IS IT A BENEFIT TO THE EMPLOYERS AND / OR A BURDEN TO THE EMPLOYEES?
INTRODUCTION
In a competitive business industry, for an entrepreneurs’ ship to sail in a sea of economic challenges, it is important to protect covenant of confidentiality and proprietary business interests (trade secrets). The question that is often asked is whether an employer can exclusively rely on covenant of confidentiality and Restraint of Trade to protect its trade secrets and what effect it has on public policy. In the recent judgment in the Western Cape High Court in the matter of Checkers (Pty) Ltd v Kgatle and Another (4996/(2023) [2023] ZAWCHC 159 (4 July 2023) the Court had to balance enforcing a Restraint of Trade against public policy.
THE LEGAL FRAMEWORK OF RESTRAINT OF TRADE
Restraint of Trade is a clause in a Contract of Employment with the aim of protecting an employer’s proprietary interests, the implication of a Restraint of Trade arose inter alia when employee terminates employment. The employee is restricted from working for a competitor or establishing a business in competition with the employer post termination of an Employment of Contract with the employer.
Even though every citizen is free to engage in any trade, profession, or occupation of their choice, South African employees are still subject to legal and strictly enforceable restrictions. For a Restraint of Trade to be enforceable it must be reasonable. If restrictions are against public interests and policy, they will deemed unreasonable. The Courts are also reluctant to enforce Conditions of a Contract that have a negative impact on public interests.
The doctrine of restraints of trade flows from common law. Common law recognises the principles of Restraint of Trade and these principles have evolved over years and are instrumental to the Courts to satisfy the reasonable test, namely:
- The clause must be reasonable, such that it indicates the prescribed time in which the Restraint of Trade is effective and specify the geographic area it applies.
- The clause must protect a legitimate interest, aiming to protect the trade secrets of the business.
- The clause must not be contrary to public policy, has nothing to do with the parties involved with Restraint of Trade, but rather the general public which will come to determine its developments and rejection.
In Shoprite Checkers (Pty) Ltd v Kgatle and Another (4996/(2023) [2023] ZAWCHC 159 (4 July 2023) Tebogo Kgatle (herein after ‘First Respondent) was employed by Shoprite ‘applicant’ since 2021, the First Respondent’s Employment Contract with the Applicant contained a Restraint of Trade clause. The first Respondent resigned from employment and stated that he was taking up employment with the Second Respondent who was a competitor of the Applicant, as a result the Applicant launched an urgent Application to enforce a covenant of confidentiality and a Restraint of Trade. The First Respondents’ core defence was that the Restraint of Trade should not be enforced because of reasons of public policy.
The legal question before the Court was whether the Restraint of Trade should be enforced or not. The Court had to consider the balance of convenience. It was evidence before Court that the First Respondent was offered the opportunity to withdraw his resignation by the applicant. Not only was the First Applicant afforded an opportunity to withdraw his resignation, but the Applicant also made an undertaking that he was prepared to accept the withdrawal of such a resignation. An invitation which the First Respondent declined to take. In the premise the Court was called upon to make a pronouncement on issues before it. In establishing whether the Restraint of Trade clause should be enforced the Court considered whether the parties negotiated with equal bargaining power and understood what they agreed to.
It must be borne in mind that ordinarily, the Court may refuse to enforce specific contractual terms of a Contract, especially if such terms would be contrary to public policy. In the current case, the Court ruled in favour of the applicant and based its reasoning on the facts that the relief sought would not affect public policy. As a result, the First Respondent was restraint from disclosing any confidential and proprietary information of the Applicant, and the restraint was valid for a year from the date of resignation and within the geographic area of South Africa.
CONCLUSION
The decision in Shoprite Checkers has once more again demonstrated that our Courts are readily prepared to order Restraint of Trade to safeguards business communities’ protectable interests. However, before, the Courts can order protection of such protectable interest, it will take into consideration factors such as whether there are protectable economic interests of the employer, whether the restraint is reasonable as far as the geographical area is concerned. The Court will also look at the duration of the interest to be protected and whether public policy sanctions it.
Lessons to be drawn from In Shoprite Checkers (Pty) Ltd v Kgatle and Another, is that both parties entering the Agreement should have equal bargaining powers and understanding of the terms of the contract. It is important for an employee to negotiate the terms of the clause before signing the Agreement and the employer must consider that Restraint of Trade is aimed at protecting the proprietary interests concurrently in line with public policy.
Authored by Ms Natalie Marisamhuka, a Candidate Attorney in the employment of RW Attorneys, with Mr Nelson Tjiane providing oversight.