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IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE DIVISION – EAST LONDON

                                                                                    Case no: EL 374/20214

                                                                                                ECD 974/2014

 

                                                                                                                 And

 

                                                                                                    EL 375/2014

                                                                                                 ECD 975/2014

In the matter between:

GWENDA PIETERSMA t/a THE BEAUTY CLINIC                                                APPLICANT

and

JANINE REABOW                                                                                      1^ST RESPONDENT

THE HEALTH AND SKINCARE CLINIC                                                     2^ND RESPONDENT

AND

GWENDA PIETERSMA t/a THE BEAUTY CLINIC                                                APPLICANT

and

CARI-ANNE BOTHA                                                                                  1ST RESPONDENT

THE HEALTH AND SKINCARE CLINIC                                                    2ND RESPONDENT

JUDGMENT

SMITH J:

Introduction

[1] The applicant launched separate applications against the respondents for the enforcement of restraint of trade agreements. In both applications her former employees, namely Cari-Anne Botha (“Botha”; under case number 374/14) and Janine Reabow (“Reabow”; under case number 375/14) were cited as first respondents. Their current employer, namely The Health and Skincare Clinic, was cited as second respondent in both matters.

[2] Only Botha and Reabow opposed the applications, and because both matters involved substantially the same factual matrix and legal issues, they were argued together. Although I would have preferred to have more time to prepare my judgment, I did, in the light of the urgency of the matter, unfortunately not have the luxury of time, and was constrained to rush it somewhat.

[3] While the applicant initially applied for a rule and interim relief, after Reabow and Botha had filed their answering affidavits, the parties agreed to argue the final relief.

The facts

[4] The facts are briefly as follows. The applicant is the sole proprietor of The Beauty Clinic, which operates from premises in Berea, East London. The core functions of The Beauty Clinic ranges from beauty therapy, supply of skincare products and salon treatments. In addition, it sells a wide variety of beauty products, and provides training to therapists.

[5] Between January to February 2014, four of the therapists employed by the applicant (including Reabow and Botha) resigned, primarily because they were offered other employment with better earning potential. Reabow had terminated her employment with effect from 18 April 2014, and Botha hers with effect from 31 March 2014.

[6] When they commenced their employment with the applicant both Reabow  and Botha concluded written agreements in terms whereof, inter alia:

(a)     their duties were defined to include all aspects of the beauty therapy business and related treatments and routines;

(b)     they undertook to maintain confidentiality in respect of clients’ personal information, as well as the applicant’s business information, during and after their employment;

(c)     they undertook not to promote any competitor’s products, or work for their own account without the applicant’s express permission; and

(d)     they undertook not to be employed by any other beauty salon, or otherwise be directly or indirectly involved in the beauty therapy or salon business, within the magisterial district of East London, for a period of three months after ceasing employment with the applicant.

[7] The applicant averred that both respondents had, during the course and scope of their employment, access to client information such as telephone numbers and details of clients’ treatments. They also had insight into the applicant’s pricing structure and her competitive marketing strategy. They were, in addition, both trained in treatment applications which are unique to her business. After both respondents had tendered their resignations, the applicant wrote to each of them, inter alia, reminding them that in terms of the restraint of trade agreement they were precluded from taking up employment in the beauty industry within a period of three months from the date of the termination of their services, and warning them that failure to comply with the aforesaid agreement would result in legal action.

[8] It is common cause that both respondents commenced employment at The Health and Skincare Clinic (the second respondent) situated at Vincent, East London, during their respective notice periods, and before the expiry of the three months restraint period.

[9] On 19 March 2014 the applicant’s legal representative, Kirchmann Inc, wrote to Reabow and Botha (and the second respondent), demanding  undertakings that they will comply with their restraint of trade agreements, and threatening appropriate legal action if such undertakings were not provided by 20 March 2014.

[10] Reabow replied to that letter on 20 March 2014, inter alia, stating that:

(a)     her new employer was not in competition with the applicant’s business;

(b)     she did not contact or compel any of the applicant’s clients to follow her;

(c)     she had signed the contract under extreme duress. If she did not sign the contract she would not have been given the position.

(d)     the applicant’s business was going through a difficult period after the resignation of three other employees, and she was therefore fearful of her services being terminated or being retrenchment; and

(e)     she could not afford to be without a job and was therefore forced to seek employment elsewhere.

[11] The applicant asserts that the restraint period of three months is reasonably necessary to maintain the relationship with clients serviced by employees, and to assign them to other employees.

[12] The answering affidavits of Reabow and Botha are substantially the same. Both of them were trained by City and Guild, and thereafter commenced their careers as beauty therapists and somatologists. They were trained to administer pedicures, manicures, spray-tans, body-waxes and other related services. These services are offered by both the applicant and the second respondent. They averred furthermore that certain beauty products are used exclusively by particular salons, and training by their suppliers is limited to the staff of those salons. These products, and their applications, would thus be exclusively available at licensed salons only.

[13] There are however numerous other products which are freely available for use by any salon without any limitation. As a result the beauty therapy industry is “extremely cutthroat” with regard to the turnover of employees. Client relationships are therefore not an essential factor, and other factors, such as the pricing and uniqueness of services, impact more significantly on staff turnover or client loyalty.

[14] They averred furthermore that during the last few years some 22 therapists have left the applicant’s employment, and have either taken up employment elsewhere with a opposition or established their own businesses.

[15] They claim that the applicant’s business offers general beauty therapy services and treatments and there are consequently no unique techniques which could constitute confidential trade secrets. The services offered by the applicant’s business include the supply and application of beauty products which are freely available elsewhere. They could therefore not have acquired any trade secrets or confidential information which they could use to prejudice the applicant’s business.

[16] They asserted, in addition, that the second respondent is not in direct competition with the applicant’s business. There are twelve other salons who carry on business within a radius of one kilometre of the applicant’s business. The second respondent is approximately five kilometres from the applicant’s business. In addition, the second respondent’s business is medically oriented. It employs four specialist somatologists, and renders specialised services or treatments. It uses laser and other treatments with the assistance of a specialist dermatologist. The second respondent also provides an exclusive and specialised treatment namely “the Derma Roller” procedure.

[17] They both stated, however, that they are able to perform treatments such as pedicures, manicures and related treatments for their new employer “in competition to the applicant’s business”. They asserted, however, that they perform these services without using any confidential trade information which they obtained from the applicant’s business during the course of their employment.

[18] The only product which is commonly used by the second respondent and the applicant’s business is one called ”Nimue”. The second respondent had, however, been using that product for more than ten years. The only product which the applicant uses, and which is not offered by the second respondent, is one called “Matis”. The training for the application of the latter product is provided by its suppliers. The product is offered exclusively by the applicant, and they are therefore not in a position to compete with the applicant in this regard.

[19] Reabow asserts that she was only 19 year old when she signed the contract of employment. At the time she was desperate for an income as she had resigned from her previous employer. Her mother was in the process of divorcing, and her sister was still at school. She was therefore in desperate need of an income. She did not enquire about the restraint of trade clause and did not understand its meaning. She was too scared to challenge the applicant in this regard as she had feared retrenchment or dismissal. Botha averred that when she signed the contract of employment her new-born baby was seven months old, and she was therefore desperate to secure employment. She was accordingly not in a position to bargain with the applicant in respect of the terms of the contract and was, out of desperation, forced to sign the contract.

[20] Although both of them admitted that they had access to client information, they stated that these had been captured on cards which were kept in a filing cabinet. They did, however, not copy these cards and therefore did not obtain any client information that could be used to the detriment of the applicant’s business. They also denied having any knowledge regarding the applicant’s pricing structure or marketing strategy. They both averred that they have no intention of doing anything that would harm the applicant’s business in any manner.

Legal Principles

[21] The legal principles relating to the enforcement of restraint of trade agreements are well established, and can be summarised as follows:

(a)     Restraint of trade agreements are enforceable where an applicant’s protectable interests are infringed by an unlawful act, unless they are against public policy. The onus to prove the latter lies with the party who asserts that the agreement offends against public policy. (Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 784 (A);

(b)     In order to determine the reasonableness of a restraint of trade agreement the court must consider the following:

(i)      does the applicant have an interest that deserves protection after termination of the agreement?

(ii)     if so, is that interest threatened by the respondent?

(iii)    does the applicant’s interest weigh qualitatively and quantitatively against the interests of the respondent to be economically active and productive?

(iv)    are there other aspects of public policy, having nothing to do with the relationship between the parties, that require the restraint to be enforced or rejected? (Basson v Chilwans and Others 1993 (3) SA 792 (A));

(v)     does the restraint of trade agreement go further than what is reasonably required to protect the interest of the applicant? (Reddy v Siemens Telecommunications (Pty) Ltd 2007 (2) SA 486 (SCA))

(b)     Restraint of trade agreements may thus be declared to be partially enforceable or unenforceable. (Aranda Textile Mills (Pty) Ltd v Hurn [2000] 2 All SA 183 (E))

Discussion

[22] Although the respondents raised various points in limine in their answering affidavits, none of these were pursued during argument.  Mr Clark, who appeared on their behalf, argued that: the applicant has not shown or averred any reasonable apprehension that the respondents would  induce clients to follow them; in the light of the unequivocal assertion that they would not do so, the court is constrained to accept their version; they had signed the agreements when they were not on equal bargaining footing with the applicant;  and if the interests that the applicant sought to protect is weighed up against the devastating consequences for the respondents,  the restraint is unreasonable and should therefore not be enforced. He submitted furthermore that the respondents have shown that their new employer is not competing with the applicant’s business.

[23] In my view Mr Clark’s contention to the effect that the restraint should not be enforced because of the unequal bargaining positions of the respective parties cannot be upheld. There is no suggestion that the applicant had brought any undue influence or pressure to bear upon Reabow or Botha to sign the agreements. While it may be so that they were, because of personal circumstances and financial problems, desperate for employment, they were in no worse a position than most other job seekers in these challenging and difficult economic times. The question is whether, given their weaker bargaining position, the applicant took undue advantage and bound them to a restraint which was, either in terms of its geographic extent or the time period, unreasonably disproportionate to the interests that the applicant sought to protect.

[24] There can be little doubt in this regard that, considering the stated objective of the restraint clause (which was to allow sufficient time to ensure that clients were transferred to other therapists), the period of three months was eminently reasonable. So also is the geographic extent of the restraint; namely the magisterial district of East London. In both these respects the applicant was cautious to ensure that the rights of Reabow and Botha to be economically active and productive were only curtailed to the extent that it was absolutely necessary to protect her own interests. In this regard, Ms Mostert,  who appeared for the applicant, referred me to the unreported judgment of Plasket J in Maretha Bergh N.O. and Another v Bianca Van der Vyver and Another (case no 526/2010) East London Circuit Local Division, delivered on 24 August 2010), where the learned judge said the following (at paragraph 61):

“I also take into account that restraints of trade are common in the industry and, according to the first applicant, are common for a good reason. Therapists develop relationships with their clients which are easily transported in the event that the therapist should, for whatever reason, take up employment elsewhere. Finally, when consideration is given to all these factors, it is my view that the restraints of trade do not go further, in respect of their nature, extent and duration, than is necessary to protect the protectable interest of the applicants.”

In that matter the restraint was for a period of twelve months, and the geographical extent a radius of 50 kilometres from the employers’ business.

[25] I am also of the view that there is no merit in Mr Clark’s submission to the effect that there was no evidence that Reabow and Botha had breached the agreement, or of a reasonable apprehension that they would do so in future. In this regard he relied heavily on the declared undertakings by both of them not to do anything to prejudice the applicant’s business.  An applicant seeking the enforcement of a restraint of trade agreement is only required to show that there is secret information to which the respondent had access, and which he or she could disclose to his or her new employer, or use in some other manner to the detriment of the applicant. (BTH Water Treatment (Pty) Ltd 1993 (1) SA 47 (W) at 58H-59A). In the words of Marais J in BTH Water (supra) at 57J-58B:

“The very purpose of the restraint agreement was that the applicant did not wish to have to rely on the bona fides or lack of retained knowledge on the part of the first respondent, or  the secrete formulae. In my view, it cannot be unreasonable for the applicant in these circumstances to enforce the bargain it had exacted to protect itself. Indeed, the very ratio underlying the bargain was that the applicant should not have to contend itself with crossing its fingers and hoping that the first respondent would act honourably or abide by the undertakings he has given.”

[26] Furthermore, the respondents cannot defeat an application for the enforcement of the restraint of trade agreement by undertaking not to divulge confidential information to their new employer (BTH Water at 58C(supra)).

[27] Reabow and Botha’s protestation to the effect that they had not been able to copy the cards containing clients’ information, and had not obtained any information relating to the applicant’s pricing structure or marketing strategies, are in my view also untenable. It is reasonable for an employer to enforce a restraint against an employee who had been in a position to build up relationships with its customers, and which would have enabled him or her to induce customers to follow him or her to a new business. (Rawlins and Another v Caravantruck (Pty) LTD [1992] ZASCA 204; 1993 (1) SA 537 (A).  It is common cause that Reabow and Botha would have acquired information in respect of the clients that they had serviced during the period of their employment with the applicant, and unavoidable that they would have known what those clients were charged. Such knowledge of a customer base and pricing structures are proprietal information which may be protected by a restraint of trade cause. (U-Drive Franchise systems (Pty) Ltd v Drive Yourself Pty) Ltd 1976 (1) SA 137 (D)).

[28] I am also of the view that there is no merit in Reabow and Botha’s contentions that their new employer is in fact not competing with the applicant. That the second respondent is indeed competing with the applicant’s business is evident from their own affidavits where they admit that the services they render to clients, such as pedicure, manicures and other related treatments, are rendered in competition to the applicant’s business.

[29] In the circumstances I am satisfied that the applicant has made out a proper case for the enforcement of the restraint of trade agreements, and that the respondents have failed to show that the enforcement thereof would be against public policy, or unreasonable.

Order

[30] In the result the following order issues:

1.        The first respondents in cases numbers 374/14 and 375/2014, respectively, are interdicted and restrained with immediate effect from:

a)          being employed by the second respondent until 1 July 2014 and;

b)          being employed by any other beauty therapy or salon business, or to be otherwise directly or indirectly involved in a beauty therapy or salon business operating in the Magisterial Districts of East London, until 1 July 2014;

c)          disclosing confidential business information of the applicant, or using such information for their own benefit, or for the benefit of any other person;  

d)          promoting any of the applicant’s competitors  or their products in the Magisterial District of East London until 1 July 2014; and

e)          working for their own benefit in the beauty therapy or salon business in the Magisterial District of East London until 1 July 2014.

2.   The first respondents are ordered to pay the applicant’s costs of suit.

_______________________

J. E SMITH

JUDGE OF THE HIGH COURT

 

Appearance

Counsel for the Applicant                   :          Advocate Mostert

Attorneys for the Applicant                 :         Kirchmanns Incorporated

                                                                             3 Pearce Street

                                                                             Berea

                                                                             East London

                                                                             Tel: 043 721 0958

                                                                             Ref: Mr Kirchmann/ji

 

Counsel for the Respondents              :         Advocate Clark

Attorneys for the Respondents           :         Stirk Yazbek Attorneys

                                                                             18 Vincent Road

                                                                             East London

                                                                             Tel: 043 726 8310

                                                                             Ref: Mathew Yazbek/nc

 

Date Heard                                :                 27 March 2014

Date Delivered                          :                 03 April 2014

 

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