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[2019] ZALCJHB 357
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Plumblink SA (Pty) Ltd v Legodi and Another (J2113/19) [2019] ZALCJHB 357; (2020) 41 ILJ 1743 (LC) (24 December 2019)
THE
LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
Not Reportable
Case no. J 2113 / 19
In the matter between:
PLUMBLINK SA (PTY)
LTD Applicant
and
KENNY
LEGODI First
Respondent
CHANDLERS PLUMBING DEPOT (PTY)
LTD Second
Respondent
Heard: 28 November 2019
Delivered: 24 December 2019
Summary:
Restraint of
trade
–
principles
stated – application of principles to matter – issue of
protectable interest and infringement of such interest
considered
Restraint
of trade – protectable interest in the form of trade
connections and confidential information considered –
protectable interest shown
Restraint
of trade – breach of restraint – employment with direct
competitor constitutes breach – undertaking
not to compete
insufficient – employer entitled to mitigate risk caused by
employment with competitor
Interdict
– requirements of interdict satisfied – interdict upheld
– application granted – restraint enforced
JUDGMENT
SNYMAN,
AJ
Introduction
[1]
The
applicant has brought an urgent application to enforce a restraint of
trade against the first respondent. In the application,
the applicant
seeks an interdict against the first respondent, to prevent him from
continuing his employment with the second respondent,
which
employment he took up upon leaving his employment with the applicant.
The second respondent has been joined by the applicant
in the
application, only on the basis of having an interest in the matter,
as a result of the employment of the first respondent
with the second
respondent. The first respondent has opposed the application.
[2]
When
this matter was argued, it was not disputed that the first respondent
had indeed concluded a restraint of trade with the applicant,
and had
taken up employment with the second respondent. Further, and in
presenting argument in Court, as confirmed by his written
heads of
argument, it was submitted by the first respondent that he did not
oppose the enforcement of the restraint of trade, and
simply
considered the application of the restraint of trade to be
unreasonable insofar as it concerned the area and duration of
the
restraint. However, the answering affidavit does appear to suggest
that the breach of the applicant’s protectable interest
under
the restraint was in issue.
[3]
Where
is comes to urgency, this was in reality not in issue when this
matter was argued. In particular, the first respondent did
not
dispute that the matter is urgent. Overall considered, I am satisfied
that the applicant met all the requirements of urgency
in this
matter.
[1]
The applicant became aware that the first respondent took up
employment with the second respondent on or about 1 October 2019.
As
will be dealt with further below, an initial letter of demand was
sent to the first respondent on 8 October 2019 to bring him
to other
insights, after further violations of the restraint of trade came to
light over the next few days, which attempted intervention
was not
successful. This course of action is appropriate, as it is advisable
that parties first try and find an alternative way
to secure
compliance with the restraint, before resorting to litigation.
[2]
The current application then followed about a week after the expiry
of the deadline in the letter of demand, when it became apparent
that
the first respondent would continue with his employment with the
second respondent. Considering the nature of the relief sought,
and
the purpose sought to be achieved by the enforcement of a restraint
of trade, there is also no other form of substantial redress
in due
course.
[3]
Restraints of trade also carry with them an inherent quality of
urgency.
[4]
[4]
Because
the applicant seeks final relief, the applicant must satisfy three
essential requisites to succeed, being (a) a clear right;
(b) an
injury actually committed or reasonably apprehended; and (c) the
absence of any other satisfactory remedy.
[5]
I will commence deciding whether the applicant met these requirements
by first setting out the relevant facts.
The
relevant facts
[5]
Fortunately,
and in this matter, most of the important factual matrix was either
common cause, or admitted.
[6]
Insofar as there are factual disputes, I will resolve this in line
with the principles established in
Plascon
Evans Paints v Van Riebeeck Paints
[7]
.
The Court in
Ball
v Bambalela Bolts (Pty) Ltd and Another
[8]
succinctly summarized the nature of the factual enquiry to be made as
follows:
‘…
In
Reddy
v Siemens Telecommunications (Pty) Ltd
,
it was held that the reasonableness of a restraint could be
determined without becoming embroiled in the issue of onus. This
could be done if the facts regarding reasonableness have been
adequately explored in the evidence and if any disputes of fact are
resolved in favour of the party sought to be restrained. If the
facts, assessed as aforementioned, disclose that the restraint
is reasonable then the party, seeking the restraint order, must
succeed, but if those facts show that the restraint is unreasonable,
then the party, sought to be restrained, must succeed.
Resolving the disputes of fact in favour of the party sought to be
restrained involves an application of the
Plascon-Evans
rule ….
’
[6]
The
applicant conducts the business of a merchant of plumbing, bathroom
and kitchenware products and equipment throughout the Republic
of
South Africa, at a total of 104 branches. It obtains its products
from local and overseas suppliers, and also retails its own
‘Plumbline’ house brand of products. The current
application related to the applicant’s Polokwane Express store,
which services the Limpopo province.
[7]
The
applicant has a broad range of customers. This includes the normal
day to day consumer customer and DIY enthusiast that visits
a
particular store, but also includes a variety of contractors and
corporate customers, which includes commercial, construction
and
commercial contractors. At stake in this case is not the ordinary
retail customers, but the specific and dedicated contract
customers.
[8]
Turning
to the business of the second respondent, it is a general DIY
operation, but it has a strong emphasis on the supply of plumbing
products that are the same or comparable to that of the applicant.
The business of the second respondent is also located in Polokwane,
and supplies the same area as the applicant’s Polokwane Express
store. The second respondent also supplies the same range
of
customers the applicant, and this includes contract customers. In
fact, and on the evidence, the applicant and the second respondent
on
occasion shared customers, even though not necessarily of the same
products.
[9]
Therefore,
and even though it appears that the second respondent offers a
broader range of products to customers and prospective
customers than
the applicant, there can be little doubt, on the facts, that the
second respondent is a direct competitor of the
applicant insofar is
it concerns plumbing products and equipment.
[10]
Turning
then to the first respondent, he commenced employment with the
applicant as far back as February 2008. He started out as
a trade
counter sales representative reporting to the branch manager. When he
was employed, he did not sign a restraint of trade.
He did sign a
letter of employment on 12 December 2009, which did not include a
restraint of trade.
[11]
The
first respondent progressed from being a trade counter representative
to being a contract sales representative. This was in
essence the
most senior sales representative position at the Polokwane operation
of the applicant. In this capacity, the first
respondent was tasked
with maintaining and cultivating a close business relationship with
several of the large contract customers
of the applicant. He was
dedicated to servicing them.
[12]
In
and during March 2013, the first respondent resigned from his
employment with the applicant, and indicated that he would be joining
the business of the second respondent. Considering the seniority and
nature of his position, the applicant sought to convince him
to stay.
It offered him a substantial salary increase, but subject to the
proviso that he sign a restraint of trade as a
quid
pro quo
as well. The first respondent accepted, and as a result did not push
through with his resignation, signed the restraint of trade
on 13
March 2013, and received his salary increase.
[13]
In
terms of his restraint agreement, the first respondent agreed not to
be interested in any business in the defined territory that
competed
with the business of the applicant. The term ‘interested’
was specifically defined in the restraint agreement
as including
employment. The defined territory was the Limpopo province. The
restraint further prohibited the first respondent
from soliciting the
custom of any of the applicant’s customers he dealt with whilst
employed with the applicant. The restraint
period was 24 months.
[14]
As a
contract sales representative, the first respondent was responsible
for the customer contracts, quotations and after-sales
support at the
branch. He was also responsible for identifying and developing new
business opportunities in the branch operations
area. But most
importantly, he was fully aware of the particulars and requirements
of the contract customers at the branch, and
maintained the customer
database. He was directly responsible for developing and maintaining
the contract customer relationships
at the branch. He dealt with the
contract customers on a day to day or at least weekly basis.
[15]
According
to the applicant, the contract customers the first respondent dealt
with would contact him directly for orders, even telephonically.
He
developed a strong and very close working relationship with these
customers. It must be emphasized that there are not walk-in
or DIY
customers purchasing products in a store. These are dedicated
contract customers who place large orders in bulk, and as
such,
receive special discounts and pricing.
[16]
But
specifically, the first respondent directly dealt with and was
responsible for several key customers at the branch. These were
Rembu
Construction, HLTC, Lilithalethu, BSB, Mums Enterprise and Mukhumuli.
There was a factual dispute about the extent of the
orders of these
customers with the branch. In the founding affidavit, the applicant
states that it was between 35% and 40% of the
branch revenue. The
first respondent, in his answer, stated that the figure was 12.5%.
The applicant appeared to concede the point,
and indicated in reply
that what it was referring to was the first respondent’s total
sales at the branch which accounted
for 35% to 40% of the revenue,
which included these mentioned customers. Be that all as it may, what
all this clearly indicated
is that the first respondent is fully
aware of the extent of sales to these customers and even 12.5% of
sales is still a significant
figure.
[17]
The
applicant also contended that the first respondent had access to
confidential information. In particular in this regard, and
according
to the applicant, the first respondent was fully familiar with the
pricing and discounts offered to contract customers,
which is not
freely available in the market place. This confidential pricing and
discount structure was essential to retaining
these customers. He
also knew the identity, contact persons, and purchasing patterns of
the contract customers.
[18]
The
first respondent was dismissed by the applicant on 1 October 2019,
following disciplinary proceedings, in which he was found
guilty of
two charges. The first charge related to the release of stock without
the necessary supporting paperwork. The second
charge related to the
failure in invoice a customer for solar panels, despite being
instructed to do so.
[19]
Virtually
immediately upon being dismissed by the applicant, the first
respondent took up employment with the second respondent.
When two
other sales representatives, Maud Manyelo (‘Manyelo’) and
Kagiso Mokgapa (‘Mokgapa’), were dispatched
by the
applicant to inform the contract customers previously dealt with by
the first respondent, that the first respondent had
departed and to
introduce themselves to these customers for the purposes of a point
of contact for future orders, they encountered
what appeared to be
further breaches of the restraint of trade. All this occurred in the
period between 1 and 3 October 2019.
[20]
In
particular, all these customers had already been contacted by the
first respondent and informed by him that he had joined the
second
respondent. Mukhumuli had in fact been sent a credit application form
for the second respondent, by the first respondent,
and this customer
had completed and returned the credit application. BSB Trading
informed the applicant on 15 October 2019 that
it would be following
the first respondent to the second respondent.
[21]
On 8
October 2019, the applicant’s attorneys of record sent a letter
of demand to the first respondent, drawing his attention
to the terms
of his restraint of trade. The applicant stated that it was aware
that the first respondent was employed at the second
respondent, and
contended that the first respondent’s employment with the
second respondent
per
se
constituted a breach of the restraint. A written undertaking was
demanded by 10 October 2019 that the first respondent would terminate
his employment with the second respondent and comply with the
undertakings in his restraint of trade not to solicit the custom
of
the applicant’s customers. The first respondent was threatened
with urgent Labour Court proceedings should the undertaking
not be
forthcoming.
[22]
The
applicant’s attorneys also dispatched a similar letter of
demand to the second respondent on 8 October 2019. It was
specifically
drawn to the attention of the second respondent that the
first respondent was subject to a restraint of trade. The second
respondent
was also informed that an interdict would be sought
against the first respondent if the undertakings demanded would not
be forthcoming.
[23]
The
first respondent personally answered the letter of demand by e-mail
the same day, being 8 October 2019. In essence, he stated
that
because he was dismissed and did not resign, he was entitled to
‘take’ the opportunity that came his way. On 11
October
2019, attorneys acting for both respondents asked for a copy of the
first respondent’s restraint of trade, so that
a proper
response could be given to the letters of demand. The applicant
provided it on the same date, and extended a final deadline
for a
response until 14 October 2019. When no response was forthcoming by
the deadline, the current application then followed.
Restraint
principles
[24]
As
stated above, there can be no doubt that the first respondent bound
himself to a restraint of trade covenant, in favour of the
applicant,
in a written restraint agreement signed on 13 March 2013. It is trite
that restraints of trade are valid and binding,
and as a matter of
principle enforceable, unless the enforcement thereof is considered
to be unreasonable.
[9]
A restraint of trade also does not infringe on the constitutional
right to free economic activity.
[10]
[25]
Since
the restraint of trade concluded between the applicant and the first
respondent is binding, whether or not the enforcement
of the
restraint of trade against the first respondent would be reasonable
is dependent upon deciding the following questions set
out in
Basson
v Chilwan and Others
[11]
:
(a) Does the one party have an interest that deserves protection
after termination of the agreement?; (b) If so, is that interest
threatened by the other party?; (c) 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
(d) Is there an aspect of public policy having nothing
to do with the
relationship between the parties that requires that the restraint be
maintained or rejected? Following the judgment
in Basson, a further
enquiry has been added, which can be called a question (e), being
whether the restraint goes further than
necessary to protect the
relevant interest?
[12]
[26]
This
Court and the Labour Appeal Court have been consistently applying
these five considerations in determining whether the enforcement
of a
restraint of trade would be reasonable.
[13]
Deciding each of these considerations is a determination on the facts
of that particular case, applying, as held in
Ball
supra
[14]
,
the following approach:
‘…
the
determination of reasonableness is, essentially, a balancing of
interests that is 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 their respective
bargaining powers and interests …'
[27]
The
protectable interest of an applicant in a restraint of trade can be
found in one or both of two considerations, being confidential
information (trade secrets), or trade connections.
[15]
In
Labournet
(Pty) Ltd v Jankielsohn and Another
[16]
the Court held:
‘…
A
restraint is only reasonable and enforceable if it serves to protect
an interest, which, in terms of the law, requires and deserves
protection. The list of such interests is not closed, but
confidential information (or trade secrets) and customer (or trade)
connections are recognised as being such interests. …’
[28]
Dealing
firstly with confidential information, this would be the
following:
[17]
(a)
Information received
by an employee about business opportunities available to an employer;
(b) the information is useful or potentially
useful to a competitor,
who would find value in it; (c) Information relating to proposals,
marketing to submissions made to procure
business; (d) information
relating to price and/or pricing arrangements, not generally
available to third parties; (e) the information
has actual economic
value to the person seeking to protect it; (f) customer information,
details and particulars; (g) information
the employee is
contractually, regulatory or statutory required to keep confidential;
(h) Information relating to the specifications
of a product, or a
process of manufacture, either of which has been arrived at by the
expenditure of skill and industry which is
kept confidential; and (i)
information relating to know-how, technology or method that is unique
and peculiar to a business. Importantly,
the information summarized
above must not be public knowledge or public property or in the
public domain. In short, the confidential
information must be
objectively worthy of protection and have value.
[29]
Next,
trade connections would be 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 or she leaves employment and becomes
employed by a competitor, the employee could easily or
readily induce
the customers to follow the employee to the new business.
[18]
Whether the employee can be seen to have the ability to exert this
kind of influence, is dependent upon
the
duties of the employee, the employee’s particular personality
and skill, the frequency and duration of contact between
the employee
and the customer, the nature of the relationship between the employee
and the customer and in particular whether the
relationship carried
with it a notion of trust and confidence, the knowledge of the
employee of the particular requirements of
the customer and the
nature of its business, how competitive the rival businesses are, and
the nature of the product or services
at stake.
[19]
[30]
The
seniority of the employee concerned is also an important
consideration where it comes to evaluating the existence of a
protectable
interest.
[20]
The more senior the employee, the more likely it is that the employee
would be entrenched with what can legitimately be considered
to be a
protectable interest based on the above two considerations.
[21]
Seniority is not just the level of the employee in the organization
of the erstwhile employer, but also includes factors such as
the
influence, knowledge, expertise, nature of duties, relationships and
even the particular person of the employee.
[31]
The
above being the applicable legal principles relating to the forcement
of a restraint of trade and what constitutes a protectable
interest,
I will now proceed to apply the facts
in
casu
to the same. Clearly, and on the facts, the applicant seeks
protection of both kinds of protectable interests, being confidential
information and trade connections.
The
protectable interest
[32]
First,
it is undeniable that the kind of customer relationships at stake in
this case, being the particular relationships the first
respondent
had with the contract customers, is the particular kind of customer
relationships that would constitute a proper protectable
interest for
the purposes of the enforcement of a restraint of trade.
[22]
In
Rawlins
and another v Caravantruck (Pty) Ltd
[23]
the Court said:
'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 …
Much
will depend on the duties of the employee; his personality; the
frequency and duration of contact between him and the customers;
where such contact takes place; what knowledge he gains of their
requirements and business; the general nature of their relationship
(including whether an attachment is formed between them, the extent
to which customers rely on the employee and how personal
their
association is); how competitive the rival businesses are; in the
case of a salesman, the type of product being sold; and
whether there
is evidence that customers were lost after the employee left …’
[33]
The
first respondent ticks most of the boxes identified in the
dictum
in
Caravantruck
supra
needed for the enforcement of the restraint based on trade
connections. The first respondent is a skilled and experienced sales
representative, dedicated to a particular category of large contract
customers. He is the most senior sales representative in the
branch.
He has more than a decade of service with the applicant, and is
clearly fully familiar with all information relating to
contract
customers at the branch. The first respondent personally was
responsible for approximately 40% of sales at the branch.
I am
satisfied that on the facts, the first respondent established a close
working relationship with the contract customers whilst
employed at
the applicant, directly serviced these customers, and has all
relevant information relating to those customers, including
pricing
and purchasing patterns. He contacted all these customers immediately
when he left the applicant to inform them of his
new whereabouts. At
least one of the contract customers (BSB) indicated that it would
taking its business to the second respondent,
following the first
respondent. Undoubtedly, he has influence over these customers.
Finally, the products and services are of such
a nature that the
purchasing thereof can readily be moved to a new supplier.
[24]
Applicable is the following
dictum
in
Lifeguards
Africa (Pty) Ltd v Raubenheimer
[25]
:
‘…
.
in competing directly with the plaintiff in the contracts obtained
from the above-mentioned institutions, the defendant took advantage
of trade connections of the plaintiff which constituted protectable
interests. ….’
[34]
It is
not necessary to even show that the first respondent actually
exploited the trade connections with the contract customers.
All that
has to be shown is that he could.
[26]
In this instance, the fact that the first respondent is in a position
to exploit these trade connections cannot be gainsaid. As
said above,
at least one customer indicated that it would continue to place its
orders with the first respondent at his new employer
(the second
respondent). In my view, it is thus clear that the applicant has
shown the existence of a proper protectable interest
where it comes
to trade connections.
[35]
On
the issue of confidential information, the confidential information
at stake is the information the first respondent had about
the
customer particulars, the prices they pay, discount structures and
what their requirements were and what they ordered. This
kind of
confidential information is actually inextricably linked to the issue
of trade connections. In
SPP
Pumps (SA) (Pty) Ltd v Stoop and Another
,
[27]
the Court said:
‘
In
my view, the respondent acquired confidential information of the
business of the applicant including personal knowledge of the
customers by virtue of his duties and the relationship he had with
the suppliers and customers of the applicant. It is for this
reason
that I am of the view that the applicant has made out a case
which has not been seriously challenged. The case is that
the
applicant has an interest in the confidential information acquired by
the respondent during his employment. There is very strong
evidence
that the respondent had, during his employ with the applicant,
acquired confidential information which requires protection.
The
information which the respondent acquired, particularly the
relationship with the customers, is of such a nature that when
he
left the applicant's employ, he posed a risk to the applicant's
business if he were to join any other competitor. The level
of risk
rose higher when he established the second respondent and commenced
conducting the business in competition with the applicant.’
[36]
Therefore,
the applicant has thus shown that it has a protectable interest where
it comes to confidential information. The confidential
information is
not in the public domain, has commercial value in the industry, and
would be useful to a competitor. It is known
to the first respondent,
worthy of protection, and useful and of value to the second
respondent. In summary, and as said in
Continuous
Oxygen supra
:
[28]
‘…
The
employee has intimate knowledge of the applicant's products and
pricing; she is intimately acquainted with the prescribing doctors
and the patients who use the products; and she is ideally situated to
persuade those doctors and patients to use the products of
her new
employer - ie similar products under a different brand name, supplied
by Ecomed - rather than the products supplied by
her old employer
that they had been using hitherto.
…’
[37]
Insofar
as the first respondent may say that he formed the attachment to and
relationship with customers due his own efforts and
abilities, this
cannot help him. The fact is that he did so in the course of the
discharge of his duties with the applicant, as
expected of him. In
Rawlins
supra
[29]
the Court said:
‘
Even
though the persons to whom an employee sells and whom he canvasses
were previously known to him and in this sense ''his customers'',
he
may nevertheless during his employment, and because of it, form an
attachment to and acquire an influence over them which he
never had
before. Where this occurs, what I call the customer goodwill which is
created or enhanced, is at least in part an asset
of the employer. As
such it becomes a trade connection of the employer which is capable
of protection by means of a restraint of
trade clause. ….’
And
in
Den
Braven SA (Pty) Ltd v Pillay and Another
[30]
it was held as follows:
‘…
.
Mr Pillay's simple response in his affidavit is to say that he is an
excellent salesman. No doubt that is true and it is equally
true that
he is entitled to take his qualities and skills as a salesman to
another employer. However, to the extent that the applicant
has built
up a trade connection with its customers in KwaZulu-Natal through the
efforts of Mr Pillay over the eight years
of his employment it
is entitled to protect itself against being deprived of that
connection by Mr Pillay's activities on behalf
of a competitor
.’
[38]
There
is also no doubt that
in
casu
,
the applicant’s protectable interest has been breached. In this
regard, the unassailable evidence is that the applicant
and the
second respondent are direct competitors, sell the same products and
services, and share the same kind and nature of customer
base. Thus,
employment of the first respondent with the second respondent is
breach of the restraint. A further breach is found
in the fact that
the first respondent contacted these customers immediately upon
leaving the applicant, and at least one customer
has decided to take
its business to him. The risk to the applicant’s business
caused by what is summarized above is patently
obvious, and is all
the applicant has to show to succeed in establish a breach
.
[31]
T
he
Court in
IIR
South Africa BV (Incorporated in the Netherlands) t/a Institute for
International Research v Hall (Aka Baghas) and Another
[32]
said the following:
‘
Where
the ex-employer seeks to enforce against his ex-employee a
protectable interest recorded in a restraint, the ex-employer does
not have to show that the ex-employee has in fact utilised
information confidential to it - merely that the ex-employee could do
so. (See International Executive Communications Ltd (Incorporated in
the Netherlands) t/a Institute for International Research
v Turnley
and Another
1996
(3) SA 1043
(W)
([1996]
3 B All SA 648) at 1055D - F (SA).) In short, the ex-employer 'has
endeavoured to safeguard itself against the unpoliceable
danger of
the [ex-employee] communicating its trade secrets to a rival concern
after entering their employ. The risk that the [ex-employee]
will do
so is one which the [ex-employer] does not have to run, and neither
is it incumbent upon the [ex-employer] to inquire into
the bona fides
of the [ex-employee] and demonstrate that [he or she] is mala fide
before being allowed to enforce its contractually
agreed right to
restrain the [ex-employee] from entering the employ of a direct
competitor.'’
[39]
In
his answering affidavit, the first respondent undertook not to deal
with the contract customers referred to by the applicant
in the
founding affidavit. However, and as a matter of principle, an
employee cannot escape the enforcement of a restraint by providing
undertakings. The undertaking is given in the context where a
prima
facie
breach of the restraint already exists. In such circumstances, an
employer can hardly be criticized for not being trustful of the
employee and his or her
bona
fides
,
and to simply believe that the undertakings will be complied with and
accept all the risk associated with it. In
Ball
supra
[33]
the Court said:
‘…
the
appellant does not deny that she knows who the first respondent's
customers and suppliers are. A customer list is generally
confidential. Implicit in her version is that even though she was
privy to confidential information she has not and does not intend
using it. An undertaking not to use the confidential information, in
the circumstances, is no defence. An employer does not have
to show
that the former employee has in fact utilized its confidential
information, but merely that she could do so.
’
[40]
The
Court in
Reddy
supra
[34]
also dealt with this approach of seeking to avoid a restraint by way
of undertakings as follows:
‘
I
agree with the remarks of Marais J in
BHT
Water
:
'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 these 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
he has
given …’’
[41]
Accordingly,
the applicant was entitled to reject the undertakings provided by the
first respondent. The applicant cannot be expected
to trust the
bona
fides
of the first respondent to not pass on all his trade connections and
knowledge of confidential information to his new employer,
the second
respondent, especially considering the competitive nature of the
industry and interchangeable products and services.
In any event,
these undertakings would be virtually impossible to monitor or
police, meaning that the applicant would be entirely
dependent on the
bona
fides
of the first and second respondents, which is a risk it is simply not
required to run. In
Medtronic
(Africa)
(Pty) Ltd v Kleynhans and Another
[35]
,
this
was dealt with by the Court as follows:
‘
I
agree with
Medtronic
that
the danger that Kleynhans will exploit customer connections for the
benefit of his new employer is essentially 'unpoliceable'.
Where
Medtronic has tried to safeguard itself against the unpoliceable
danger of a former employee utilising its customer connections
on
behalf of a rival concern by obtaining a restraint, the risk that the
former employee will do so is one that Medtronic does
not
have
to run. It is also not incumbent upon Medtronic to enquire into the
bona fides of Kleynhans and demonstrate that he is mala
fide before
being allowed to enforce its contractually agreed right to restrain
him. In those circumstances, all that the Medtronic
needs to do is to
show that there is a trade connection Kleynhans could exploit should
he desire to do so. The very purpose of
the restraint agreement is
that Medtronic
did
not wish to have to rely on the bona fides or lack thereof on the
part of Kleynhans when he left their employ.
’
[42]
An
apposite comparable example to the case
in
casu
can be found in
LR
Plastics (Pty) Ltd v Pelser
[36]
,
where the Court specifically dealt with the relationship between a
sales representative and a customer base in the context of
the
enforcement of a restraint of trade. The Court also specifically
dealt with the scenario of customers following the sales
representative to another employer, as a result of the relationship
built up at the erstwhile employer, and said:
[37]
‘
In
casu
,
the applicant does not seek to interdict the use of respondent's
personal skills, experience or knowledge; and nor does it seek
to
interdict the continuation of any personal relationships of, or
belonging to, the respondent. The relief sought is directed
against
the protection of its own trade connections acquired during the term
of respondent's employment with it. Although the success
of a sales
representative depends to a large extent on his personality and
skills as alleged by applicant (paragraph 21 of its
founding
affidavit) and admitted by respondent (paragraph 22 of his answering
affidavit), the protectable interest is constituted
by the use to
which those skills and personality are put; and not by the skills
and/or personality
per
se ….’
The
Court concluded:
[38]
‘
In
the course of his employment with the applicant the respondent,
through cold canvassing and by the transfer of existing customers
to
him, came to have knowledge of the identities of the customers; the
contractual arrangement between the applicant and its customers
(the
respondent himself caused such contractual arrangements to take
place); the financial details of applicant's relationship
with its
customers (arranged by respondent himself); the customer requirements
(conveyed to respondent when taking orders); and
all the other
confidential information (arranged and negotiated by respondent)
mentioned in clause 4.4.1 of the restraint agreement.
It is precisely
in exchange for such knowledge in the building of its customer
goodwill, that the applicant required the restraint
to be signed. The
applicant's reciprocal obligation in exchange for the respondent
rendering such services and acquiring such knowledge
(not technical
knowledge or knowledge of trade secrets; but knowledge of the
identity, requirements and financial arrangements
between applicant
and its customers) was to make payment to respondent.
’
The
same considerations clearly apply
in
casu
.
[43]
All
said, the applicant is entitled to expect the first respondent to
stay out of employment with the second respondent. It is only
through
the lapse of time with the first respondent remaining inactive in the
particular industry that the applicant’s risk
will be
diminished. As said in
Vumatel
supra
:
[39]
‘
There
is another nuance to considering the question of the infringement of
the protectable interest. This is the lapse of time.
The
reasonableness of the enforcement of the restraint must be assessed
at the time when the restraint is sought to be enforced.
In the case
of trade connections, the longer the employee has no contact with
erstwhile customers, the more his or her influence
over them
diminishes. In the case of confidential information, there may well
be some instances where confidential information
does not diminish
through a lapse of time. This would be where the employer, for
example, had a unique and secret manufacturing
method that would
always be of great value to a competitor. However, where it comes to
confidential information relating to general
operations, marketing,
planning, finances, customer details and business plans, these
clearly become less and less relevant as
time progresses. After all,
the nature of business is that it must change to remain relevant and
competitive.’
[44]
Accordingly,
I am satisfied that the applicant has succeeded in establishing a
protectable interest in relation to both trade connections
and
confidential information, and in establishing the existence of a
breach / infringement of its protectable interest by the first
respondent, justifying the enforcement of the restraint of trade.
Other
considerations
[45]
Where
it comes to the quantitative and qualitative weigh off to be
conducted, the scope and period of the restraint is relevant.
A
shorter restraint and properly limited geographical area (if
applicable) would mitigate in favour of enforcement, whilst an unduly
long and broad restraint would mitigate against it.
[40]
It must also be considered whether the employee was possessed of the
skills, expertise, qualifications and experience before joining
the
employer, as it could be seen as unfair in the weigh off to prevent
the employee from earning a living under such circumstances.
[41]
In
Vumatel
(Pty) Ltd v Majra and Others,
[42]
the Court said:
‘…
The
nature of the industry is also an important consideration. The more
specialized the industry is, the more the weigh off will
favour the
employer, as it limits the scope of the restraint and leaves much
more avenues open to the employee to procure gainful
employment in
other industries. …
’
[46]
In
the current matter, the first respondent obtained all his skills and
knowledge in the course of his employment with the applicant.
He also
obtained all his experience in the industry in the course of his
employment with the applicant. He in fact agreed to stay
employed
with the applicant, under circumstances where he had resigned without
any restraint, in exchange for more money but then
signing a
restraint. He should be held to this bargain, as he made a
deliberative and conscious choice to stay with the applicant
on these
terms when he did not have to.
[47]
In
casu
,
the thrust of the first respondent’s attack on the restraint of
trade is based on the application of the weigh off. He in
essence
made a passionate plea founded on his own personal considerations
that the restraint be limited to a six months’
period, and only
to the area of Polokwane and surrounds. What the applicant was
willing to agree to up front is to only seek enforcement
of the
restraint for a period of 12 months, despite the restraint period in
the restraint itself being 24 months. In my view, the
12 month
restraint period is reasonable, and comparable to most authorities
where it comes to enforcing restraints of trade in
the sales
representative environment. There is simply no proper basis to reduce
the restraint of trade period to six months, as
pleaded for by the
first respondent.
[48]
As to
the restraint area, it is only limited to the Limpopo province. I
accept the applicant’s argument that the entire Limpopo
province is principally serviced out of Polokwane, and to only limit
the restraint area to Polokwane and surrounds, is an artificial
limitation which does not consider the reality of now business is
conducted in the province, and may well negate the restraint.
Even
though the applicant is a nationwide business, the restraint area is
only limited to the area where the first respondent was
actually
stationed, and where the customers he dealt with was based. There is
nothing unreasonable in the restraint area being
designated to be the
Limpopo province.
[49]
The
applicant has no alternative remedy available to it in this instance.
A future damages claim based on breach of contract would
be cold
comfort for business lost, in a market where as already said products
are readily interchangeable. It much more appropriate
to take the
first respondent completely out of the equation in the plumbing
industry, for a period of time, and have the risk to
the applicant
dissipate as a result. An interdict is the only way this can be
achieved. As held in
Esquire
supra
:
[43]
‘
As
I have stated above, the alternative remedy of a damages claim is
cold comfort to an applicant that seeks to enforce a legitimate
restraint of trade covenant. By the time a damages claim is heard,
the horse had bolted and the harm is done. That harm is very
difficult to repair. I am satisfied that, where a restraint of trade
is enforceable, the alternative remedy of a damages claim
in due
course is more apparent than real …
’
[50]
The
first respondent had the onus to provide proper information or
factual basis upon which the restraint period and/or area would
be
considered unreasonable. Other than in essence a plea for clemency,
the first respondent has provided no factual basis for such
a
finding. It must also be considered that the applicant was already
willing to compromise to reduce the restraint period by half.
In
Document
Warehouse (Pty) Ltd v Truebody and Another
[44]
the Court said:
‘…
.
In my view, the period of the restraint, as well as the geographical
area, are reasonable. The fact that the applicant has
been willing to
reduce the restraint period from three years to two years does not
affect its enforceability. In this application
however, other than
her bald
ipse
dixit
that
the period is excessive and unreasonable, Truebody makes out no case
for such assertions.
’
[51]
In
sum, and based on the aforesaid, the
Court
in
Ball
supra
[45]
held:
‘
In
my view, quantitatively and qualitatively, the interest of the first
respondent surpassed that of the appellant. The fact that
the
appellant stated that she did not intend and did not use any of the
information in favour of or for the benefit of the
second
respondent is irrelevant in determining whether the restraint is
reasonable, or in determining whether the restraint had
been
breached. Furthermore, in my view, there was no other fact or aspect
of public policy, at the time when the restraint was
to be enforced,
which required that the restraint be rejected. In the
circumstances, I am satisfied that the court a quo correctly
concluded that the restraint was reasonable and enforceable and in
granting relief accordingly.’
[52]
The
applicant has thus satisfied all the other requirements necessary for
the final relief it seeks against the first respondent
to be granted.
In short, the weigh off favours the applicant, it faces real
prejudice if relief is not granted in the form of the
risk created to
it by way of the first respondent’s employment with the second
respondent, and there is no suitable alternative
remedy available.
Conclusion
[53]
In
summary, the applicant has demonstrated the existence of a clear
right, having a legitimate and proper restraint of trade covenant
in
place with the first respondent, susceptible to being enforced, where
it comes to confidential information and trade connections.
The
applicant has also established that the first respondent is indeed
infringing on such protectable interest. The weighing off
of
interests favour the applicant and there is no intervening issue of
public interest. Finally, the applicant demonstrated the
existence of
an injury reasonably apprehended, and has no proper alternative
remedy available to it.
Costs
[54]
This
then leaves only the issue of costs. This Court has a wide discretion
where it comes to the issue of costs, considering the
provisions of
section 162 of the LRA. It must of course be considered that the
applicant was ultimately successful. It must however
also be
considered that the first respondent had just started employment at
the second respondent by the time this application
was brought. I
also consider that the first respondent was dismissed and did not
leave of his own accord to join a competitor.
The first respondent
was also not completely obstinate (albeit misguided), trying to
mitigate the situation by providing an undertaking
and pleading for
clemency. I also consider that the relief granted in this judgment
will leave him unemployed. For these reasons,
I exercise my
discretion by making no order as to costs.
[55]
For
all the reasons as set out above, I make the following order:
Order
1.
The
application is heard as one urgency.
2.
The
first respondent is interdicted and restrained until 1 October 2020
and in the province of Limpopo from being directly or indirectly
interested in or concerned with, in any capacity whatsoever:
2.1
The
second respondent;
2.2
Any
person, business, company, association, corporation, partnership,
undertaking whether incorporated or not which:
2.2.1
Carries
on business, manufactures, sells or supplies; or
2.2.2
Brokers
or acts as agent in the sale or supply; or
2.2.3
Performs
or renders any service.
in competition with
or identical or similar or comparative to that carried on, sold,
supplied, brokered or performed by the applicant,
being the sale of
plumbing supplies.
3.
The
first respondent is interdicted from directly or indirectly using or
disclosing the confidential information of the applicant
for his own
benefit or for the benefit of any third party, including the second
respondent.
4.
There
is no order as to costs.
_____________________
S. Snyman
Acting Judge of the Labour Court of
South Africa
Appearances:
For the Applicant: Advocate P Bosman
Instructed by: Webber Wentzel
For the First Respondent: Mr J
Matthee of Cranko Karp Attorneys
[1]
For the requirements of urgency see
Association
of Mineworkers and Construction Union and Others v
Northam
Platinum
Ltd and Another
(2016)
37 ILJ 2840 (LC) at paras 20 – 26, and in particular where it
comes to restraint of trade applications
Vumatel
(Pty) Ltd v Majra and Others
(2018)
39 ILJ 2771 (LC) at paras 4 – 5;
Ecolab
(Pty) Ltd v Thoabala and Another
(2017)
38 ILJ 2741 (LC) at para 20.
[2]
In
Continuous
Oxygen Suppliers (Pty) Ltd t/a Vital Aire v Meintjes and Another
(2012) 33 ILJ 629
(LC) at para 21 it was said that: ‘…
In
my view, litigants should be encouraged in any attempt to avoid
litigation, rather than rushing to court as a first option.
Litigation is costly and often unnecessary. …
’
[3]
See
Maqubela
v SA Graduates Development Association and Others
(2014)
35 ILJ 2479 (LC) at para 32;
Transport
and Allied Workers Union of SA v Algoa Bus Co (Pty) Ltd and Others
(2015) 36
ILJ
2148 (LC) at para 11.
[4]
See
Mozart
Ice Cream Classic Franchises (Pty) Ltd v Davidoff and Another
(2009) 30 ILJ 1750
(C) at 1761.
[5]
Setlogelo v
Setlogelo
1914 AD 221
at 227;
V
& A Waterfront Properties (Pty) Ltd and Another v Helicopter &
Marine Services (Pty) Ltd and Others
2006 (1) SA 252
(SCA) para 20. In particular, and where it comes to
restraint applications, see
Esquire
System Technology (Pty) Ltd t/a Esquire Technologies v Cronjé
and Another
(2011) 32 ILJ 601 (LC) at para 38 – 40;
Continuous
Oxygen
(
supra
)
at para 26;
Experian
SA (Pty) Ltd v Haynes and Another
(2013) 34 ILJ 529 (GSJ) at para 59;
Jonsson
Workwear (Pty) Ltd v Williamson and Another
(2014) 35 ILJ 712 (LC) at para 54;
FMW
Admin Services CC v Stander and Others
(2015) 36 ILJ 1051 (LC) at para 1.
[6]
Admitted facts
include facts that, though not formally admitted, simply cannot be
denied – see
Gbenga-Oluwatoye
v Reckitt Benckiser SA (Pty) Ltd and Another
(2016)
37 ILJ 902 (LAC) at para 16.
[7]
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634E 635C. These principles are, in sum, that the facts
as stated by the respondent party together with the admitted
or
facts that are not denied in the applicant party’s founding
affidavit constitute the factual basis for making a determination,
unless the dispute of fact is not real or genuine or the denials in
the respondent's version are bald or not creditworthy, 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.
[8]
(2013) 34 ILJ 2821
(LAC) at para 14.
[9]
Magna Alloys
and Research (SA) (Pty) Ltd v Ellis
[1984] ZASCA 116
;
1984
(4) SA 874
(A)
at
891B-C;
Reddy
v Siemens Telecommunications
(2007)
28 ILJ 317 (SCA)
at
paras 14;
Labournet
(Pty) Ltd v Jankielsohn and Another
(2017)
38 ILJ 1302 (LAC) at para 39;
Ball
(supra)
at para 13;
Esquire
(
supra
)
at para 26;
SPP
Pumps (SA) (Pty) Ltd v Stoop and Another
(2015)
36 ILJ 1134 (LC) at para 26;
Shoprite
Checkers (Pty) Ltd v Jordaan and Another
(2013) 34 ILJ 2105 (LC) at para 20.
[10]
Reddy (supra)
at paras 15 – 16.
See also
Fidelity
Guards Holdings (Pty) Ltd t/a Fidelity Guards v Pearmain
2001
(2) SA 853
(SE) where the Court said:
‘
The
Constitution does not take such a meddlesome interest in the private
affairs of individuals that it would seek, as a matter
of policy, to
protect them against their own foolhardy or rash decisions
’
.
[11]
[1993] ZASCA 61
;
1993 (3) SA 742
(A) at 767G-H.
[12]
Jonsson
(
supra
)
at para 44;
Van
Wyk
(
supra
)
at
para 15;
Esquire
(
supra
)
at paras 50 – 51.
[13]
Labournet
(
supra
)
at para 42;
Jonsson
(supra
)
a
t
para 44;
Vox
Telecommunications (Pty) Ltd v Steyn and Another
(2016)
37 ILJ 1255 (LC) at paras 28 – 29;
Shoprite
Checkers
(
supra
)
at paras 23 – 24;
Benchmark
Signs Incorporated v Muller and another
[2016] JOL 36587
(LC) at para 15.
[14]
Id at para 17. See
also
Labournet
(
supra
)
at para 40.
[15]
Dickinson
Holdings Group (Pty) Ltd and Others v Du Plessis and Another
(2008) 29
ILJ
1665 (N)
at
para 32;
Basson
(supra)
at 769 G –
H;
Bonnet and Another v
Schofield
1989
(2) SA 156
(D) at 160B-C
;
Hirt and
Carter (Pty) Ltd v Mansfield and Another
(2008)
29 ILJ 1075 (D) at para 37;
Esquire
(
supra
)
at para 27;
Sibex
Engineering Services (Pty) Ltd v Van Wyk and Another
1991 (2) SA 482
(T)
at
502E-F;
FMW
(supra)
at para 36;
Vox
(
supra
)
at para 30.
[16]
(2017) 38 ILJ 1302
(LAC) at para 41.
[17]
See
Dickinson
(supra) at
para
33;
Jonsson
(
supra
)
at paras 46 – 49;
David
Crouch Marketing CC v Du Plessis
(2009)
30 ILJ 1828 (LC
)
at para 21;
Esquire
(supra)
at
para 29;
Experian
(
supra
)
at para 19.
[18]
See
Rawlins
and another v Caravantruck (Pty) Ltd
[1992] ZASCA 204
;
1993
(1) SA 537
(A) at 541D-F;
FMW
(
supra
)
at paras 46 – 48;
Esquire
(
supra
)
at paras 31 – 32;
Experian
(
supra
)
at para 18;
LR
Plastics (Pty) Ltd v Pelser
[2006]
JOL 17855
(D) at para 26.
[19]
Caravantruck
(
supra
)
at 541F-I;
FMW
(supra)
at
para 45;
Aquatan
(Pty) Ltd v Jansen van Vuuren and Another
(2017) 38 ILJ 2730 (LC) at para 24.
[20]
See
Dickinson
(
supra
)
at para 38;
Stewart
Wrightson (Pty) Ltd v Minnitt
1979
(3) SA 399
(C)
at
404B-C;
Random
Logic (Pty) Ltd t/a Nashua
,
Cape
Town v Dempster
(2009) 30 ILJ 1762 (C) at para 32;
Experian
(
supra
)
at para 43;
Jonsson
(supra)
at
para 51.
[21]
See
David
Crouch
(
supra
)
at para 21;
[22]
In
Hirt
and Carter
(
supra
)
29 ILJ 1075 (D) at para 37 it was held: ‘…
.
Customer goodwill and trade connections have long been regarded as
proprietary interests worthy of protection
’.
[23]
[1992] ZASCA 204
;
1993 (1) SA 537
(A) at 541D-I. See also
Esquire
(
supra
)
at
para 27;
Continuous
Oxygen
(
supra
)
at paras 34 – 36;
FMW
(
supra
)
at para 45.
[24]
Compare
Medtronic
(Africa)
(Pty) Ltd v Kleynhans and Another
(2016)
37 ILJ 1154 (LC)
at
para 46.
[25]
(2006) 27 ILJ 2521
(D) para 41.
[26]
See
SPP
Pumps
(
supra
)
at para 30;
Continuous
Oxygen (supra)
at
para 42;
Medtronic
(Africa)
(Pty) Ltd v Van Wyk
(2016)
37 ILJ 1165 (LC)
at
para 30;
Vox
(
supra
)
at para 31.
[27]
(2015) 36 ILJ 1134
(LC)
at para 37.
[28]
Id at para 40.
[29]
Id at 542F-I
[30]
2008 (6) SA 229
(D) at para 15.
[31]
See
Reddy
(
supra
)
at para 20;
Den
Braven
(
supra
)
at para 17;
Point
2 Point Same Day Express CC v Stewart and Another
2009 (2) SA 414
(W) at para 14;
SPP
Pumps (supra)
at
paras 30 and 37;
Esquire
(supra)
at
para 27;
Continuous
Oxygen (supra)
at
para 34
.
[32]
2004 (4) SA 174
(W).
[33]
Id at para 22.
[34]
Id para 20.
[35]
(2016)
37 ILJ 1154 (LC)
at
para 40. See also
Van Wyk
(
supra
)
at para 34
.
[36]
[2006] JOL 17855
(D).
[37]
Page 35 of the judgment.
[38]
Page 55 of the judgment.
[39]
Id at para 38.
[40]
Labournet
(
supra
)
at para 43;
Continuous
Oxygen
(
supra
)
at para 47.
[41]
Automotive
Tooling Systems (Pty) Ltd v Wilkens and Others
(2007) 28 ILJ 145 (SCA) at para 8;
Labournet
(
supra
)
at paras 43 - 44;
Jonsson
(supra)
at
para 51.
[42]
(2018)
39 ILJ 2771 (LC)
at
para 39.
[43]
Id at para 40.
[44]
[2010] JOL 26270
(GSJ) at para 47.
[45]
Id at para 25.