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[2018] ZALCD 18
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Coninghamlee and Associates (Pty) Ltd v Watson and Others (D1627-18) [2018] ZALCD 18 (19 September 2018)
IN
THE LABOUR COURT OF SOUTH AFRICA
HELD
IN DURBAN
Not
Reportable
Case
no: D 1627-18
In
the matter between:
CONINGHAMLEE
AND ASSOCIATES (PTY)
LTD
Applicant
and
LIEZL
WATSON
First
Respondent
GARETH
DAVID
JONES
Second
Respondent
PALESA
MBALI
GROUP
Third
Respondent
Heard:
11 September 2018
Delivered:
19 September 2018
Summary:
Restraint of trade – unreasonable in relation to the duration,
geographical area and nature of the protectable interest
when
balanced against the countervailing right of the employees to work in
their trade
JUDGMENT
WHITCHER
J
Nature
of application
[1]
The applicant, on an urgent basis, seeks final interdictory relief
set out in the Notice of Motion. The relief concerns the
enforcement
of restraint and confidentiality undertakings against the first and
second respondents.
[2]
The first and second respondents have no objection to the relief
sought in prayers 2.2, 2.3 and 4 to 9 of the Notice of Motion,
which
essentially amounts to undertaking not to canvass and solicit
business from a client of the applicant, not to entice any
of the
employees of the applicant to terminate his or her employment with
the applicant and not to use and disclose any confidential
information they may have to any competitor of the applicant.
[1]
[3]
The respondents, however, contend that the applicant is not entitled
to restrain them, until 30 June 2019 and within the whole
of the
Republic of South Africa, from being engaged as employees or business
partners with any competitor of the applicant, particularly
the third
respondent, and is further not entitled to order them to terminate
their employment with the third respondent.
[4]
This, the respondents submit, is because the applicant has no
protectable interests and the restraint is unreasonable and
enforceable
in both geographical area and duration. The duration of
the restraint set out in the contract of employment is 12 months and
the
geographical area is the whole of the Republic of South Africa.
Background
facts
[5]
The applicant conducts business as a staff recruitment and placement
services provider, which services are provided in all nine
provinces
of the Republic of South Africa and in Southern Africa. It commenced
business in 2009. The business includes keeping
a database of clients
and potential candidates, matching employer needs with prospective
candidates, headhunting, screening and
verifications. The applicant’s
clients include professional individuals, medium and large corporate
entities across a wide
spectrum, with a strong focus on the financial
sector.
[6]
The first respondent commenced her career in recruitment in 2007 with
a company called Wisdom Human Capital where she worked
for three 3
years focussing on risk recruitment for banking clients. It is in
this role where she first gained skills of candidate
search,
headhunting and dealing with clients.
[7]
The first respondent took up employment with the applicant in 2010 as
a recruitment consultant. In this regard, she serviced
clients in the
major banking industry in respect of risk recruitment and risk
professionals in Gauteng. In 2014, she was appointed
the Managing
Director of the applicant.
[8]
The second respondent was appointed by the applicant in 2010 as a
recruiter specialising in front office roles in banking and
serviced
clients in all nine provinces.
[9]
On 28 May 2018, the first and second respondents terminated their
employment with the applicant by tendering their resignation.
Their
last day of employment was 28 June 2018. They are directors of the
third respondent, and became so upon the inception of
the third
respondent on 12 March 2018, that is two months before their
resignation from the applicant.
Is
the third respondent a competitor of the applicant?
[10]
According to the respondents the third respondent is a black female
recruitment firm who specialises in the placement of black
females in
top employment positions in the workplace, in both the private and
public sectors.
[11]
It is not in dispute that the applicant also strives to identify and
place black females in top positions. During the period
May 2017 to
April 2018 approximately 35% of the applicant’s permanent
placement turnover consisted of the placement of top
female
candidates. Most of these placements took place in the banking
sectors, where the first and second respondent primarily
performed
their functions at the applicant. The financial sector, in which the
second respondent was primarily involved accounted
for 76% of the
applicant’s income. It is not the case of the respondents that
they would not be doing placements in the banking,
financial and
other sectors on which the applicants focus.
[12]
The third respondent is accordingly a director competitor of the
applicant.
Protectable
interest
[13]
Trade connections of a business, in the form of relationships with
existing and potential clients constitute part of its goodwill
and
capable of protection by a restraint. Confidential information useful
for the carrying of a business and capable of being used
to gain a
relative competitive advantage is similarly capable of protection.
The applicant does not have the right to own any particular
client or
a right to a potential client, but it does have the right to protect
the client relationships formed with clients on
its behalf.
[14]
It is common cause that the applicant established a strong network of
business connections with both individual and corporate
entities over
a period of time, which business connections form the commercial
foundation of the applicant’s business.
[15]
It is also undeniable that goodwill acquired from clients are mainly
achieved through personal contact and efforts of key employees
strategically placed by the applicant to look after and service them
and thereby build strong client relationships, which relationships
form the core of the goodwill ultimately acquired by the applicant.
[16]
The respondents contend that such goodwill relates to all recruitment
agencies, but say that it is not a guarantee that any
future
placement would solely be placed with a particular agency.
[17]
I agree with the applicant that the acknowledgement that goodwill
attaches to all recruitment agencies does not assist the
respondents.
As correctly pointed out by the applicant (with reference to case
law), the fact that its competitors may also acquire
goodwill from
their own clients can never be a defence to the applicant’s
claim to goodwill.
[18]
The following was stated in
Pam
Golding Properties (Pty) Ltd v Neille
:
[2]
[11]
Added to this is PGP’s undisputed evidence that Neille had
direct relationships with PGP’s clients who had given
them
selling mandates.
Adv
.
Nel
for
the respondent submitted that the only protectable interest PGP was
confined to the sole mandate arrangements concluded with
sellers. I
disagree.
Even
if a seller had placed the property in question in the hands of a
number of agencies the initial selection of agents by a property
seller would be by reference to the agencies’ reputation and
standing; and even if the reputation of the agency was identified
by
reference to the individual agent such reputation belonged to the
agency itself at the time the seller would have mandated the
agency.
Accordingly, even if the individual agent drew property sellers or
potential buyers to PGP by reason of his or her personality
or
expertise that was part of its goodwill and therefore an asset in its
hands.
[3]
[12]
Straddling both confidential information and customer contacts is
PGP’s database comprising lists of sellers of residential
property and also potential buyers within the Parks area which is
accessible to its agents. The lists are compiled by PGP from
referrals, enquiries and those who are prepared to provide
their particulars to PGP’s agent’s at show-houses
(which is the common experience of anyone who attends a
show-day). Even if an individual agent was to hand out business
cards
at a shopping mall his or her relationship with the principal would
render any contacts made with prospective buyers or sellers
the
proprietary interest of the agency.
[19]
It thus matters not that there is no guarantee of future placements
for customer connections and goodwill to be formed. The
reputation of
the employer and the contact between employee and clients or
potential clients on behalf of the employer are sufficient
to
establish goodwill.
[20]
The parties essentially agreed also that in relation to the
contingency recruitment model, clients, particularly major corporate
client, normally only distributes the vacancy to selected recruitment
agencies based on their track record and relationship between
client
and the recruitment agency – a relationship primarily
established by the employee. The relationship between client
and the
recruitment agency via its employees can thus not be negated or
undervalued.
[21]
In my view, the respondents have failed to discharge the onus of
showing that the applicant possessed no protectable interest
and that
they do not constitute some threat to the applicant’s goodwill.
[22]
The first respondent may have only serviced clients in the banking
industry in Gauteng during her employment as a recruiter.
This
however changed when she became the Managing Director of the
applicant in 2014. She then had exposure to, and contact, with
all
the clients in all nine provinces, and such exposure was not fleeting
or superficial. The job profile compiled by the first
respondent
herself reflects that the Managing Director’s role is to
develop strategic relationships with all clients at an
executive and
procurement level and to maintain good key relationships. On her own
version she was involved in resolving complaints
and basically
keeping clients happy. The respondent moreover could not deny that
knowledge of key persons within the respective
clients who are in a
position to take decisions or influence decisions in respect of
appointment of recruiters is important.
[23]
It is common cause that the second respondent serviced clients in all
nine provinces and clearly developed a good reputation
with clients
as he was one of the highest income earners for the applicant. The
financial service sector, in which the second respondent
was
primarily involved, accounted for 76% of the applicant’s
income.
[24]
I accept, by virtue of their functions and duties and the duration of
their employment with the applicant, that the first and
second
respondent would have developed important customer connections so
that when they left the applicant’s employ, they
could easily
induce clients to follow them to a new business.
[25]
In essence, the first and second respondents were a valuable
component of the applicant’s good relationships with its
clients.
[26]
There is evidence that the second respondent has already engaged with
a primary client of the applicant, namely Standard Bank.
[27]
It thus follows that the applicant has a protectable interest in the
form of customer connections.
[28]
However, I am not convinced the applicant has a protectable interest
in respect of confidential information. The applicant
has not
demonstrated what confidential information the respondents have which
would place the applicant at a disadvantage given
the particular
field in which recruitment agencies operate. The applicant did not
meaningfully refute the respondents’ claim
that the applicant
does not hold unique pricing structures and strategies, that
generally standard fees apply and prospective corporate
clients are
openly identifiable. There is no evidence that any information on
individual clients [job seekers] which may have existed
is still
useful 6 months down the line.
Reasonableness
of the restraint at this point in time
[29]
That the applicant has a protectable interest in the form of customer
connections is not the end of the enquiry. As re-affirmed
by the
Labour Appeal Court in
Labournet
(Pty) Ltd v Jankielsohn and Another (paras 42 to 45)
:
[4]
[42]
According to the Appellate Division in
Basson v Chilwan and
Others
, the following questions require investigation, namely
whether the party who seeks to restrain has a protectable interest,
and
whether it is being prejudiced by the party sought to be
restrained. Further, if there is such an interest – to
determine
how that interest
weighs up,
qualitatively and
quantitatively, against the interest of the other party to be
economically active and productive. Fourthly, to
ascertain whether
there are any other public policy considerations which require that
the restraint be enforced. If the interest
of the party to be
restrained outweighs the interest of the restrainer – the
restraint is unreasonable and unenforceable.
[43]
It is now clear from,
inter alia
,
Basson
and
Reddy
that the reasonableness and enforceability of a restraint depend on
the nature of the activity sought to be restrained, the rationale
(purpose) of the restraint, the duration of the restraint, the area
of restraint, as well as the parties’ respective bargaining
positions. The reasonableness is determined with reference to the
circumstances at the time the restraint is sought to be enforced.
With reference particularly to the facts of this matter, it is an
established principle of law that the employee cannot be interdicted
or restrained from taking away his or her experience, skills or
knowledge, even if those were acquired as a result of the training
which the employer provided to the employee.
[45]
Also relevant to this matter are the principles relating to the
reasonableness of the duration of the restraint. This aspect
is
generally assessed as part and parcel of the assessing the
reasonableness of the restraint, but it bears mentioning that the
duration must be rational and reasonable. It cannot be reasonable if
it is not rational.
[30]
Thus, while it is understandable that the applicant wishes to protect
its customer connections, I must ask whether a one-year
restraint
that covers the entire recruitment industry in the whole of the
Republic of South Africa is reasonable in relation to
this interest
when balanced against the countervailing right of the first and
second respondent to work in the only trade in which
they enjoy any
prospects of income commensurate with what they had. This is, in its
nature, a judgment call.
[31]
To my mind, on balance, the restraint is not reasonable. The notion
that the respondents may not conduct the work which they
are trained
for one year throughout the Republic of South Africa is simply and
patently unreasonable.
[32]
At this stage, the respondents’ only worthwhile skills and
experience lie in the recruitment industry. The first and
second
respondents have, respectively for the last 10 and 7 years, worked
only in the recruitment industry. The first respondent
in fact gained
skills candidate search, headhunting and dealing with clients prior
to working for the applicant.
[33]
I have no reason to reject the respondents’ undertaking that
their business for the period of one year will be the placement
of
black female candidates in top positions – which is only 35% of
the applicant’s business.
[34]
The applicant has been in the recruitment business for 10 years, and,
on its own version, has established a strong network
of business
connections with both individual and corporate entities and a good
reputation in the industry. Moreover, as the applicant
itself
indicated, major corporate clients normally only distributes the
vacancy to selected recruitment agencies based on their
reputation
and track record. The applicant is thus in a position to counter
competition from just two individuals [the first and
second
respondent] in a start-up business. Essentially, I do not see how a
small fledgling company in its first year of business
would cause the
applicant irreparable harm.
Order
[35]
I make the following order:
(1) The application is
dismissed.
(2) The applicant must
pay the respondents’ costs.
________________________________
B
Whitcher
Judge
of the Labour Court of South Africa
APPEARANCES:
For
the Applicant: Adv R Grundlingh, instructed by Bester & Roodie
Attorneys
For
the Respondents: Adv A de Wet, SC instructed by Kruger Attorneys
[1]
The applicant, for the purposes of costs, wants this court to take
note that the respondents did not give any of these undertaking
during pre-ligation discussions the parties had.
[2]
(26039/17)
[2017] ZAGPJHC 219 (28 July 2017)
[3]
Emphasis
added
[4]
(2017)
38 ILJ 1302 (LAC)