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THE LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG

JUDGMENT

Not Reportable

Case no: J2797/16

In the matter between:

VALUE LOGISTICS LIMITED	Applicant
and
CHARLES RATHBONE	First Respondent
BAKER TRANSPORT (PTY) LIMITED	Second Respondent

Heard: 6 December 2016

Delivered:  22 December 2016

JUDGMENT

RABKIN-NAICKER J

[1] This matter was set down on December 1, 2016 when the matter was postponed for the filing of further papers with costs to be costs in the cause. The applicant company (Value Logistics) seeks a final interdict to enforce a restraint of trade undertaking against the first respondent (Rathbone).

[2] In particular, the applicant seeks in its papers to restrain Rathbone from:

2.1. For a period of two years from 22 November 2016 from being directly or indirectly employed by the Second Respondent in competition with the Applicant’s business with a 75 km radius of any of the Applicant’s business premises throughout the Republic of South Africa;

2.2. soliciting or touting for any clients of the Applicant or suppliers or any other connections of the Applicant or to seek to  solicit, tout for or entice away any of the staff of the Applicant or any of the Applicant’s clients, for a period of two years from 22 November 2016;

2.3. utilising any confidential information concerning the business or affairs of the Applicant which may have come to his knowledge during his employment with the Applicant

[3] I requested the parties to attempt settlement in this matter. This was not successful and pursuant to the attempt, in an open with prejudice tender in court, Ms Franck on behalf of the applicant stated it tendered an amended clause 2.2 of the Notice of Motion, in that the duration of the restraint be changed to 1 year and the area of operation be within 75 km radius from the Elandsfontein and Cato Ridge branch of the Applicant’s business premises.

Background Facts:

[4] The Applicant’s principal business is warehousing and distribution (generally referred to as “logistics”. It provides a range of services which include distribution, transport, clearing and forwarding, warehousing, container and fleet management, forklift and commercial vehicle rental and leasing.

[5] Since 2002, in the course of his employment with the Applicant, Rathbone worked his way up from a checker to the position of warehouse operations manager. In terms of his contract of employment which he signed after becoming a permanent member of staff in August 2003, he is bound to a restraint of trade which reads as follows:

“12. RESTRAINT OF TRADE

12.1     You agree that in the nature of your employment you will have access to confidential information of the Company and may develop relations with the Company’s customers. You agree that the restraints set out in this clause are reasonable and necessary in duration, scope and area, to protect the Company’s proprietary information and business interests.

12.2     During your employment and for a period of 2 years after the termination of your employment for any reason:

12.2.1  You will not knowingly be directly or indirectly employed, have an interest in or be engaged within a radius of 75 kms of any of Company’s premises with any company, firm or business which competes with the business of the Company; anywhere in South Africa.

12.2.2 You will not solicit or tout for any clients of the Company or suppliers or any other connections of the Company, nor shall you seek to solicit, tout for or entice away any of the staff for the time being of the Company or any of the Company’s clients.

12.3     Each of the restraints set out above shall be regarded as separate and severable. If any one or more of the restraints set out above are invalid or unenforceable for any reason, the validity of any of the other restraints shall not be affected. Each of the separate restraint set out above may, if it goes too far to be enforceable, nevertheless be enforced to such lesser extent as may be required by the Company and shall be interpreted accordingly.

12.4     By your signature to this agreement you acknowledge that the restraints set out above are fair and reasonable and necessary to protect the interests of the company.

12.5     For the purposes of this clause 12, “Company” shall mean, all companies, their respective divisions and subsidiaries within the Value Group of Companies.”

[6] Rathbone”s contract of employment also bound himself to the applicant’s confidentiality policy which applies in perpetuity. In terms of Clause 11 of the contract it is stated inter alia that:

“You shall not , either during  the continuance of your employment or thereafter; use to the detriment or prejudice of the Company or, except in the proper course of your duties, divulge to any person any trade secret or any other confidential information concerning the business affairs of the Company which may have come to  your knowledge during your employment.”

[7] On 21 February 2013, Rathbone was promoted to a despatch manager, working for a single client of Applicant’s being Samsung Electronics S.A. (Pty) Limited (Samsung). On 8 December 2014 he was promoted to a warehouse manager. Approximately two months before this application was launched Rathbone was promoted to warehouse operations manager. According to the Applicant this was a ‘senior position’ within the company. It is further averred that Rathbone formed close customer connections with various logistics manager’s in Samsung, in particular a Mr Daniel Devraj Naicker (Naicker). Naicker is described as a local delivery manager by Applicant but in his answering papers Rathbone states that he is the Logistics Supervisor at Samsung.

[8] Approximately 18 months ago, Samsung formed a company called Samsung SDS Global SCL South Africa (Pty) Limited (“Samsung SDS”). For Samsung this was a cost saving exercise and the Applicant deals with Samsung SDS in respect of certain aspects of the logistics it performs for Samsung.  Samsung has been a major long-standing customer of the Applicant and one of the main reasons why the Applicant in fact built a warehousing and distribution centre in Cato Ridge, KwaZulu-Natal in and during 2012, to be closer to the Durban port, in order to service the specific needs of Samsung (this was built prior to the formation of Samsung SDS). Samsung SDS controls the supply chain of Samsung and the Applicant is appointed by Samsung SDS to handle a portion of Samsung’s supply chain.

[9] Rathbone resigned on 21 October 2016 and advised the applicant that he was moving to Lydenburg to open a bottle store. However on about 11 November 2016 it emerged that he had joined the Second Respondent, a direct competitor with Applicant. The deponent to the founding papers, the senior warehouse operations manager, avers that he found it particularly alarming that Naicker ‘secured’ an interview for Rathbone at the Second Respondent. The Second Respondent’s business is conducted from Johannesburg and Durban and is conducts logistics business consisting of warehousing and transportation.

[10] The Applicant avers in particular in respect of Rathbones employment with second respondent:

“The Second Respondent is not in a position to offer specialised warehousing to Samsung as it lacks the necessary skill to do so. The Second Respondent has hired the First Respondent, in my view, to provide the Second Respondent with the necessary skills that the First Respondent has obtained throughout the course of his employment with the Applicant, in order for the Second Respondent to procure the business of Samsung, at the Applicant’s cost…..”

[11] The applicant avers that Rathbones attended to the following in his duties:

11.1 In respect of receiving goods: inbound planning, resource planning, space planning.

11.2 In respect of warehousing: every single aspect of warehousing including stock allocations, inventory management, stock reports, stock comparison, book to books, volume reports, overtime recoveries, sundry recoveries, standard warehousing, stock takes, customer liaison, receiving and implementing instructions from client. He was privy to the monthly profit and loss statements as well as the Applicant’s general ledger.

11.3 Dispatch: planning, work in progress report, track and trace, POD control, delivery alignment in terms of service level agreements.

11.4 Compilation of reports on: inventory management, warehouse space utilisation, volume reports, inbound/outbound.

11.5 Operational: the management of staff.

[12] It is Rathbones case that as a warehouse manager with no involvement in sales or senior management he has dealt with customers on an operational and logistical level only. He submits that he should not be precluded from exercising his skill and experience in the public domain. He avers that he was not placed in possession of any confidential information that would not have been available to any other logistics company or was secret of value to a competitor. He dealt with the mechanics of warehousing and was not involved with sales, the procurement of business and clients or with procuring clients for applicant’s business.

[13] Rathbone avers that he had no ties with central or senior management and did not deal with suppliers. As operations manager in the Second Respondent’s employ he still has no dealings with customers apart from on a purely operational level. It was submitted on Rathbones behalf that the destination of products, the time it takes to deliver them, and the running and managing of a warehouse is not confidential in nature and is information readily available to the logistics industry. 

[14] It was further submitted by Mr Snider that a confidential affidavit filed by the applicant took the applicant’s case no further and in fact supported the contention that Rathbone had no access to confidential information. The documents attached he submits, are not confidential in nature and do not contain information that could have been retained by Rathbone by memory and there is no evidence, despite a forensic examination of his laptop, that he has any of this information. He submitted as follows with reference to Rathbone’s papers:

14.1 The document attached to the confidential affidavit as CDA1 is a billing sign-off sheet. The Applicant contends that it contains charges per cubic metre, labour charges and recoveries in respect of warehousing costs. In fact it contains answers of a yes or no nature. It informs whether the invoicing department should or should not charge for services rendered. It contains no charges at all. Whether or not the applicant performed billable services in a particular month is not confidential information and of no value to any competitor.

14.2 CDA2 to the confidential affidavit is a Stock Movement Report. It sets out what stock arrived, the weight etc. of the parcels and generally whether it was delivered or not. This changes on an on-going daily basis. It is not useful to a competitor and not of economic value to the applicant. In addition, having regard to the nature of this information and to the fact that it changes daily, the first respondent would not be able to remember this detail from one day to the next.

14.3. The applicant is a public company. The size of its business, as per its published financial statements is a matter of public record.

14.4 CDA3 is a space utilisation report. The information it contains is limited to parcel codes, dimensions and quantities, which also changes on a daily basis as stock arrives and leaves for final destination. It contains no costs, charges or secret stock formula and is of no use to a competitor.

14.4 The staged stock billing report attached to the confidential affidavit as CDA4 is of no use or economic value to a competitor. It quite simply shows what items were returned to the warehouse, the reason for the return and whether or not Samsung should be charged for the storage thereof. It contains no rates or charges.

14.5. Likewise CDA5 (an overtime recovery report) reflects what a simple clocking-in system would reveal. It reflects the employees that worked overtime, the duties performed by them and the hours so worked. It contains no actual costs. It is not a secret or of any use to a competitor. Such information would be widely known.

14.6. CDA6 the insurance report, required little attention from the first respondent. He simply added the number of days in a relevant month and sent it on to the invoice department. The costs of insurance cannot give the second respondent any competitive advantage.

14.7. In CDA7 the dimensions and weight of parcels is recorded. It contains no details whatsoever but simply serves to illustrate what space has been taken up in a particular day or month. This cannot be said to be confidential information for purposes of the relief that the applicant seeks. It is of no value to a competitor.

14.8. The additional labour report attached as CDA8 is nothing more than a report on the number of employees who worked overtime. This is not confidential and contains no charges or costs.

14.9 The last document attached to the confidential affidavit (as CDA9) does not contain any confidential information. It also sets out the dates and hours worked by any particular employee during a month. The first respondent was not responsible for this report and only completed it once.

[15] The Applicant has emphasised that Rathbone had access to it general ledger and profit and loss statement. Rathbone avers that he was never required to report or present on these figures and accordingly paid them little regard. No mention is made of special trade secrets or formulas in applicant’s papers.

The applicable legal principles:

[16] The law as it applies to restraints of trade was most usefully summarised by Mbha J in Experian South Africa (Pty) Ltd v Haynes and Another[1] as follows:

“Legal principles applicable to agreements in restraint of trade

[12] The locus classicus on this subject is Magna Alloys and Research (SA) (Pty) Ltd v Ellis [1984] ZASCA 116; 1984 (4) SA 874 (A) at 897F – 898E, where Rabie CJ summarised the legal position, inter alia, as follows:  

[12.1]   There is nothing in our common law which states that a restraint of trade agreement is invalid or unenforceable.

[12.2]   It is a principle of our law that agreements which are contrary to the public interest are unenforceable. Accordingly, an agreement in restraint of trade is unenforceable if the circumstances of the particular case are such, in the court's view, as to render enforcement of the restraint prejudicial to the public interest.

[12.3]   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. 

[12.4]   In our law the enforceability of a restraint should be determined by asking whether enforcement will prejudice the public interest.

[12.5]   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….

[14] The position in our law is, therefore, that a party seeking to enforce a contract in restraint of trade is required only to invoke the restraint agreement and prove a breach thereof. Thereupon, a party who seeks to avoid the restraint bears the onus to demonstrate, on a balance of probabilities, that the restraint agreement is unenforceable because it is unreasonable.

[15] The test set out in Basson v Chilwan and Others supra at 767G – H for determining the reasonableness or otherwise of the restraint of trade provision, is the following:

[15.1]   Is there an interest of the one party which is deserving of protection at the termination of the agreement?

[15.2]   Is such interest being prejudiced by the other party?

[15.3]   If so, does such interest so weigh up qualitatively and quantitatively against the interest of the latter party that the latter should not be economically inactive and unproductive?

[15.4]   Is there another facet of public policy having nothing to do with the relationship between the parties, but which requires that the  restraint should either be maintained or rejected?

[16] In Kwik Kopy (SA) (Pty) Ltd v Van Haarlem and Another  A  1999 (1) SA 472 (W) ([1998] 2 All SA 362) at 484E Wunsh J added a further enquiry, namely whether the restraint goes further than is necessary to protect the interest.

[17] The question for this court to determine is whether on the facts of this matter, the Applicant has an interest which is sufficiently deserving of protection and if so, whether any of the other enquiries laid down in Basson v Chilwa would lead the court to find the restraint unreasonable.

[18] It is well established that the proprietary interests that can be protected by a restraint agreement are of two kinds. The first consists of the relationships with customers, potential customers, suppliers and others that go to make up what is  referred to as the 'trade connections' of the business, being an important aspect of its incorporeal property known as goodwill. 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 referred to as 'trade secrets'. [2]

[19] In Rawlins and Another v Caravantruck (Pty) Ltd [3] Nestadt JA stated that —   

'(t)he need of an employer to protect his trade connections arises where the employee has access to customers and is in a position to build up a particular relationship with the customers so that when he leaves the employer's service he could easily induce the customers to follow him to a new business'.

[20] Whether information constitutes a trade secret is a factual question. For information to be confidential it must be capable of application in the relevant industry. It must thus be useful and not be public knowledge and property; known only to a restricted number of people or a close circle; and be of economic value to the person seeking to protect it.[4]

[20] In Aranda Textile Mills v Hurn & Another[5] the court emphasised that proprietary interests sought to be protected must be properly described as belonging to the employer. As explained by Kroon J:

“A man’s skills and abilities are a part of himself and he cannot ordinarily be precluded from making use of them by a contract in restraint of trade. An employer who has been to the trouble and expense of training a workman in an established field of work, and who has thereby provided the workman with knowledge and skills in the public domain, which the workman might not otherwise have gained, has an obvious interest in retaining the services of the workmen. In the eye of the law, however, such an interest is not in the nature of property in the hands of the employer. It affords the employer no proprietary interest in the workmen, his know-how or skills. Such know-how and skills in the public domain become attributes of the workman himself, do not belong in any way to the employer and the use thereof cannot be subjected to restriction by way of a restraint of trade provision. Such a restriction, impinging as it would on the workman’s ability to compete freely and fairly in the market place, is unreasonable and contrary to public policy.”

[20] It was stated in Rawlins v Caravantruck[6] that establishing customer connections depends on the notion that:-

'the employee, by contact with the customer, gets the customer so strongly attached to him that when the employee quits and joins a rival he automatically carries the customer with him in his pocket'.

Evaluation:

[21] The following is common cause between the parties: Rathbone has breached the restraint contained in his contract of employment; The Applicant and the Second Respondent are both logistics companies offering similar services, although the Second Respondent is a much smaller company; and during the last two months of his employment Rathbone was employed as a warehouse operations manager. Before that, the papers reveal he was a checker, a picker, a packer, a scanner, a dispatcher and a warehouse manager.

[22] In as far as the Applicant seeks to protect its customer connections, I find that there is no evidence before me that Rathbone was uniquely placed to take Samsung, the customer, ‘with him in his pocket’. In fact Rathbone avers that the deponent to the founding affidavit, the senior operations manager, informed him that he was not equipped to deal with customers. This, together with Rathbones long held view that the company was not paying him adequately for his services motivated his departure from the company. The concept that Rathbone could lure Samsung to a competitor given the strong links Applicant has developed with Samsung, which it details, is somewhat baffling.

[23] On the question of trade secrets, Rathbone was clearly involved in operational functions and I am not persuaded that he held a senior position in the Applicant. Given the evidence referred to above, I agree with the submission on behalf of Rathbone that the destination of products, the time it takes to deliver them, the way that such products are stored and delivered, and the running and managing of a warehouse is not confidential in nature and is information readily available to persons in the logistics industry. The Applicant failed to show that it had any special, secret or tailor-made processes or methodologies in this regard. The admission of the confidential affidavit did not reveal any special trade secrets or formulas to the court.

[24] I am satisfied that Rathbone has discharged the onus in respect of the issue of a protectable interest on the facts before me. There has been no infringement of a protectable interest. There is an additional reason why the application to enforce the restraint should fail. This is a case in which a restraint of the nature contained in Rathbones contract of employment, given the duties he performed, infringes on his right to use his knowledge and skills in the market place and in that respect is against public policy.

[25] Given my findings, the ‘open tender’ referred to during the court proceedings to restrict the ambit of the restraint finds no relevance. I therefore make the following order:

Order:

1.        The application is dismissed with costs, including the costs reserved on 1 December 2016, and the costs of two counsel.

_____________________

H. Rabkin-Naicker

                                                                        Judge of the Labour Court of South Africa

Appearances:

Applicant:                                           Leigh Franck

 Instructed by:                                    Ian Levitt

Respondents:                                    A. Snider with C van Castricum

 Instructed by:                                    Cliffe Dekker Hofmeyr

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