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The Labour Court of South Africa, JOHANNESBURG

Not Reportable

case no: J123/21

In the matter between:

BULLDOG ABRASIVES SOUTHREN

AFRICA (PTY) LTD                                                                      Applicant

and

DAN LLEWELLYN DAVIE                                                             First Respondent

WADEVILLE PAINT (PTY) LTD                                                    Second Respondent      

Heard:           06 May 2021 (virtually- zoom)

Delivered:     20 May 2021 (via email to the parties)

Summary:     An application to enforce a restraint of trade is generally heard on an urgent basis provided the requirements of Rule 8 are met. Urgency follows as a matter of course when Rule 8 requirements are met. A party seeking to enforce a restraint of trade must allege and prove the agreement as well as its breach by the other party. Where unreasonableness is alleged, the party raising it bears the onus to prove it. Held (1): The first respondent is interdicted and restrained. Held (2): The first respondent to pay the costs of the application.

Judgment

MOSHOANA, J

Introduction

[1]           This is an application to restrain and interdict a former employee of the applicant. The application is opposed by the first respondent, Mr Dan Davies (the former employee). The applicant seeks, amongst others, to interdict him from continuing employment with a competitor and/or a prescribed customer of the applicant.

[2]           In opposing the application, the former employee persisted with three preliminary points. The first was lack of urgency; the second was lack of authority to institute the application; and the third was one seeking to strike out certain paragraphs in the founding affidavit.

Background facts

[3]           To a very large degree the facts pertinent to this application are common cause. The applicant is a manufacturer, distributor and seller for paints and abrasives. On 2 May 2006, the former employee was employed as a salesperson. He was previously employed by a company known as Pferd, a direct competitor of the applicant. In and around 2010, the former employee was promoted to be a national sales manager. At the time of his dismissal, he was operating at the level of national industrial sales manager. Throughout his employment, the former employee was remunerated on the basis of a small basic salary and commission, which was based on his sales.

[4]           In 2020, the former employee provided a discount to a customer known as Ace Auto. The discount set the applicant back an amount of about R120 000.00. The applicant was not pleased by this conduct and sought to recover the money from the former employee. The former employee proposed to repay the money by taking a voluntary retrenchment. This the applicant did not accept. Resultantly the relationship between the former employee and his superiors went sour. Unsavory messages were exchanged on a WhatsApp platform. Ultimately the applicant elected to institute disciplinary steps against the former employee. Following a disciplinary enquiry, the former employee was found guilty and dismissed on 22 December 2020. However, according to the former employee he was dismissed in June 2020 and was rehired by a company known as Yes. On this score the testimony of the applicant is that around June 2020, the company Yes took over its payroll and the former employee was not dismissed at that time.

[5]           Aggrieved by his dismissal, the former employee referred a dispute to the Commission for Conciliation, Mediation and Arbitration (CCMA) and alleged an unfair dismissal against the applicant. On 28 January 2021, a settlement agreement was reached and the former employee accepted a monetary settlement for the unfair dismissal dispute. On 14 January 2021, the former employee was offered and accepted employment with Wadeville Paint (Pty) Ltd (Wadeville) (the prescribed customer). He was employed by the prescribed customer as Abrasive Division New Business Development Manager (ADNBDM).

[6]           Upon discovery that the former employee took up employment with a prescribed customer in breach of the restraint agreement, the applicant sought an undertaking that the former employee will comply with the obligations. Various letters were exchanged but ultimately the undertaking sought was not given. On 5 February 2021, the applicant served this application and enrolled it for 18 February 2021. The application could not be heard because of some interlocutory processes taken by the former employee. These processes delayed the matter until 18 March 2021. On this day various points were taken by the former employee. On 24 March 2021, Acting Justice Van As delivered a judgment dealing with some of those interlocutory processes. The acting justice ordered that the prescribed customer be joined since the applicant initially cited a wrong party.

[7]           On 6 May 2021, the matter featured before me as a heavily opposed motion. The hearing was conducted over zoom application.

Preliminary points

[8]           As indicated above, the former employee persisted that the matter must not be heard as one of urgency. This Court extemporaneously ruled that the matter must be heard as one of urgency. The reasons are simply that, the former employee breached the restraint on 14 January 2021 and hardly four days thereafter, the applicant sought an undertaking not to breach the restraint. On 25 January 2021, the former employee refused to provide the undertaking sought. Ten days or so later, the applicant launched the present application. It has been persistently held by this Court and other Courts that restraint applications are inherently urgent. I do not find any reason to depart from that norm. The applicant did not sit back and do nothing upon being made aware of the breach. It was for these reasons that I exercised my judicial discretion to hear this matter as one of urgency.

[9]           The next point related to authority to institute the application. There is no merit in this point. The notice of motion is signed by attorneys and I have no doubt in my mind that the party launching the application is the applicant.[1]

[10]        The last point related to a strike out of certain paragraphs of the founding affidavit. Equally, there is no merit in this application to strike out. There is no legal basis to support an argument that the applicant has led inadmissible hearsay evidence. Accordingly, the application to strike out must fail.

Evaluation

Is there a restraint agreement?

[11]        There is no dispute that the first respondent signed a restraint of trade and confidentiality agreement. The former employee seeks to avoid its enforcement on the basis that it is no longer extant. He contends that since the applicant unlawfully retrenched him in July 2020, the applicant breached an implied term of the contract which breach entitled him to cancel the agreement on the basis of repudiation. He elected to cancel the agreement in March 2021, this being the time that he obtained information to allow him to exercise an election to cancel. This argument and/or contention is meritless.

[12]        In law, a party is entitled to elect cancelation and sue for damages if another party materially breaches the contract. That election must be made at the time of the breach. On the former employee’s own version, the repudiation happened in July 2020 and he mysteriously elect to cancel months later when he is being sued for breach.

[13]        In addition, the former employee contended that the agreement was signed under duress. Again this contention is without merit. The former employee had signed restraint agreements before and the evidence presented by the former employee does not support duress proper. No case for duress was made.[2] The conclusion I reach is that the restraint agreement is still extant.

Is the agreement enforceable?

[14]        As far back as 1984, Rabie CJ held that there is nothing in our common law which states that a restraint of trade agreement is invalid and unenforceable. It is in the public interest that agreements entered into freely should be honoured and that everyone should, as far as possible, be able to operate freely in the commercial and professional world. If the public interest is not prejudiced, a restraint of trade agreement would be enforced. It is important to emphasize that what would prevent enforceability is not the interest of an individual but that of the public. Nonetheless, it is not the first respondent’s case that the enforceability would offend the interest of the public.

[15]        When someone alleges that he is not bound by a restraint to which he had assented in a contract, he bears the onus of proving that enforcement of the restraint is contrary to the public interest.[3]

[16]        The first respondent bears the onus to disprove enforceability. This issue was authoritatively resolved by Botha JA in Basson v Chilwan and others [4], when he said:

“…the covenanter seeking to avert enforcement is required to prove on a preponderance of probability that in all the circumstances of the particular case it will be unreasonable to enforce the restraint…The covenanter is burdened with the onus because public policy requires that people should be bound by their contractual undertakings.

[17]        Other than technical defences, the former employee has no valid answer to the alleged breach of the restraint and the potential risk of disclosing confidential information. There is always a risk that former employees may use the confidential information they obtained during the course of their employment. The applicant need not show that the former employee actually used it. The risk is continuing and in terms of the agreement it can only be mitigated by the restraint for a reasonable period. The period of twenty-four months is that which the former employee agreed to and it is not unreasonable. I do not agree that the applicant does not have protectable interest worthy of protection. The applicant is entitled to protect its customer connections and trade secrets. There is uncontested evidence that when the former employee left Pferd, he took customers away in his pocket. The applicant is capable in his position held at the prescribed customers to lure clients away from the applicant. There is uncontested evidence that one of the customers of the applicant was made to complete a credit application form. The applicant knows the discount policy of the applicant, which constitute a trade secret of the applicant. Evidently he gave Ace Auto a discount.    

[18]    The former employee placed reliance on the decision of Oomph Out of Home Media (Pty) Ltd v Brien and Another[5]. In this judgment, the High Court in considering the last circumstance mentioned in Magna Alloys case, concluded that such circumstance should take into account the invasion of Covid-19. With considerable regret I am not in agreement with the findings reached by the High Court. On application of the stare decisis principle I consider myself not bound by these findings because they are clearly wrong. This Court per Van Niekerk J in Prima Interactive (Pty) Ltd v Lemon and others[6],correctly, in my view, concluded thus:

“[20]     …I am not persuaded that the approach adopted in that judgment ought to be followed…The court then turned to the issue of the reasonableness of the restraint and considered the circumstances which prevailed at the point of exit by the respondent from the applicant’s employ. The passage to which counsel referred is that in which the court made reference to the Covid-19 pandemic and the extent to which the pandemic would preclude the respondent employee from earning a living...

What this approach ignores is that Coronavirus is no respecter of persons, and that employers and employees are equally vulnerable in the face of the pandemic. While it is no doubt true that the pandemic has visited on our society and the economy in particular, businesses have not been unaffected. Restraint undertakings are sought to protect the legitimate proprietary interests of an undertaking. There is no reason, once those undertakings have been judged legitimate, that they must yield to the bare assertion that alternative employment would be difficult to secure, whatever the cause. The fourth stage of the enquiry established in Basson v Chilwan does not empower a court to make assumptions about the state of the labour market and introduce some factor, drawn out of context and in isolation, as a basis to reject a restraint undertaking. The appeal to the Constitution is equally misplaced – the maxim pacta sunt servanda equally has its roots in constitutional principle. As Malan AJA observed in Reddy v Siemens Telecommunications (Pty) Ltd 2007 (2) SA 406 (SCA), [C]ontractual autonomy is part of the freedom informing the constitutional value of dignity. 

[19]    To suggest that enforcing a restraint in Covid-19 situation is contrary to public policy is to stretch the meaning of public policy beyond what it is supposed to be. As consistently held, public policy requires that parties to a contract freely entered into to be bound by such a contract. It cannot be said that during the pandemic employment opportunities are completely closed out. At this juncture, this Court does not have tangible statistics but a judicial notice may be taken that South Africans continue to obtain employment in this country during this pandemic period. The former employee himself obtained employment during the pandemic lockdown period. Thus, I agree with Van Niekerk J that a Court is not empowered to make assumptions and thereafter refuse to enforce a legitimate restraint. What Rabie CJ was referring to was not instances like the current pandemic, but he was linking the prevailing circumstances to the boni mores of the society. I do not believe that the boni mores of the society will accommodate a complete shift from the maxim pacta sunt servanda because of the current pandemic. The pandemic is not a vis major, which renders the contractual performance impossible. In a vis major proper, a party must prove that its contractual performance is objectively impossible.  

[20]    During the pandemic employees do manage to breach their undertakings, therefore, why should an employer be gaged by public policy to enforce the breached agreement because of the pandemic? Such an approach does not, in my view, command to the rule of law.

[21]    In seeking to avoid the restraint, the former employee attempted an argument that since the applicant has unlawfully and or unfairly terminated his employment, it would be unreasonable to enforce the restraint on him. In Reeves and another v Marfield Insurance Brokers (Pty) Ltd and Another[7], Scott JA writing for the majority had the following to say:

“In the absence of fraud or a wilful wrongdoing the termination of the contract of employment in consequence of a breach or an unfair labour practice on the part of the employer would not on its own, I think, ordinarily carry much weight. In appropriate circumstances, however, such conduct, e.g. the repudiation of the contract by the employer and the nature thereof, may well serve to tip the scale in favour of the conclusion that it would be contrary to the public interest to enforce the restraint.

[22]    Earlier in this judgment I reached a conclusion that there is no repudiation case proven by the former employee. Accordingly, it shall not be contra bonos mores to enforce the restraint even if it can be said that the former employee was unfairly dismissed. The fact that the parties settled the unfair dismissal dispute cannot be ignored when one considers the interest of the public. Perhaps, had the parties not settled the dispute, the CCMA Arbitrator may have ordered the applicant to reinstate the former employee for reasons that his dismissal was unfair. Conversely, an Arbitrator may have reached a conclusion that the termination was fair, in which case the underlying cause of the termination becomes irrelevant for the purposes of the enforcement of a restraint. Companies enter into restraints of trade agreements for a reason. They seek to protect their proprietary interest. They are forever vulnerable and exposed and the only way in which they can prevent the vulnerability and exposure is to enter into such agreements.

[23]    The former employee also argued that because he was not paid anything in exchange of the restraint, it must not be enforced. There is no legal basis for this argument. Nowhere in the contract has the parties agreed that a specific fee shall be paid in consideration of the restraint. Nevertheless, the former employee by being employed by the applicant, he obtained an opportunity to earn huge sums of money in a form of commission. At the time of concluding the agreement, the former employee was free to name a price in exchange of the restraint. Having not done so, it is inappropriate to hoist that as a defence when sued for breach.

[24]    For reasons set out above, I come to an irresistible conclusion that the agreement is enforceable. The former employee failed to discharge its onus to prove that the agreement is unreasonable and contrary to the public interest.

Was the restraint breached?

[25]        It is trite that a party in motion proceedings is to make his or her case in the founding affidavit[8]. The applicant has made such a case. The former employee does not dispute employment with Wadeville, a prescribed customer of the applicant and a potential competitor. In terms of the restraint, the former employee agreed not to be employed by a prescribed customer or a competitor.

[26]        As indicated earlier, when someone alleges that he or she is not bound by a restraint to which he had assented to in a contract, he or she bears the onus of proving that enforcement of the restraint is contrary to the public interest.[9] I have already found that the former employee failed to discharge the onus. Since the former employee is in the employ of Wadeville, a prescribed customer, by that act alone, he is in breach of the restraint. The popular phrase in matters of this nature is that employees carry a customer in the pocket when they leave employment. Ironically, in casu, the customer carried the former employee in its pocket upon termination of employment with the supplier and a potential competitor.   

[27]        I am therefore satisfied that the former employee is in breach of the restraint. Accordingly, his conduct is prejudicing the applicant’s protectable interest. On the basis of the above breach, the applicant is entitled to the relief sought.

Issue of costs.

[28]        The LAC in Ball v Bambelela Bolts (Pty) Ltd[10] has already decreed that since these matters raise a constitutional issue-breach of section 22 of the Constitution, a rule of costs following the results does not apply. However, it ought to be borne in mind that these applications are launched in terms of section 77 (3) of the BCEA[11]. Therefore, the Labour Court sits as a civil Court. I do not find any exceptional circumstances that will prevent the application of the rule that costs must follow the results. In as much as I agree with Van Niekerk J that in section 77 (3) applications, costs follow the results, I with considerable regret disagree with a finding that section 162 of the LRA does not apply.

[29]        In my respectful view section 77 (3) of the BCEA only affords the Labour Court concurrent jurisdiction but does not turn the Labour Court into a High Court. When it comes to costs of whatever nature, the Labour Court as a creature of the LRA is bound by the provisions of the LRA. In my view section 162 of the LRA does not of itself exclude the rule of costs following the results[12]. I take a view that the rule is perfectly accommodated in the phrase “according to the requirements of the law.”

[30]        The Constitutional Court has already held that where there is no longer an employer and employee relationship, the rule of costs following the results must apply in the Labour Court.[13] In this instance there is no longer an employer and employee relationship as such the rule of costs following the results must apply.

[31]        Perhaps it is important to elucidate upon the approach in Ball supra. In exact terms the LAC stated the following:

“[30]     …If constitutional matters are raised or defended in good faith and not vexatious and the issues raised have merit or are important, like the violation of a right guaranteed in the Bill of Rights, and the proceedings that ensued, resolved those issues, the party complaining of violation, even if unsuccessful, would, generally, not be ordered to pay the costs.

[31]      …In my view, the requirements of law and fairness dictate that the court a quo should not have ordered her to pay the costs even though she was unsuccessful. 

[32]        In coming to the above conclusion, the LAC was influenced by what Ackerman J said in Motsepe v Commissioner for Inland Revenue[14]. He stated the following:

“[30]     …In my view one should be cautious in awarding costs against litigants who seek to enforce their constitutional right against the State, particularly where the constitutionality of the statutory provision is attacked, lest such orders have an unduly inhibiting or ‘chilling’ effect on other potential litigants in this category. This cautious approach cannot however, be allowed to develop into an inflexible rule so that litigants are induced into believing that that they are free to challenge the constitutionality of statutory provisions in this Court, no matter how spurious the grounds for doing so may be or how remote the possibility that this Court will grant them access. This can neither be in the interests of the administration of justice nor fair to those who are forced to oppose such attacks.  

[33]        What is observed in those judgments is that there must be a constitutional matter raised in good faith against the State. No constitutional issue was raised by the former employee. It never was the complaint of the former employee that his rights guaranteed in the Bill of Rights are implicated by the enforceability of the restraint. His defences as outlined above obliquely lie far from the right guaranteed in the Bill of Rights. The constitutionality of restraints undertaking is long resolved in Reddy supra. The matter does not involve the State[15]. Most importantly, the LAC applied the requirements in section 162 of the LRA in overturning the cost order in Ball.

[34]        Mr Mushet, appearing for the applicant forcefully argued that this Court must make an order for punitive costs, this taking into account the manner in which the former employee litigated in this matter. I agree with Mr Mushet that a 70 paged answering affidavit as well as Rule 35 (11) and (12) requests and the challenge of the authority were unwarranted actions. However, such does not warrant a punitive cost but warrant an ordinary order of costs regard being had to the provisions of section 162 (2) (b) (i) and (ii) of the LRA. I disagree with Mr Hodge, appearing for the former employee, that it follows that since section 22 of the Constitution may be implicated in matters of this nature a cost order is not warranted against litigants. All the defences raised by the former employee are meritless and appear to be more of an afterthought. The former employee knew when he took up employment with a prescribed customer that such was a breach of an undertaking he freely entered into. To fiercefully oppose this application, in the manner in which he did was wholly unreasonable and warrants a cost order.

Conclusion

[35]        I come to the conclusion that there is a valid and enforceable restraint and that the interest of the applicant is worthy of protection. I am satisfied that the former employee is prejudicing such an interest.   

[36]        In the results the following order is made:

 Order

1.            This application is heard as an urgent application in terms of Rule 8 of the rules of the above Honourable Court and the applicant’s non-compliance with the forms and service provided for in the Rules of Court are condoned in terms of Rule 6(12) of the Uniform Rules of Court and the time periods and rules pertaining to service are condoned.

2.            The first respondent is restrained and interdicted for a period of 23 December 2020, namely, 24 (twenty-four) months, being as from 23 December 2020 to 22 December 2022 within the entire Republic of South Africa from:

2.1.        Soliciting, interfering with, or enticing or attempting to entice away from the applicant any prescribed customer and/or client; and

2.2.        Soliciting, interfering with, or enticing or attempting to entice away from the applicant any prescribed staff; and

2.3.        Directly or indirectly interested, engaged, concerned, associated with or employed whether as proprietor, partner, director, shareholder, employee, consultant, contractor, financier, principal, agent, representative, assistant, adviser, administrator or otherwise and whether for reward or not with any competitor and/or any company, firm, business, undertaking, concern or other association of any nature which carries on, directly or indirectly, any form of business similar to that of the specified activities or engage in any activities of any nature which or is likely to compete with the applicant in its specified activities; and

2.4.        Directly or indirectly, or take up employment or solicit the prescribed customers of or transact any business or deal with any person, firm, body corporate or incorporation which is a prescribed customer or client or potential customer or client of the applicant or was a customer or client of the applicant; and

2.5.        Acquire any interest or shareholding in connection with any firm, business, company, enterprise, partnership or other association of persons who or which carries on any of the specified activities of the applicant within the prescribed area, directly or indirectly, or take up employment or solicit the prescribed customers of or transact any business or deal with any person, firm, body corporate or incorporation which is prescribed customer or client or potential customer or client of the applicant or was a customer or client of the applicant at any time during the 2 (two) year period; and

2.6.        Revealing to any person, firm, partnership, company, corporation or competitor of the company any confidential information, technical know-how, trade secrets or information concerning the applicant any of the specified activities of the applicant or any details of the prescribed customers, distributors or suppliers of the applicant during the restraint period; and

2.7.        Whether for his own benefit or that of others attempt to make use or avail himself of or derive any profit or any other benefit from any confidential information, know-how, trade secrets or knowledge which specifically relates to the specified activities and/or the business or affairs of the applicant or any other prescribed customers or suppliers or distributors which the first respondent may have acquired by reason of the first respondent’s position in or association or employment with the business of the applicant or the applicant’s specified activities.

3.            The second respondent is interdicted from facilitating and/or employing and/or continuing and/or entering into business relationship with the first respondent which is in breach of the first respondent’s restraint of trade agreement.   

4.            The first respondent (Dan Llewellyn Davies) to pay the costs of this application such costs to include the costs of 18 March 2021.

_______________________

GN Moshoana

Judge of the Labour Court of South Africa.

Appearances

For the Applicant:               Mr S. J. Mushet.

Instructed by:                      Darran Ledden Incorporated, Johannesburg.

For the Respondents:         Mr D. S. Hodge.

Instructed by:                       Dingley Marshal Lewin Attorneys, Cape Town.

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