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[2018] ZALCJHB 204
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Masscash Proprietary Limited v Luden and Another (J1658-18) [2018] ZALCJHB 204 (21 June 2018)
IN
THE LABOUR COURT OF SOUTH AFRICA
HELD
AT JOHANNESBURG
Case
no: J 1658-18
Not
Reportable
In
the matter between:
MASSCASH
PROPRIETARY
LIMITED
Applicant
and
ANDREW
LUDEN
First
Respondent
H
& W DISTRIBUTORS (PTY)
LTD
Second
Respondent
Heard:
7 June 2018
Delivered:
21 June 2018
Restraint
of trade – balancing of interests – restraint shortened
JUDGMENT
WHITCHER
J
[1]
This judgment provides the reasoning for the ruling sought from this
court on an urgent application to enforce a restraint of
trade. I do
not set out the factual background of the matter in any more detail
than is necessary to make a ruling. This background
is
comprehensively set out in the pleadings.
[2]
Briefly, Mr Luden, the first respondent, worked as a store manager in
Upington at MassCash, the applicant. He resigned on 23
March 2018 and
informed MassCash on 11 April 2018 that he intended working for its
main competitor in Uppington, H&W. Indeed,
he was to become a
member of H&W. This was despite the provisions of restraint of
trade in his employment contract that prevented
him from working for
any competitor within a radius of 200kms of Upington for a period of
12 months after leaving MassCash’s
employ.
[3]
There was some argument about whether MassCash inordinately delayed
launching these proceedings given that Mr. Luden first ventured
joining their competitor, H&W, a month and eleven days before
this application was launched on 22 May 2018. In the circumstances,
noting also the eight (8) days the respondent had to file answering
papers and given the inherently urgent and complex nature of
restraint applications, this is not a kind of self-created urgency
this court should censure by refusing to hear the matter.
[4]
There is no dispute that a valid restraint of trade provision is to
be found in the contract of employment between Mr. Luden
and
MassCash. There is further no dispute that Mr. Luden is in breach of
that provision of the contract which, if enforced, would
prevent him
from taking up employment at the second respondent, H & W, for
twelve (12) months after he resigned from his employ
at MassCash on
23 March 2018.
[5]
Importantly, once the applicant has established these facts, the onus
shifts to Mr. Luden to show that the contractual provision
in
question is unreasonable if he wishes to escape its enforcement by
this court.
[6]
It is trite that in considering the reasonableness of the restraint
agreement, the following four questions have to be addressed:
Does
one party have an interest that deserves protection after termination
of the agreement? If so, is that interest threatened
by the other
party? In that case, does such interest weigh qualitatively and
quantitatively against the interest of the other party
not to be
economically inactive and unproductive? And, is there an aspect
of public policy, having nothing to do with relationship
between the
parties, that require the restraint be maintained or rejected?
[7]
The court may also have regard, as a fifth consideration, to whether
the restraint goes further than is necessary to protect
the interest
in question.
[8]
There are two protectable interests recognised in our law, trade
secrets and customer connections. In this matter, the former
predominates as wholesale custom is won or retained, I accept,
overwhelmingly through price and not sentiment.
[9]
Mr. Luden did not seriously dispute that the information he gained
into MassCash’s pricing and sales while working there
were
confidential. It was common cause that MassCash and H&W contended
for the business of the same 20 top customers in and
around Upington.
Knowledge about rebates, discounts and special settlement conditions
offered to particular wholesale clients would
obviously be useful to
a competitor such as H&W. In this regard, I note that Mr. Luden
did not credibly dispute that pricing
for certain products offered
for sale in MassCash’s Upington store was determined by deals
struck with local suppliers. As
a store manager, it had been Mr.
Luden’s role, partly, to negotiate these supplier agreements.
That he could use this micro-level
knowledge garnered at the
applicant at H&W to undercut his former employer is, to me,
obvious.
[10]
Other confidential information to which Mr. Luden was privy may also
reasonably possibly damage his former employer’s
business. I
speak of information about advertising bonuses, gross profits,
markups, and prescheduled promotions.
[11]
Mr. Luden has, in my view, failed to show that MassCash’s
interests in keeping these trade secrets from its main competitor
do
not
deserve protection. Should he join H&W as a manager, member or
both, it is likely that H&W will obtain and act upon this
knowledge.
[12]
Mr. Luden’s main argument centred on the staleness of the
confidential pricing and supplier information he possessed.
He argued
that prices fluctuate significantly as market conditions change. In
other words, by the time this matter came to court
his knowledge of
MassCash’s pricing was not still useful? If it was not
useful anymore, this information could not
serve as trade secrets.
[13]
Once again, Mr. Luden bore the onus to prove that price fluctuations
render MassCash’s enforcement of the restraint unreasonable.
He
has, in my view, failed completely to do so. MassCash asserted that,
at least some of its agreements with suppliers are negotiated
annually. While I accept that certain products such as fuel are
subject to price volatility, meaning that supplier agreements are
perhaps of a short duration, I am not persuaded, nor was such a case
made out, that this is the situation for all of MassCash’s
products.
[14]
The submission that Mr. Luden cannot unlawfully compete by
negotiating with certain suppliers because the decision on the price
they sell to a wholesaler resides with the supplier does not impress.
One or two suppliers may have a uniform price but, for the
rest, it
fails to take account of the fact that, by knowing what rebates and
other terms on volume MassCash offers these suppliers,
a competitor
can tailor its own offer to a supplier which has the effect of
lowering the selling price in its store.
[15]
The last redoubt for Mr. Luden then is how MassCash’s interests
weigh qualitatively and quantitatively against his interest
not to be
economically inactive and unproductive. It is likely, as contended by
the first respondent, that some of the information
he has is dated or
will be before twelve months is up. Price fluctuation owing to market
conditions would lessen the usefulness
of Mr. Ludens knowledge in
some instances. As for the longer-term agreements affecting price
already in place, although the onus
lay with Mr. Luden to show that
these agreements were for a period shorter than the twelve-month
period of restraint that MassCash
sought to hold him to, I take note
that in terms of the applicant’s own supporting documentation
to its affidavit, end November
2018 was the latest date that Mr.
Luden had specific knowledge of actionable trade secrets.
[16]
I would imagine further that an organisation as large and
sophisticated as MassCash has the strategic resources and business
flexibility to relatively simply mitigate the harm that might flow
from the deployment of some of the information Mr. Luden possesses.
His knowledge of markups, for example, could be rendered stale well
before twelve months is up by MassCash altering the markup
applicable
during his tenure. To this the question may be posed: but why should
MassCash have to reduce its profit to deal with
a covenant-breaking
employee? The answer is, whether Mr. Luden works for H&W or not,
it should be obvious to the applicant,
through H&W’s
approach to Mr. Luden, that their competitor has entered into a
heightened stage of an existing price-war
with them. As such,
business principles would dictate the need to adjust their markups
and thus prices in any event. The same would
apply to their
deal-making with short-term suppliers as far as rebates, discounts
and special settlement conditions are concerned.
While Mr. Luden’s
refusal to honour his contractual obligation not to compete with
MassCash is, in general terms, deplorable,
whether he moves to H&W
or not, trading conditions in Upington are likely to become even more
competitive in the next few months
anyway.
[17]
In weighing up the competing interests, nothing much is to be made of
the fact that Mr. Luden once took up farming for 2 years.
He has no
other meaningful way of providing for himself, his two minor children
and his wife at their current standard of living
other than
employment as a manager in the wholesale business.
[18]
When measured against all of the above-mentioned factors, a period of
restraint of one year therefore appears to be too long.
While the
sanctity of contract is something the courts should not hesitate to
enforce, a sense of proportion must be maintained.
To deprive Mr.
Luden of the opportunity to earn a living in a familiar town and
industry for a full year appears unreasonable.
Striking a
healthy balance between the protectable interests of MassCash and the
rights of Mr Luden is the real issue between the
parties in this
matter. In my view, the period up until the end of October 2018 is a
reasonable period in the circumstances of
this matter for the
operation of the restraint.
Order
[19] In the premises, I
order as follows:
1. The first respondent
is interdicted and restrained until 30 October 2018 and within a
radius 200kms of the applicant’s
store situated in Upington
from being interested or engaged, whether directly or indirectly in
any capacity whatsoever in the business
of the second respondent and
any business which competes with the business of the applicant in the
wholesale of food.
2. The first respondent
is interdicted and restrained from using confidential information of
the applicant or disclosing it to any
third party including the
second respondent.
3. Each party to pay
their own costs.
________________________________
B
Whitcher
Judge
of the Labour Court of South Africa
APPEARANCES:
For
the Applicant:
P Bosman, instructed by
Edward Nathan Sonnenbergs Inc
For
the Respondents: C D
Pienaar, instructed by Goldberg Attorneys