Case summary was written by Celeste Frank and checked by Jordan Dias.
02 December 2020
Background:
The Respondent was employed by the First Applicant for nine years as a salesman. His employment was terminated due to a breach of a restraint of trade obligation, which was applicable during his employment. It was common cause that the Respondent was selling products to customers of the First Applicant, through a third-party company, Ryke Trading (Pty) Ltd (“Ryke”), of which a friend of his was a director, as substitutes for products that the customers would have bought from the First Applicant, also through the Respondent as salesman.
The Respondent used the First Applicant’s laptop and cell phone which were issued to him to facilitate these sales. His actions were discovered when the laptop and cell phone were returned to the First Applicant, after similar conduct was separately discovered. In addition, there was information which showed that the Respondent had taken note of information about product formulations, and that he had absolutely no reservations in challenging the Applicants out of their business.
The Respondent alleged that he was not currently employed by Ryke and that he does not have a financial interest in Ryke. He argued that, although there is a valid restraint of trade agreement, the Applicants did not prove a breach of the restraint clause after his employment had ended and that the restraint is unreasonable in its scope. On the other hand, the Applicants denied the aforesaid and referred the Court to the case of IIR South Africa BV (incorporated in the Netherlands) t/a Institute for International Research v Hall (aka Baghas) and Another,[1] which held that a former employer only has to show that the former employee could use confidential information, not that he has in fact done so.
COURT HELD
Firstly, the Court referred to the case of Experian Sa v Haynes[2]:
- “It is well-established that the proprietary interests that can be protected by a restraint agreement are essential of two kinds, namely:
- 1 The first kind consists of the relationships with customers, potential customers, suppliers and others that go to make up the business, being an important aspect of its incorporeal property known as goodwill.
- 2 The second kind consists of all confidential matter which is useful for the carrying on of the business and which could therefore be used by a competitor, if disclosed to him, to gain a relative competitive advantage. Such confidential material is sometimes compendiously referred to as ‘trade secrets.”
It was common cause that the Respondent had established relationships with the Applicants’ customers, not only as the Applicants’ salesman, but also in his capacity as agent or representative of Ryke. The Respondent sought to convince the Court that the confidential information to which he had access to, and to which he had obtained, was not the sort which he could use as he was not a chemist. He contended that since the First Applicant is the sole agent of the supplier, the information is of no use to him. Moreover, he indicated that some of the products with which he supplied the Applicants’ customers was not in breach of his restraint as it was not or could not be supplied by the Applicants. The Respondent had relationships with the customers which he has established over the years, and which he had already exploited to his own advantage.
In considering the principles of the case Experian Sa v Haynes, the Court held that the Respondent threatened both types of proprietary interests of which the Applicants are entitled to protect. The Applicants had thus made out a case for the enforcement of the restraint.
Secondly, the Court had to determine whether the restraint was reasonable and if not, what a reasonable period and or ambit of the restraint would be.
The Respondent tendered that he be restrained for a period of six months from taking up employment with any competitor in South Africa, and that after that six months had expired, he would not be restrained except with regard to two customers of the Applicant. The Applicants rejected this tender but contended that, at the very least, the relief should be granted.
The Court held that between twelve and eighteen months would be appropriate and necessary to protect the interests of the Applicants. The Court held that, since the prejudice to the Respondent appeared to be relatively little, it was satisfied that eighteen months was appropriate.
VALUE
In this case, our attention is drawn to the importance of the law on restraints wherein the Applicants must allege and prove the obligation and its consequent breach. Thereafter, the Respondent bears the onus to prove, if he wishes, that the restraint is unreasonable and unenforceable.
[1] 2004 (4) SA 174 (W)
[2] 2013 (1) SA 135 (GSJ)
