is not necessary to show that
the employee has in
fact used information confidential to the applicant. Similarly, in
relation to customer connections, it is
necessary to do no more than
show that trade connections through customer connections exist, and
that they could be exploited by
the former employee if employed by a
competitor (see
Den Braven SA (Pty) ltd v Pillay and Another
2008 (6) SA 229
(D) at 240H).
[11]
In
Basson v Chilwan
(
supra
) the court held that to
determine the reasonableness or otherwise of a restraint of trade
provision, the following questions should
be asked:-
1.
Is there an interest of the one party,
which is deserving of protection at the termination of the agreement?
2.
Is such interest being prejudiced by the
other party?
3.
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?
4.
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?
[12] The proprietary interests that
can legitimately be protected by a restraint agreement, generally
speaking, fall into two categories.
The first is confidential
information which is useful for the carrying on of the business and
which could be used by a competitor,
if it were to be disclosed to
that competitor, to gain a relative competitive advantage (sometimes
referred to as ‘trade
secrets’). The second is
relationships with customers, potential customers, suppliers and
others that go to make up what
is sometimes referred to as the ‘trade
connection’ of the business, this being an important aspect of
its incorporeal
property known as goodwill.
[13] Whether information constitutes a
trade secret is a question of fact (see
Mossgas (Pty) Ltd v Sasol
Technology (Pty) Ltd
[1999] 3 All SA 321
(W) at 333),
Walter
McNaughten (Pty) Ltd v Schwartz & others
2004 (3) SA (C)).
For information to be confidential, it must be capable of application
in trade or industry, i.e. it must be useful
and not public knowledge
and property; secondly, it must be known to a restricted number of
people or a close circle; and thirdly,
it must be of economic value
to the person seeking to protect it (see
Townsend Productions
(Pty) Ltd v Leech & others
2001 (4) SA 33
(C)
Walter
McNaughten (Pty) Ltd v Schwartz & others
(supra)).
[14] The need by an employer to
protect trade connections arises where an employee has access to
customers or suppliers and is in
a position to build up a particular
relationship with them so that when the employee leaves the service
of the employer, he or
she could easily induce the employer’s
customers and suppliers to follow him or her to a new business.
Again, this is a question
of fact, and often one of degree.
[15]
It is incumbent on the employee under restraint to establish that he
or she had no access to confidential information and never
acquired
any significant personal knowledge of confidential information or
influence over the applicant’s customers while
in the
applicant’s employ (see
Rawlins
supra at 542F-543A). In other words, it is enough for the party
seeking to enforce a restraint to show that trade connections through
customer or supplier contact exist, and that they can be exploited if
the employee was to be employed by a competitor or compete
with the
business of the applicant. It is not for the applicant to have to run
the risk of the employee communicating its trade
secrets or utilising
its customer connections to the advantage of a competitor. It is also
not incumbent on an applicant to enquire
into the
bona
fides
of the employee or to demonstrate
that he or she is
mala fides
before it is entitled to enforce a contractually agreed restraint.
The holder of the restraint also does not have to show that
the
employee in fact utilised information confidential to it – it
is enough that the employee could do so. As Marais J stated
in
BHT
Water treatment (Pty) Ltd v Leslie and another
1993 (1) SA 47
(W) at 57J-58D:
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 the 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
that he
has given.
[16] Turning to the first leg of the
enquiry, the respondent contends that there is no restraint by which
he is bound. He concedes
having signed the contract of employment
referred to above (and with it the restraint) but, as I understand
the argument, he submits
that when he was promoted from the post of
quality assurance manager the restraint (and indeed the entire
contract) was no longer
binding. There is manifestly no merit in this
submission. The contract of employment signed by the respondent at
the commencement
of his employment remained intact and enforceable
until the respondent terminated the contract by way of his
resignation. There
is simply no conceptual basis on which it could be
otherwise. The respondent continued to reap the benefits of the
contract after
his promotion in 2011, by way of remuneration and
other benefits. There is no reason why he should not continue to be
bound by
the obligations imposed on him by the contract, including
the restraint.
[17] The applicant relies mainly on
the averment that a former factory manager, Swart left the
applicant’s employ in March
2014 and is currently employed by
Fibre Panels. In reply, the applicant states that Swart joined Fibre
Panels two years and four
months after having left the applicant’s
employ, and that it would not have ben economical for the applicant
to enforce the
remaining eight months of his restraint. Le Roux left
the applicant to join a customer – that was not a breach of his
restrain
and indeed, was to the applicant’s advantage.
Ramsunder left the applicant to join a competitor, but the applicant
took the
view that he did not possess sufficient knowledge of a
confidential nature so as to compromise the applicant’s
proprietary
interests, and elected not to enforce the restraint.
Inconsistency is not in itself a basis on which a restraint might be
considered
unreasonable, at most, it is indicative of the absence of
any proprietary interest worthy of protection. Each case must
necessarily
be determined on its own merits.
[18]
To the extent that the applicant’s right to seek a paring down
of the restraint is the subject of challenge, the respondent
relies
on the judgment by the High Court in
Kelly
Group Ltd v Capazorio & others
, the
court stated that if a court is asked to read down an agreement so as
to make it reasonable, this is an issue that must be
pertinently
raised on the papers and the facts in support of any severance set
out. In
New Just Fun Group (Pty) Ltd v
Turner and others
(J786/14, unreported)
this court said:
The
truncated relief sought seeks to limit the scope of the restraint…
There are at least two reasons why the applicant ought
not to be
bound to attempt to enforce the full ambit of the restraint. First,
it is well-established that a court is entitled to
enforce the
restraint partially by restricting the scope of its operation to
reflect what is found to be reasonable.
The
court referred to the judgment by Wallis AJ (as he then was) in
Den
Braven SA (Pty) Ltd v Pillay
2008 (6) SA 229
(D) and continued:
The
nature and extent of any partial restraint is a matter to be
determined from the papers. I do not understand the applicable
authorities to preclude an applicant from seeking a partial restraint
only because the applicant has sought in its founding affidavit
to
enforce the full ambit of the agreed restraint. In any event, the
extent to which any restraint agreement ought to be pared
down is
ultimately the decision of the court, having regard to all of the
facts and circumstances, to grant more limited relief
than that
initially sought….
[19] By way of reply, the applicant
states that the information acquired by the respondent would be
outdated in 18 months, a period
during which new product models for
existing and new clients will be developed, and during which the
contact lines between the
respondent and the applicant’s
customers would no longer be available to him.
[20] To the extent that the respondent
seeks to have this evidence disregarded on account of the fact that
it is proffered by way
of reply, this submission ignores that
application of the onus in restraint disputes and the manner in which
they are ordinarily
litigated in this court. As I have indicated
above, an applicant need do no more than assert the retardant and
establish a breach
of it. It is then for the respondent to establish
that the restraint is unreasonable. More often than not, the response
to that
case is by way of reply, and for that reason, this court has
never objected to the filing of a fourth set. In the present
instance,
for reasons that are not apparent, the respondent has not
done so. In these circumstances, it is not open to the respondent to
contend that the applicant’s averments in relation to the
paring down of the restraint should be disregarded. In my view,
a
case has been made to pare down the temporal component of the
restraint to a period of 18 months.
[21] There is no other facet of public
policy that militates against the enforcement of the restraint. The
respondent remains able,
for the period of the restraint, to seek
employment with parties that are not in direct competition with the
applicant. He has
the skills to do so, on his own version. In his
answering affidavit, the respondent denies having been trained to
establish personal
relationships with clients, he states that he ‘was
born with that ability generally.’ Further, the fact that the
applicant
had retrenched a number of employees recently (a factor
that the applicant states he took into account when deciding to
resign)
is not relevant. Concerns about security of employment do not
in themselves raise issues of public policy that serve to outweigh
the rule that parties ought to be bound by agreements into which they
freely enter. For all of the above reasons, the applicant
has made
out a case for the enforcement of the restraint and confidentiality
undertakings.
[22]
In relation to costs, the court has a broad discretion in terms of s
162 of the LRA to make orders for costs according to the
requirements
of the law and fairness. The respondent has partially succeeded, at
least to the extent that the temporal element
of the restraint has
been halved. In these circumstances, the interests of the law and
fairness are best satisfied by each party
bearing its own costs.
I make the following order:
1.
The respondent is interdicted and
restrained, for a period of 18 months from 6 March 2018, anywhere in
the Republic of South Africa,
from advising, consulting to, being
employed by or having any interest in, any concern that trades in
competition with the applicant.
2.
The respondent is interdicted and
restrained from disclosing to any unauthorised third party any trade
secrets or confidential information
of the applicant.
3.
There is no order as to costs.
André van Niekerk
Judge
REPRESENTATION
For
the applicant: Ms. P Govender, Macgregor Erasmus Attorneys
For
the respondent: S Tlou, Mosomane Inc