The Labour Court in South Africa recently considered whether a promotion nullified an original restraint of trade and other novel arguments raised by an employee who wanted to escape liability under a restrictive covenant contained in his employment contract.
The employee left the service of his employer to take up employment with a competitor. When his previous employer sought to interdict him from acting in breach of the terms of his employment contract (prohibiting him from working for a competitor), the employee claimed that the court should not enforce the restriction on his employment.
In Profibre Projects (Pty) Ltd v Govindsami (J14/18, judgment delivered 5 June 2018) the court made short shrift of his argument that he should not be bound to the restraint of trade provisions in his employment contract as he held a different role when he signed the agreement.
Judge van Niekerk stated as follows in respect of this claim:
‘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.’
In short, the restrictive covenant in the employment contract remains enforceable despite the employee’s change in role (and different responsibilities and exposure to trade secrets). It is conceivable that a narrowly drafted restraint of trade provision may apply only to a particular role (and not to a role accepted after the agreement was signed by the parties) but this would certainly be the exception to this general rule confirmed by the court.
Further aspects clarified by the court include:
- The employer’s inconsistent previous decisions (about enforcing restrictive provisions in respect of employees who left its employ) do not equate to unreasonableness in respect of the restraint it seeks to enforce. Each case will be judged on its merits and, at most, previous decisions may be indicative of the protectable interest it seeks to enforce.
- The court may read or pare the provisions down if too onerous, and it will allow the parties opportunity to make this case in its affidavits.
- The employer needs to show that there is confidential information to which the employee had access and could transmit (if so inclined). The employer is not required to show that the employee has used information confidentially.
- As to the customer connections, the employer merely has to evidence the existence of trade connections through customer connections which could be exploited by the former employee if employed by a competitor. Proof that this had actually been done by the competitor in the present case is not required.
It is worth remembering that, under South African law, the party seeking to resile from the restraint must prove that the agreement should not be enforced. This is unlike the position in certain other jurisdictions where the party seeking to enforce the agreement must show that it ought to be enforced.
The commonly held perception (that restraints of trade are not worth the paper they are written on) is often debunked in our courts.
Agreements in restraint of trade (restrictive covenants) play a valuable role in protecting trade secrets and managing unfair competition. Employers should consider the value of adding such provisions, especially to executive and key employment contracts.
Where existing employment agreements do not contain any such restrictions, employers may consider various lawful and fair mechanisms open to them to obtain employee consent to such agreements during employment. Restrictive covenant clauses, like lotto tickets, are only useful when you actually have one to use.