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 IN THE LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG

Not Reportable

Case No: J1544/21

In the matter between:

PAYFLEX (PTY) LTD                                                                                                        Applicant

and

JARRED DEACON                                                                                                First Respondent

HUGO MARE                                                                                                     Second Respondent

TYMEBANK LIMITED                                                                                       Third Respondent

Heard:           10 February 2022

Delivered:     This judgment was handed down electronically by circulation to the parties' legal representatives by email, publication on the Labour Court’s website and released to SAFLII. The date and time for hand-down are deemed to be 24 March 2022

JUDGMENT

MAKHURA, AJ

Introduction

[1]       This is an application to enforce a contract in restraint of trade.  The application was launched sometime in December 2021. It was postponed several times before it came before me on 10 February 2022. The applicant seeks an order interdicting and restraining the first and second respondents from:

1.1.      Taking up employment with the third respondent up and including 2 January 2023

1.2.       Breaching any of the provisions of the restraint undertakings in their respective contracts of employment with the applicant; and

1.3.       Disclosing the confidential information of the applicant obtained by them during their employment with the applicant to any third party including the third respondent.

Material facts

[2]       The applicant (Payflex) operates its business in the financial services and fintech industry and is the first and largest “Buy Now Pay Later” (BNPL) e-commerce business supplier in South Africa, with over 1200 merchants. The BNPL service is a sales methodology that permits consumers to buy goods from online retailers or merchants and pay for them in instalments without incurring interest charges. Payflex’s BNPL product constitutes two thirds of its sales volumes whilst one third of its business is generated from the Pay No product.

[3]       The third respondent (TymeBank), through its business division, MoreTyme, has entered the BNPL market. TymeBank does not however offer the Buy Now product. 

[4]       The first respondent (Deacon) was employed by Payflex as Head of Sales with effect from 15 June 2020. He resigned in December 2021 but was later dismissed by Payflex.

[5]       The second respondent (Mare) was employed by Payflex with effect from 26 July 2021 as Head, Sales Enablement and Growth Projects. Mare reported to Deacon. He also resigned from Payflex in December 2021.

[6]      It is common cause that Deacon and Mare (employees) signed contracts in restraint of trade in terms of which they undertook not to take up employment with a competitor of Payflex for a period of twelve months from the date of their resignation, in Sub-Saharan Africa.

[7]       In June 2021, TymeBank approached Deacon, Ben Clark (Clark) and Thomas Harraway (Harraway) with offers to join its MoreTyme division as sales agents to sell its MoreTyme BNPL product. Clark and Harraway were employed by Payflex as sales executives. They both reported to Deacon. 

[8]       After TymeBank’s approach, Harraway joined TymeBank with effect from 1 September 2021 and reports to David Pfaff (Pfaff), TymeBank Global’s Chief Financial Officer. It is common cause that Harraway’s contract of employment with Payflex did not contain a restraint of trade provision or agreement. Deacon and Clark did not join TymeBank.

[9]       On 3 December 2021, Deacon, Mare and Clark tendered their resignation from Payflex, with effect from 2 January 2022. As with Harraway, Clark did not have a restraint of trade agreement with Payflex. Deacon and Mare informed Payflex that they will be joining TymeBank.

[10]     On 6 December 2021, Payflex’s attorneys addressed a letter to the respondents requesting an undertaking that the employees would not take up employment with TymeBank. The respondents’ attorneys responded on 9 December 2021 advising that the employees would be performing work as sales agents for a different product which is different to the BNPL product.

[11]     On or about 10 December 2021, Payflex charged Deacon with various allegations of misconduct. Deacon was found guilty and dismissed with immediate effect on 17 December 2021.

[12]     After exchange of letters between Payflex and the respondents, Payflex approached this Court for an interdict.

The applicable legal principles

[13]    It is trite that a party who seeks to enforce a restraint of trade agreement need only establish the existence of the restraint agreement and prove that its terms have been breached. Thereafter, the onus is on the respondent opposing the enforcement of restraint to prove, on a balance of probabilities that the restraint agreement is unenforceable because it is unreasonable.[1]

[14]     The parties’ counsel provided this Court with comprehensive and incisive heads of argument and authorities, for which I must express my gratitude. It is clear from the pleadings and the heads of argument that the existence of the restraint agreement and the breach thereof are not in dispute. The contentious issue that remains is the reasonableness of the enforcement of the restraint agreement.

[15]      The Court in Basson v Chilwan[2] sets out the test for determining reasonableness or otherwise of a restraint of trade agreement. Four questions must be asked in this enquiry:

15.1.    Is there an interest of the one party which is deserving of protection?

15.2.    Is such interest being prejudiced by the other party?

15.3.    If so, does that interest weigh up qualitatively and quantitively against the interest ofthe latter party that he should not be economically inactive or unproductive?

15.4.    Is there another facet of public policy that requires that the restraint should either be maintained or rejected?

[16]     Restraint of trade agreements are not there merely to protect the former employer against competition from its ex-employee but as a necessity to protect the former employer’s proprietary interests. It is well established that the proprietary interests that can be protected are essentially the following:[3]

16.1.    All confidential information or matters that could be used by a competitor to gain a competitive advantage; and

16.2.    The relationship with customers, potential customers, suppliers and others that go to make up what is referred to as the ‘trade connection’ of the business.

[17]     I was referred to the judgment of this Court in ARB Electrical Wholesalers (Pty) Ltd v Texan Grove and Others,[4] where the Court, with reference to BHT Water Treatment (Pty) Ltd v Leslie and Another,[5] held that once it is shown that there is confidential information to which the employee had access to and which he could transmit to his new employer, the applicant is entitled to the protection afforded by the restraint agreement. The Court said that the applicant “should not have to content itself with crossing its fingers and hoping that the former employee will not breach the restraint”.      

[18]     Another important aspect that should be considered is whether the information that the employee had access to, is confidential or constitutes a trade secret. This is a factual question which must be determined by considering whether the information is useful and not in the public knowledge and property, whether it is known only to a restricted number of persons and whether it is of economic value to the applicant.[6]

[19]     Ultimately, as the Labour Appeal Court elaborated, this enquiry is essentially a value judgment that encompasses a consideration of two policies, being the duty by the parties to comply with the terms of their agreement and the right to freely choose and practice one’s trade, occupation or profession.[7] 

The current matter

[20]     The existence of the restraint agreement is not in dispute. It is also not in dispute that TymeBank, in the form of its MoreTyme division, offers BNPL product in competition with Payflex and that, by taking up employment with TymeBank, the employees did so in breach of the contract. The issue therefore is a narrow one – whether enforcing the restraint agreement is unreasonable. The onus is on the respondents to prove, on a balance of probabilities, that the restraint agreement is unenforceable.

[21]     On the papers, it is not in dispute that the employees had access to confidential information. Payflex argues that it should therefore not be made to cross its fingers with a hope that the employees would not breach their restraint agreement. The argument is developed to say that the restraint agreement was concluded to avoid this ‘unpoliceable danger’ of the employees sharing the trade secret of Payflex. 

[22]     The respondents argued that the restraint agreement is unenforceable because it is unreasonable. They advanced various grounds why this Court should find in their favour. I deal with these grounds below. 

[23]     First, the employees, though joining a competitor, will be employed to set up and operate a different part of TymeBank business and that they are not employed in the MoreTyme division which offers the BNPL product. The respondents explain in detail that TymeBank intends to launch new products in the market, under the supervision, direction and guidance of its Chief Strategy Officer, Greg Illgner (Illgner). Illgner is not involved in MoreTyme division and his key performance indicators are only on the two new products. Illgner reports to TymeBank’s Chief Executive Officer, Tauriq Keraan. MoreTyme division is headed by Pfaff, who reports to Coenraad Jonker, the Executive of TymeBank Global.   

[24]    The respondents, through Illgner, go into the details of these two new product offerings and demonstrate that they are different to the BNPL product. The first is the Pay2ID product which allows a business to securely disburse funds to specific individuals in several industries and the second is TymeAdvance, which allows employees to access a portion of their salaries in advance. They further explain the employees, in execution of their duties, would have no dealings with MoreTyme division and that there are no overlaps between the two divisions.   

[25]     The respondents’ second ground is that the BNPL product offered by Payflex is predominately on internet and online shopping, whereas MoreTyme division offers its BNPL product both online and in-store. Payflex had, at the time of resignation of the employees, only run a pilot phase for its in-store offering. Another distinction, so the respondents argued, is the way the product is structured. With Payflex, consumers pay their purchase over four equal instalments of 25% whereas with MoreTyme, consumers pay 50% upfront and thereafter 25% in two monthly instalments. With Payflex, any consumer may make use of the BNPL product when the merchant offers it whereas only customers of TymeBank may use the BNPL product.

[26]     Thirdly, the respondents argue that the BNPL industry is not highly competitive. This is denied by Payflex. The respondents elaborate on their version and that BNPL service providers can simultaneously offer their service to the same merchants, which allows the shoppers to choose any of the service providers. They explain further that the merchants are not bound to offer its shoppers one BNPL option and that they can offer shoppers the Payflex BNPL option and MoreTyme BNPL option, which allows the shopper to choose any one of them. In this regard, the respondents submitted a document which shows that Payflex and PayJustNow are available as options for certain merchants.

[27]     Pfaff leads the MoreTyme division of TymeBank. For 8 years prior to joining TymeBank, he was employed as the Chief Financial Officer of Truworths and had during that period, established relationships with various merchants. Harraway, who resigned from Payflex and took up employment with TymeBank, reports to Pfaff. The respondents’ version, through Pfaff and Illnger, is that there is no overlap between MoreTyme division and the division in which the employees are employed.

[28]    The employees will be reporting to Illgner. Illgner has, in his response to the applicant’s concern that the employees may inadvertently disclose confidential information to him, stated that his team will have no meetings with Pfaff’s team. He also stated that in their execution of duties, there would be no need for the employees to disclose the confidential information and that even if they do, such information would be of no use to him as it is irrelevant to the two product offerings that TymeBank intends to launch.

[29]     Illgner further dealt with the difference between the BNPL product and the two new products. He said that there is no risk of overlap and exploitation of relationship insofar as customer connection is concerned. Deacon said that he did not deal frequently with the merchants and his involvement was limited to the initial conclusion of the sale or the onboarding of merchants and thereafter, the merchants are handed over to the account managers. That it is the duty of account managers to service and or manage the merchants is not in dispute. Mare had only been employed by Payflex for five months prior to his resignation. Mare explained that he spent most of his time developing Payflex’s instore product, which by the time he resigned, had only been launched in few stores and was still at a pilot phase. Mare explained further that he also dealt with third-party product opportunities and assisted in legal compliance.            

[30]    The final ground advanced by the respondents is that the cat is already out of the bag. This is because Harraway, Payflex’s former Sales Executive, has already joined TymeBank and had no restraint undertaking. He is employed by TymeBank in its MoreTyme division, which directly competes with Payflex. In addition, Clark, who resigned with the employees, has no restraint undertaking and joined TymeBank in the same division as the two employees. Both Harraway and Clark were Sales Executives and explained in detail that they had access to Payflex’s confidential information. The respondents therefore argue that enforcing the restraint against them to protect confidential information in circumstances where both Harraway and Clark have joined TymeBank and are free to do so would serve no purpose. 

Analysis

[31]     The applicant has approached this Court seeking a final interdict. It is trite that in motion proceedings, any dispute of fact that arises must be resolved in accordance with the principles established in Plascon Evans Paints v Van Riebeeck Paints.[8] These principles entail that the facts as stated by the respondent together with the admitted facts or facts in the founding affidavit that are not denied, 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.[9]

[32]     It is common cause that TymeBank’s first attempt to recruit Deacon was unsuccessful. Deacon explains that after his discussion with Pfaff, it was apparent that MoreTyme division was in competition with Payflex and he could not take up that employment because it would have been in breach of the restraint. TymeBank managed to employ Harraway and he commenced his employment in September 2021.

[33]     Whilst the fact that the ex-employees have joined a competitor may on the face of it mean that there is a breach of restraint, this does not automatically mean that the restraint agreement is enforceable. What the ex-employees are employed to do at their new employer is an important factor to be considered in determining whether the restraint agreement should be enforced or not. This is so because an ex-employee can join a competitor but still have nothing to do with the business of his old employer in his new role with the competitor.[10]  

[34]     The respondents dispute, as far as Mare is concerned, that he had any relations with Payflex’s customers. Mare explained his involvement in Payflex’s business for the five months’ period that he was employed, which mainly related to the in-store product which was still at a pilot phase at the time of his resignation. This is not disputed by Payflex. Mare cannot therefore be said to have developed any customer connections during his five months stay with Payflex.

[35]     Deacon, on the other hand, explained that his involvement was limited. Once the customer is signed up by him, the customer is handed over to the account manager, who is responsible for the day-to-day management of the customer’s accounts. On this basis, Deacon’s argument, supported by Harraway and Clark, is that he had little to do with customers post onboarding. That account managers were responsible for management of customers’ accounts is not in dispute.     

[36]     On whether the industry was competitive, the respondents argued that it is not competitive. First, it is common cause that in addition to the BNPL product, Payflex also offers the Buy Now product, which is not offered by TymeBank. The respondents argued that Payflex’s product is offered predominantly on e-commerce platform, whereas MoreTyme operates actively on both e-commerce and instore. The instore offering by Payflex was still at a pilot phase. On this score, the evidence was also that Payflex is even behind its major competitor on BNPL product, being PayJustNow. I agree that this is an important distinction between the offerings by Payflex and TymeBank. Deacon has shared more details and reasons why merchants would offer more than one BNPL product. Further, the respondents disputed the allegation that merchants transact on an exclusive basis with one BNPL service provider. The respondents therefore urged the Court to accept their version that the BNPL industry is not competitive. I must accept the respondents’ version in this regard. The respondents have provided sufficient information to show that merchants offered more than one BNPL product.  

[37]     The respondents have explained that Deacon and Mare will be employed in a different division that is not in competition with Payflex. They explained this by providing in detail the division where Deacon and Mare will be employed and sharing details of the new products TymeBank intends to launch. They have also provided details of who they will be reporting to and that they will have no dealings with MoreTyme division. They have argued that there is no overlap or interaction between MoreTyme division (headed by Pfaff) and the division that the employees are employed in (headed by Illgner).

[38]      Reference was made to the matter of Mpact Operations (Pty) Ltd v Kirsty Whitehead and Another (Mpact).[11] There is, in my view, enough facts to distinguish the current matter from Mpact. In Mpact, the respondent contended that she would be working in a different division of the competitor (Polyoak). However, it was shown that although the competitor had various divisions at a regional level, all the divisions were managed through one regional manager. Further, it was found that the division in which the employee would be employed , at least in respect of certain products, was in competition with the division she worked in from her old employer. In the current matter, the respondents were able to, in my view, successfully demonstrate that the employees would be employed in a division that in no way competes with Payflex. Unlike in the Mpact matter, the respondents have also shown that there is no relationship or overlap between the MoreTyme division and the division in which they will be employed. The employees would be working on new products, the details of which have been shared in the papers. There is nothing to suggest that they will be using their access to confidential information with Payflex to TymeBank’s advantage and/or Payflex’s disadvantage.

[39]     Payflex argued that it does not need to rely on the bona fides of Deacon and Mare and TymeBank’s goodwill when there is a restraint agreement. The Court was also urged to draw a negative inference on Deacon’s credibility and that his bona fides are worthless. This is because before he left Payflex, it was discovered that he had an interest in a service provider which he had misrepresented and failed to disclose in breach of his good faith duties as an employee. He was found guilty in a disciplinary hearing and was subsequently dismissed. Deacon did not challenge the findings and dismissal, citing that he wanted to move on. I find it difficult why I should draw a negative inference against Deacon’s credibility solely on the findings by a disciplinary tribunal chairperson. Deacon did not challenge the findings because he wanted to continue with his life. In any event, the respondents’ case is not only based on Deacon’s evidence. The argument about bona fides and goodwill would have been more persuasive had the respondents made unsubstantiated allegations about the employees’ new employment. In the current matter, the respondents have comprehensively demonstrated, in my view, the unreasonableness of enforcing the restraint agreement.    

[40]     Payflex argued, with reference to Experian South Africa (Pty) Ltd v Haynes and Another,[12] that the purpose of a restraint is to safeguard against an ‘unpoliceable danger’ of disclosing confidential information to the competitor. The argument goes further that Payflex should not be made to cross its fingers and trust that TymeBank and the employees would not breach the restraint.

[41]     Whilst I accept the principle as argued by Payflex above, the difficulty with this argument in the present matter is that Harraway and Clark are already employees of TymeBank. Harraway works in MoreTyme division, which directly competes with Payflex. Harraway and Clark were Sales Executives of Payflex. On the papers before me, they had access to Payflex’s confidential and strategic information. Harraway and Clark were not restrained. There is nothing special that distinguishes Deacon and Mare on the one hand and Harraway and Clark on the other. It is however important to understand that the issue is not that because Harraway and Clark are not restrained, the restraint agreement against Deacon and Mare is not enforceable. The issue is that Harraway (employed from September 2021) and Clark (employed from January 2022) had access to the same confidential information. The fact that there were no restraint agreements with Harraway and Clark does not trivialise or relegate the importance of the fact that they had access to Payflex’s confidential information.

[42]     Accordingly, whilst Payflex has proprietary interest in the confidential information, in my view, the enforcement of the restraint against Deacon and Mare will not prevent the infringement of its interest. This is because Deacon and Mare will be working in a division that does not compete with Payflex, with no overlap between this division and the MoreTyme division, and merchants are free to sign up with more than one BNPL service provider.

[43]     In addition, the ‘restraint-free’ Harraway and Clark are currently employed by TymeBank and are free to share such confidential information. As Mr Whitcutt submitted, the cat is already well and truly out of the bag. There is nothing on the papers to suggest that there was any confidential information that only Deacon and Mare had access to which Harraway and Clark did not, which should be protected by enforcing the restraint agreement.

[44]     Accordingly, I find it difficult to comprehend how it would be reasonable to enforce a restraint agreement against Deacon and Mare when two former Sales Executives, with access to confidential information, joined TymeBank and one joined a division that directly competes with Payflex.

[45]     It is therefore my conclusion that the enforcement of the restraint agreement against Deacon and Mare would be unreasonable. Enforcing a restraint in this case will not protect Payflex from infringement of its protected interest but will simply serve to prevent Deacon and Mare from engaging in their trade, occupation or profession. Therefore, the interest of Deacon and Mare to be economically active and productive far outweighs the enforcement of the restraint agreement. Accordingly, the enforcement of the restraint is rejected as it would be unreasonable. The application must fail.

Costs

[46]     This being a contractual matter and not a matter in terms of the Labour Relations Act (LRA)[13], the question of my discretion in terms of section 162 of the LRA does not arise. There is no reason why costs should not follow the result. The parties have in any event asked for costs.             

[47]       In the premises, the following order is made:

Order:

1.           The application is dismissed.

2.           The applicant is ordered to pay the first and second respondents’ costs, including the costs of two counsel.

____________________

M. Makhura

Acting Judge of the Labour Court of South Africa

Appearances:

For the Applicant:              Adv. A Redding SC

Instructed by:                     Mervyn Taback Inc. t/a Anderson

For the Respondents:         Adv. C Whitcutt SC with Adv. C de Witt

Instructed by:                     Fluxmans Incorporated

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