• Lawtons Africa

Restraints remain valid during the pandemic

Authors: Nombulelo Myeni Associate

*Supervised by: Gugulethu MthalaneDirector


On 20 May 2021, in the case of Bulldog Abrasives Southern Africa (Pty) Ltd v Davieand Another the Labour Court found that while the Covid-19 pandemic has had severe and, in some cases, irreversible effects on the economy of the country, employees cannot opportunistically use it as a reason to breach restraint of trade agreements.



The pandemic is not a vis major that renders contractual performance objectively impossible. There is always a risk that a former employee may use confidential information they obtained during their employment to curry favour with new employers or to advance their personal business ventures. A restraint of trade agreement between an employer and employee is established with the intention to protect the employer’s proprietary interests.

Restraint of trade agreements are recognised in South Africa as being prima facie valid and enforceable. The onus to prove that a restraint agreement is invalid or unenforceable lies with the employee.[1] Employers seeking to enforce the agreement are only required to invoke the restraint and prove a breach of its terms.


Restraint of trade agreements are recognised in South Africa as being prima facie valid and enforceable. The onus to prove that a restraint agreement is invalid or unenforceable lies with the employee.[1] Employers seeking to enforce the agreement are only required to invoke the restraint and prove a breach of its terms.

The reasonableness of a restraint agreement is determined by whether the restraint unreasonably restricts an employee’s freedom of trade or work, considering factors such as:

  • Is there a proprietary interest worthy of protection after termination of employment?

  • Is that interest being threatened by the employee?

  • Does such interest weigh qualitatively and quantitatively against the interest of the employee not to be economically active and unproductive?

  • Is there an aspect of public policy, having nothing to do with the relationship between the employer and employee, that requires the restraint to be maintained or rejected?

The question raised by the Bulldog Abrasive case: Is the pandemic an aspect of public policy that requires restraints to be rejected?


The facts

Davie (the first respondent) was employed by Bulldog Abrasives (the applicant) as a salesperson. At the time of his dismissal, he was the National Industrial Sales Manager. Davie had signed a restraint of trade agreement with Bulldog Abrasives, restraining him from taking up employment with a competitor and/or prescribed customer of Bulldog Abrasives.


Davie was dismissed on 22 December 2020 following a disciplinary inquiry regarding a discount of ZAR120 000 he had offered a customer. On 28 January 2021, Davie referred an unfair dismissal dispute to the Conciliation for Commission, Mediation and Arbitration (CCMA). A settlement agreement was concluded to resolve the dispute.


On 14 January 2021, Davie accepted employment as Abrasive Division New Business Development Manager with Wadeville Paint (Pty) Ltd, a prescribed customer of Bulldog Abrasives, placing him in breach of his restraint of trade agreement.


When advised of the breach, Davie refused to provide Bulldog Abrasives with an undertaking that he would comply with the restraint of trade agreement. Accordingly, on 5 February 2021, Bulldog Abrasives delivered an urgent application to the Labour Court to interdict Davie from continuing his employment with a prescribed customer.

Davie opposed the application.


The judgment

It is trite that public policy requires that agreements, freely entered into should be honoured. At the same time, public policy dictates that an individual should be free to take part in economic activities to earn a living. This is a right enshrined in section 22 of the Constitution, which provides everyone the right to choose a trade, occupation, or profession freely.


Davie relied on the decision of Oomph Out of Home Media (Pty) v Brien and Another[1] where the High Court concluded that in such circumstances the invasion of Covid-19 should be considered. The High Court found that although the pandemic does not create a bar to the enforcement of restraints of trade, its impact on a particular industry must be taken into consideration when assessing whether a restraint is reasonable, together with the availability of work and all other relevant factors.

The Labour Court rejected the findings of the High Court and held that direction should be taken from the case of Prima Interactive (Pty) Ltd v Lemon and Others[1] where the Labour Court has already held that:

“The 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. Restraints are sought to protect 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.”

Further, the Labour Court emphasised that the inquiry into whether the restraint was against public policy did not empower the court to make assumptions about the state of the labour market and introduce factors, drawn out of context and in isolation, as a basis to reject a restraint undertaking. Where the court does not have tangible statistics it cannot conclude that during the pandemic employment opportunities are completely closed out. Doing so would be stretching the meaning of public policy beyond what it is supposed to be.


Davie’s argument that there were no employment opportunities during the pandemic was found particularly unsustainable as he had in fact managed to obtain employment with Wadeville Paints despite the economic conditions imposed by the pandemic.


The Labour Court held that Davie signed a restraint of trade and confidentiality agreement. No case was made to convince the court that this agreement was entered into under duress or that the agreement had been cancelled due to a breach by Bulldog Abrasives. The court concluded that Davies had not discharged the onus to prove that the restraint agreement was unreasonable and contrary to public interest. Davie was found in breach of the agreement. He was interdicted, restrained and ordered to pay costs of the application.


Bearing International (a division of Hudaco Trading (Pty) Ltd v Trevor Veeradu

On 30 June 2021, in the Bearing International Labour Court judgement, Judge Cele held that the restraint against the employee (Veeradu) must be rejected for, inter alia, the following reasons:

  • Veeradu worked for Bearing International for about six years, which was a short period compared to the vast experience he had acquired in his previous employment before joining Bearing International.

  • While at Bearing International, Veeradu received various promotions, which meant that he was already well trained and equipped for the job.

  • Bearing International found Veeradu already economically active and productive and, accordingly, there was no justification that he should be worse off when leaving the employment of Bearing International given his seniority when he joined the company.

  • The court found that the interests of Veeradu outweighed the interests of Bearing International and further that the restraint was unreasonable and consequently unenforceable.

  • In considering the relationship between the pandemic and public policy, the court simply held that “from March 2020 till the next foreseeable future the economic world has been hard hit by the advent of Covid-19. Very many employees have since lost their jobs and in this country, as with others, unemployment has risen to uncontrollable levels, leaving families destitute. Finding a job currently is notoriously difficult. In the circumstances, the restraint should be rejected.”

With these conflicting views on how the Labour Courts ought to deal with the pandemic as it related to restraints of trade agreements, the intervention of the Labour Appeal Court is required for a definitive approach.


However, in the absence thereof and considering the authority cited above, it is our opinion that the Bearing International judgment falls short of considering the basic tenets of public policy established by the pacta sunt servanda maxim.


Again, in this case the blanket statement of simply stating that employment opportunities are hard to come by at this time is not substantiated with evidence and does not hold water when one considers that Veeradu had also already obtained alternative employment immediately after resigning from Bearing International. There would need to be a more in-depth inquiry into the state of the South African labour market for the court to reach the conclusion that an agreement must be rejected on the basis that finding a job has been made difficult by the pandemic, in particular when taking into account that individuals enter into restraint of trade agreements freely and voluntarily.


Conclusion

The Bulldog Abrasive judgment makes clear that the current pandemic does not warrant a shift from the long-held public policy principle that agreements entered freely and voluntarily should be honoured. To conclude otherwise would prejudice employers whose businesses are also strained by the current economic conditions.


In continuing to balance the interests of employers and employees who are party to restraint agreements, our courts maintain these should be determined on a case-by-case basis. Due consideration should be given to other relevant factors such as the nature of the work, the geographic location of the restraint, the duration of the restraint, and whether the individual has trade connections or access to confidential and proprietary information that is deserving of protection.

However, the Labour Court has cautioned and advised against taking this inquiry further to making unsubstantiated assumptions about the state of the labour market and having regard to the interest of the individual and not the public to prevent the enforceability of a restraint agreement.

Lawtons Africa is a South African law firm. With roots that grew out of seeds sown in down-town Johannesburg in 1892, our history features various changes and different names. Our team of lawyers, including directors, consultants, associates and candidate attorneys is highly qualified, market-recognised and skilled. For further information, visit www.lawtonsafrica.com

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