The Tightrope of Trade Restraints: Lessons from Recent Legal Cases

Apr 15, 2024

The Restraint of Trade clause in employment contracts has been the subject of a number of cases.  The latest one is again evidence of the difficulty in enforcing same.

 

The Issue

In Torrente and Another v Grant Monaghan and Associates Incorporated (JA 45/23 & JA 25/23) [2024] ZALAC 3 (23 January 2024) the LAC the appellant claimed that the restraint of trade clause should not have been enforced in that the respondent did not possess any legitimate protectable interest which justified a restraint of a former employee and accordingly, the applicable restraint clause was contrary to public policy.

 

The order of the Labour Court, being appealed, was: 

‘For the period of a year from 10 February 2023 to 9 February 2024, the first and second respondents are interdicted and restrained from conducting business closer than the radius of 27 km from the applicant’s business premises and from employing any employees of the applicant.

The first and second respondents are interdicted and restrained from directly or indirectly including soliciting and enticing away any employees, agents or any persons that are customers or suppliers of the applicant.

There is no order as to costs.’

 

Background

The respondent is registered as a medical orthotic, prosthetics and podiatry practice since 2013 attending to the manufacturing of orthotics, prosthetics and podiatry devices for patients as advised by referring doctors. Its head office is situated in Sandton, but it also has operational offices in Parkwood and Mayfair. 

The respondent claimed that it ‘developed methods of engaging with its patients and referring doctors at great economic expense to it over its years in business and these close relationships are an integral part of its ability to provide its services and compete in the orthotics and prosthesis industry. The relationships ensure an in-depth knowledge of the business, structures, resources, working methods and expectations of patients.’ 

The first appellant was initially employed as a student intern to be trained to be a proficient practitioner.  According to the respondent, training, which was provided to the appellant amounted to a cost of approximately R 1.5 million.  After qualifying in 2017, the appellant was employed by the respondent as a qualified orthotist and prosthetist. The applicant was then employed by the respondent as a medical orthotist and prosthetist as from 2 January 2018. 

As part thereof, the contract of employment, between the parties, stated:

(20) Confidentiality: You must not during your employment or thereafter, regardless of the reason for the termination of the employment, communicate or divulge to any unauthorised person any confidential matter or information relating to the business affairs, process or trade secrets of the employer; 

(4) Restraint of Trade: By the employee’s signature hereto, she undertakes that from the date that her employment is terminated with the company, the employee shall not directly or indirectly at any place within the greater Gauteng, for a period of two years (from termination date of 20 January 2023 to 19 January 2025), whether for her own account or as a principal, employee, agent, partner, representative, shareholder, consultant, advisor, or in any other similar capacity whatsoever in relation to any person, syndicate, partnership, joint venture, corporation or company, and whether of the first respondent’s direct or indirect benefit or otherwise, and whether for reward or otherwise, and whether formally or otherwise:

  • Be interested in or concerned in any business which is directly or indirectly in competition with the business of the company or its suppliers;
  • Canvass, solicit, interfere with the or entice away an employee, patient, agent or any person who is a customer and/or supplier of the company, nor shall the first respondent attempt to do so;
  • Supply or make available to any person, any material, service or information that forms part of the business of the company.’

 

The respondent avers that this later clause was important to its business in that the appellant was exposed to its patient database, trade secrets, business know-how and confidential information as from the time of her employment as from 2018.

On 21 December 2022, the appellant resigned with notice from her employment. Her last day of employment was 20 January 2023.  The respondent investigated the conduct of the first appellant towards the end of November 2022 and December 2022.  Discovered were:

  • WhatsApp message of 27 November 2022 sent by a patient of the respondent inquiring about when the appellant will be opening her practice in Bedfordview.
  • On 30 November 2022, the appellant submitted a prescribed minimum benefit application to Discovery as the Medical Aid for Master de Bruyn. This application was done under the practice number of the second appellant.
  • On 15 December 2022, the appellant responded to a patient via email regarding the process to be followed for cranial treatment. The appellant provided her personal number to the patient instead of the number of the respondent.
  • On 19 December 2022, the appellant approached the referring doctor, Dr Pearce, one of the respondent’s referring doctors, with regard to a patient to whom she stated that she would have new rooms in Bedfordview, Petervale and Bryanston in January 2023. She also provided a personal link as well as a new booking line with her number.
  • On 19 December 2022, the appellant approached another referring doctor, Dr Halkas with regard to a patient where she stated that she would have new rooms in Bedfordview, Petervale and Bryanston in January 2023.
  • On 1 December 2022, the first appellant requested an administrative staff member of the respondent to follow up on a claim for Master J Reid with a reference number supplied by the appellant. Discovery, as the relevant medical aid, advised the respondent that it had received the application “for the Practitioner Yovanka Torrente but with a different practice number than that of the (respondent)”

 

The Labour Court

The Labour Court found the conduct of the Applicant to be contrary to the relevant clauses of the Employment Contract but found that the appellant’s new practice was based in Bedfordview, 27 kilometres from the business of the respondent. This was, in the view of the Labour Court, a reasonable distance from the respondent’s business and constituted a reasonable geographical restriction as opposed to the wide geographical area which was sought in the application brought by the respondent.

It is on these grounds that the Labour Court ruled: 

‘For the period of a year from 10 February 2023 to 9 February 2024, the first and second respondents are interdicted and restrained from conducting business closer than the radius of 27 km from the applicant’s business premises and from employing any employees of the applicant.

The first and second respondents are interdicted and restrained from directly or indirectly including soliciting and enticing away any employees, agents or any persons that are customers or suppliers of the applicant.’

 

The Labour Appeal Court

On appeal counsel for the Appellants conceded to the facts of the matter.

The LAC confirmed that “[21] In general, a Court which is required to evaluate a restraint of trade agreement has also to engage with the reasonableness of the restraint. It is now trite law to note that this enquiry is a value judgment which involves a consideration of a public interest which requires that parties to a contract should comply with their contractual obligations (pacta sunt servanda) and the principle reinforced in s 22 of the Constitution of the Republic of South Africa, 1996, namely that every citizen has a right to choose their trade, occupation or profession freely. As stated by this Court in Ball v Bambalela Bolts (Pty) Ltd and another [5], a Court seeks to achieve a balance between the respective gravitational pull of pacta sunt servanda and s 22 of the Constitution by carefully examining the nature of the activity prevented by the relevant clause, the area of operation of the restraint, and the overall balance of the competing interest between the parties.”

The LAC found that: “the Court a quo correctly crafted a narrow restraint. It is for the duration of one year, which expires on 9 February 2024 and for a restricted area, being that the appellants are interdicted and restrained from conducting business closer than the radius of 27 kilometres from the respondent’s business premises and from employing any employees of the respondent. In crafting such an order, it appears that the learned Judge of the Court a quo sought to give meaning to the clauses of the employment contract set out in the restraint clause; in particular, the conducting of any business after employment with the respondent was terminated which “is directly or indirectly in competition with the business of the company or its supplier”. In this case, the conduct of the appellant in and of itself indicates that she had important and valuable connections with patients and employees of the respondent, sufficient to divert them to the business of the second appellant.” 

The LAC ordered:

The appeal against the order of the Court a quo of 10 February 2023 is dismissed with costs.

Disclaimer: LabourMan exclusively provides services to employers.

The content does not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such. Kindly contact us on info@labourman.co.za or 021 556 1075 to speak to one of our consultants.

Author:

Thys Giliomee

Thys Giliomee is a Labour Consultant at LabourMan Consultants.

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