Restraint of trade:
Aquatan (Pty) Ltd vs Heinrich Jansen van Rensburg (2017)
Employers commonly engage in Restraint of Trade agreements with their employees. However, it is essential to question whether these agreements aim to protect legitimate trade secrets owned by the employer or if they are simply designed to prevent employees from competing with the employer.
In the case of Aquatan vs Heinrich Jansen van Rensburg, the parties entered into a Restraint of Trade Agreement for a three-year period after the termination of employment.
This agreement applied to South Africa, Botswana, Namibia, Swaziland, and Zimbabwe, where the employer conducted business in various Southern African countries.
Mr. Jansen van Rensburg, a Civil Engineer employed as a Contracts and Sales Manager, resigned after 13 years and joined a direct competitor, Engineer Linings. The applicant filed an urgent application with the Labour Court to prevent the employee from accepting such employment. The applicant argued that the employee possessed extensive technical knowledge and experience within the company, often providing valuable assistance in complex cost estimation.
The Court considered whether the information acquired by the employee constituted trade secrets deserving of protection and whether the employee had personal knowledge and influence over the applicant’s customers, which could enable him to exploit the applicant’s trade connections.
The applicant relied on the following facts:
- The employee had agreed in the employment contract to acquire confidential information.
- The employee had agreed to the reasonableness of the Restraint of Trade.
In response, the Court noted that the employee’s agreement to the reasonableness of the restraint was misplaced since reasonableness is determined when enforcement is sought. The Court examined each main issue individually.
Regarding the question of whether the knowledge acquired by the employee constituted trade secrets, the Court emphasized that confidential information is inherently linked to protection. To qualify as a trade secret, information must be applicable in the relevant industry or trade, useful, not public knowledge, and known only to a limited number of people seeking to protect it.
Based on the presented evidence, the Court found that the applicant failed to demonstrate that the employee had access to trade secrets or possessed exclusive knowledge of unique techniques, technology, and installation processes. Conversely, the employee demonstrated that the techniques and processes used by the applicant were not unique but rather standard and publicly available.
The Court acknowledged that the applicant had one unique product, and the employee’s knowledge of its use and installation could be considered a trade secret. However, the employee argued, uncontested by the applicant, that similar products were available on the market.
The employee also argued that the industry was relatively small, with shared suppliers and customers, and consultants like himself did not acquire specific customer knowledge unique to the applicant. Project information was publicly accessible through tender publications, including customer needs.
The Court recognized that costings and markups constituted trade secrets but noted that the applicant did not dispute the employee’s claim that he was no longer involved in the costing process since August 2016. The Court suggested that while these secrets should be protected, a three-year restraint might not be reasonable.
The Court acknowledged that the employee possessed knowledge of specific customer needs that could be shared with the new employer, particularly regarding influencing customer consultants with alternative specifications. However, this knowledge did not stem from the applicant but was a skill developed and retained by the employee. It was not proprietary knowledge obtained from the applicant.
Regarding customer connections, the Court referred to a previous case and stated that determining whether an employee can induce customers to follow them to another employer is a matter of fact. In this case, the majority of projects being tendered demonstrated that the applicant’s customer base was not exclusive. Additionally, the applicant failed to establish how the employee could induce those customers.
The Court stated that restraints of trade are generally enforceable unless proven unreasonable.
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Understanding Employee Refusal to Sign Restraint of Trade Agreements: Lessons from Case Studies
Introduction
Restraint of Trade Agreements are common practice in employer-employee relationships, aiming to protect the employer’s proprietary interests or prevent competition. However, what happens when an employee refuses to sign such an agreement? This article explores two case studies to shed light on the implications and considerations surrounding this situation. The cases discussed are Victorio Suraci vs MBA Holdings (Pty) Ltd (2013) and Jordaan vs CCMA & Others (2010), with one heard in the Labour Court and the other in the Labour Appeal Court.
Jordaan vs CCMA & Others: An Employer’s Intention and Legitimate Apprehension
Mrs. Jordaan, an estate agent, worked for Homenet Cornerstone when she was asked to sign a Restraint of Trade Agreement. She refused, and the employer indicated that her employment might be terminated if she did not comply. She eventually resigned, claiming constructive dismissal. In this case, it was evident that the employer’s objective was not solely to dismiss the employee but to protect their proprietary interests, specifically the intellectual property, client database, and customer relationships. The employer feared losing key staff if no action was taken. The court concluded that employers can require employees to sign Restraint of Trade Agreements, even if it was not initially part of their employment contract, as long as the conditions of the agreement legitimately protect the employer’s interests. Employers should be cautious not to threaten employees with dismissal to coerce them into signing such agreements, as this may lead to automatic unfair dismissal disputes.
Victorio Suraci vs MBA Holdings:
Operational Requirements and Procedural Fairness
In this case, a company, MBA Holdings, acquired Marks Chartered Accountants through a Section 197 transfer. The new employer requested the appellant, an accountant, to sign a Restraint of Trade Agreement and a Contract of Employment. The employee refused, fearing limitations on future employability if he were to resign. The employer issued an ultimatum, stating that failure to sign would be seen as a refusal to accept the employment offer. Consequently, the employer terminated the employee’s contract, leading to an automatic unfair dismissal claim. The court differentiated between dismissals under Section 187 (conditional dismissals related to mutual interest disputes) and Section 186 (dismissals with finality). In this case, the court found that the dismissal aimed to protect the employer’s proprietary interests rather than compel the employee to accept additional terms. Although the dismissal was procedurally unfair due to improper procedure, it was not an automatic unfair dismissal related to the Section 197 transfer.
Lessons Learned
From these case studies, several important lessons can be derived. First, an employer can require an employee to sign a Restraint of Trade Agreement even after employment begins, provided the agreement genuinely protects the employer’s proprietary interests. However, employers must avoid threatening employees with dismissal to coerce agreement acceptance, as this may lead to automatic unfair dismissal claims. Second, dismissals related to operational requirements must still follow proper procedures to ensure fairness. Lastly, the courts emphasize that restraint of trade agreements must align with constitutional imperatives and fall within the scope of operational requirements as defined by the Labour Relations Act.
Conclusion
When an employee refuses to sign a Restraint of Trade Agreement, employers must carefully consider the legitimacy of their proprietary interests, avoid coercive tactics, and ensure procedural fairness. These case studies provide valuable insights into the complexities surrounding employee refusal to sign such agreements, highlighting the need for employers to navigate this situation with caution and adhere to legal and ethical standards.