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                                                                                                                        Not  Reportable

REPUBLIC OF SOUTH AFRICA

IN THE LABOUR COURT OF SOUTH AFRICA, CAPE TOWN

JUDGMENT

C36/2022

In the matter between:

NEXTSTEP FLOORING (PTY) LTD

t/a AZURA DISTRIBUTORS                                                                                  Applicant

and

CHANTEL TAMSEN ADAMS                                                                   First Respondent

FINFLOOR (PTY) LTD                                                                        Second Respondent

Date heard: 15 February 2022

Delivered: 21 February 2022 by means of email

JUDGMENT

RABKIN-NAICKER J

[1]      This is an opposed application to enforce a covenant in restraint of trade. It was brought on an urgent basis and three sets of affidavits were filed of record. The applicant seeks that this Court interdict and restrain the first respondent (Adams):

“3.1     From being employed by the second respondent (directly or indirectly in any capacity, whatsoever) or any other competitor or customer of the applicant within the Western Cape and/or Eastern Cape area for a period of 12 months from 21 January 2022 to 20 January 2023;

3.2       From directly or indirectly divulging to any person or using to the detriment or prejudice of the applicant any information of a confidential nature acquired by her during the course of her employment with the applicant.”

[2]      The prayers above are derived from a restraint clause contained in the contract of employment between the parties and a confidentiality undertaking signed by Adams as part of that contract. In terms of the first respondent’s employment agreement, particularly in paragraph 1.2 thereof, the first respondent recorded the following confidentiality undertaking:

“The (first respondent), by virtue of (her) association with the (applicant), will become possessed of and will have access to the (applicant’s) trade secrets and confidential information, including, inter alia, without limiting the generality of the aforegoing, the following matters:

(a)       Business “know-how” and techniques;

(b)       Product knowledge, pricing, suppliers and customer base;

(c)        Knowledge of the affairs of the (applicant’s) clients and business associates;

(d)       The contractual agreements between the (applicant) and its business associates and/or clients;

(e)       The contractual agreements between the (applicant) and its employees;

(f)         The financial details of the (applicant’s) relation with its business associates and/or clients and the terms on which the (applicant) transacts business with its business associates and/or clients;

 (h)      Other matters, which are peculiar and personal to the business of the (applicant) and in respect of which information is not readily available in the ordinary course of business to a competitor of the (applicant), or to a competitor of any of the clients or business associates of the (applicant)…”

[3]      It is common cause that there has been a breach of the restraint agreement in that Adams has taken up employment with the second respondent (Finfloor), a competitor of the applicant. The onus is therefore on Adams to prove on a preponderance of probability that in all the circumstances of the particular case it will be unreasonable to enforce the restraint.[1] Given the application is for final relief, the principles as set out in Plascon Evans will be applied.

Factual Matrix

[4]       At the time of her dismissal, Adams was a senior internal sales administrator for the applicant which operates primarily in the supply of wooden and vinyl tiling. She had first been employed by the applicant in 2015 as a receptionist. The applicant makes use of various suppliers, all of which are situated overseas, including suppliers situated in Belgium, Germany, Turkey and China. As the applicant keeps record of its sales history, it has a fairly good idea of when and at what rate it requires stock to be available in South Africa. On arrival supplies are sent to a warehouse from which stock is distributed upon receipt of orders from clients.

[5]       It is averred on behalf of the applicant that it is an established business and well-renowned in the flooring industry especially in the Western and Eastern Cape. It is of the view that the restraint is reasonable given its business has expanded over those two provinces. It is applicants case that:

5.1      Adams was directly responsible and had the applicant’s authority to be in contact with applicant’s clients for the issuing of quotes for new work, which included the preparation thereof, the sourcing of products from our own suppliers, negotiating prices with these suppliers, and ultimately concluding contracts with the clients for and on behalf of the applicant on the basis of these quotations;

5.2      She had unlimited access to applicant’s database and was also able to copy whatever information was housed on the database electronically;

5.3      She had her main focus on sales and the negotiation of contracts with clients, whether  existing clients for the expansion of their business with the applicant, or new and potential clients in respect of new business which applicant dealt with;

5.4      She had access to applicant’s quotation/contract history (in respect of applicant’s specific clients) which applicant keeps careful record of and from which one would easily ascertain a specific client’s special needs;

5.5      She had access to a database which contains comprehensive details of financial, suppliers, and clients that applicant has built for the past 12 years since its implementation. It contains all the information pertaining to the business the applicant has conducted and the records that applicant has maintained and continues to update in respect of each of its customers.

5.6      The applicant further avers that during her employment with the applicant, Adams established very close ties and connections with various suppliers and clients for an employee in her position, in line with its business strategy.

[6]       Adams denies the description of her role in her answering affidavit, and states that she dealt with the administrative aspect of the business. If clients came in directly, she would assist them. These would usually be contractors who operated not with a showroom but with a bakkie or light delivery vehicle. She would take an order and process it. She would not negotiate prices with them or the suppliers. This was done, she avers by the Branch Manager or his daughter (the office manager). Adams pleads that she could take no decisions other than ‘ring up a sale’. Her connection to the customers, she avers, was as a front of house person which could not induce or dissuade any client of the applicant to make a sale. She could not solicit new business or new customers and dealt solely with Counter sales. She was not able to grant any credit facilities. Four key accounts managers were employed to push sales in the Western and Eastern Cape. She avers that while she attended sales meetings, she was not included in discussions related to how pricing was done or how profit margins were established, what contracts were to be concluded or details of suppliers and their pricing. She states that she tried on more than one occasion to be appointed as a Sales Account Manager but the applicant was not responsive.

[7]      None of the above averments in answer are specifically denied in reply. The replying affidavit eschews the normal conventions and does not refer to specific paragraphs in the answering affidavit by denying their content, but states that its purpose: “…is to respond to certain allegations set out in first respondent’s affidavit, which are simply not correct, and with respect ill-considered.” The submission is made that there is objective evidence to consider which negates allegations that the restraint is unreasonable. The first, as reflected in Adams’ own papers, is that she earned a sum of R31 498.00 as commission for the 2021 period of employment. This would amount to an average of some R 2,624.83 a month as commission. I have not found anything on record of how such commission was determined.

[8]       Secondly, the applicant avers in reply that Adams was the sole sales representative for 34 clients (whose names have been redacted) for the period of 2021. It is averred that the revenue generated from these sales for this period amounts to R4 472 038.34. It would thus seem that if there was a standard commission payable to Adams, (who was earning a basic salary of R14 500 monthly), the commission was paid at a rate of 0.77%. I note these calculations in view of the fact that Adams had alleged in her answering papers that she was under paid for the role that the applicant describes her as having, and had been attempting since 2018 to be promoted to a sales account manager in order to develop her career.

[9]      On the basis of the above averments the applicants submits in reply that: “there cannot be any question that the first respondent performed the duties as a salesperson during her employment with the applicant.”

[10]    The remainder of the replying affidavit deals with a confidentiality undertaking given by Adams through her attorneys of record, after her resignation. The undertaking records that that she would not:

10.1   disclose to Finfloor or any third party any of Azura’s confidential information to the extent that such exists;

10.2   disclose to Finfloor or any third party any information relating to Azur’s pricing structure which is not in the public domain; and

10.3   Approach or solicit any of Azura’s customers which she dealt with for a period of 12 (twelve) months from 31 January 2022.

[11]    In relation to the undertaking, the applicant states that it has been advised that these undertakings do not preclude the applicant from enforcing the restraint. Further submissions are made regarding Adams’ failure to keep to her contractual obligations. In addition, the applicant points to the fact that she did not return to work out her notice period when it advised her to do so a few days before she was due to join the second respondent. She only agreed to do so on the basis that she would be paid for January 2022. It is also stated by the applicant that it needs to be emphasized that Adams did not make any undertaking that she or the second respondent would not engage in business with the applicant’s clients.

[12]    I note that the written undertaking asked for by the applicant in a letter from its attorneys of record regarding confidential information, was stated as being: “that you will not disclose any of our client’s confidential information gleaned by you during the period of your employment with our client to any third party.” The replying affidavit did not address anything further.

[13]    In the answering papers, Adams denied an allegation in the founding affidavit that clients (unnamed) had been contacted by her. However, she disclosed in answer that that when one of applicant’s clients did contact her (before she received the founding papers in this application), her attorneys advised the applicant’s attorneys of this in a letter dated 7 February 2022.

[14]    Further, averments contained in the answering papers which are not denied in reply include:

14.1    The sales she dealt with would arise when customers came to Azura’s offices and they were not her clients and she did not initiate the sales;

14.2    That although she was present at meetings where decisions and planning were discussed, she was an administrator and not a planner and would assist in supporting plans rather than creating them;

14.3    She did the paperwork in respect of sales done by others and supported the sales team;

14.4   She did assist in preparation of certain quotes of Azura but denies that she has retained any information for the benefit of Finfloor or another third party.

14.5     She disputes the reasonableness of preventing her work for Finfloor and avers that the applicant has not established a protectable interest which is worthy of enforcement;

14.6    She has only met with applicant’s clients who arrive at the office for assistance.

14.7    She had tried to find employment prior to accepting the offer from second respondent without success and two recruitment agencies gave her feedback that she did not have experience in the precise industries for which she was applying.

Legal Principles

[15]     The legal principles applicable to agreements in restraint of trade were well summarized by Mbha J (as he then was) in Experian SA (Pty) Ltd v Haynes & another[2] as follows:

“[12] The locus classicus on this subject is Magna Alloys & Research (SA) (Pty) Ltd v Ellis [1984] ZASCA 116; 1984 (4) SA 874 (A) at 897F-898E, where Rabie CJ summarized 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.

See also John Saner Agreements in Restraint of Trade in SA Law (issue 13 October 2011) at 3-5, 3-6.

[13] These principles have been reaffirmed in other decisions of our courts. In Basson v Chilwan & others [1993] ZASCA 61; 1993 (3) SA 742 (A) at 776H-J to 777A-B, Botha JA stated, in a separate judgment, that:

'The incidence of the onus in a case concerning the enforceability of a contractual provision in restraint of trade does not appear to me in principle to entail any greater or more significant consequences than in  any other civil case in general. The effect of it in practical terms is this: the covenantee seeking to enforce the restraint need do no more than to invoke the provisions of the contract and prove the breach; the covenantor seeking to avert enforcement is required to prove on a preponderance of probability that in all the circumstances of the particular case it will be unreasonable to enforce the restraint; if the Court is unable to make up its mind on the point, the restraint will be enforced. The covenantor is burdened with the onus because public policy requires that people should be bound by their contractual undertakings. The covenantor is not so bound, however, if the restraint is unreasonable, because public policy discountenances unreasonable restrictions on people's freedom of trade. In regard to these two opposing considerations of public policy, it seems to me that the operation of the former is exhausted by the placing of the onus on the covenantor; it has no further role to play thereafter, when the reasonableness or otherwise of the restraint is being enquired into.' 

[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 & others 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 determination 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 & another  1999 (1) SA 472 (W) at 484E, Wunsh J added a further enquiry, namely whether the restraint goes further than is necessary to protect the interest.”

Evaluation

[16]  Has Adams been able to prove on a balance of probabilities that enforcement of the restraint is unreasonable? 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'. [3]

[17]  In Rawlins and Another v Caravantruck (Pty) Ltd [4] 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'.

[18]     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.[5]

[19]    In relation to the confidential information that the applicant seeks to protect, Adams has made an undertaking in line with what was requested by the applicant. Although the applicant sought to suggest that her undertaking cannot be regarded as trustworthy, it was unable to point to any customers that had been contacted by her since her resignation. In fact it was the applicant which sent out a circular to its customers announcing her departure and wishing her well. Adams warned the applicant that one of its customers had contacted her. I must accept, on the Plascon Evans principles that Adams’ contact with customers was limited to those who visited the office, and that she has not sought to contact any of its customers since she accepted the new employment offer. That offer includes an undertaking by Finfloor to set her on the road to becoming an Account Manager.

[20]     I must also accept her account of the limited role that she played in the sales of the company.  The attempt by the applicant to refute this (without specifically denying Adam’s detailed allegations), by revealing the value of the sales she was involved with, did little to dislodge her account of her role. This was particularly so given the modest amount of commission she received.

[21]     In addition, and in relation to the ‘trade secrets’ of the company, on the papers, I have also to accept Adams’ evidence that she was not included in discussions on pricing, or how profit margins were established, what contracts were to be concluded or details of suppliers and their pricing. I must also accept that she attempted to obtain a path to a sales account manager post in other economic sectors but was not successful. I also note that the applicant did not seek to submit that it had devoted its resources and time to training and upskilling Adams.

[22]     In Aranda Textile Mills v Hurn & Another[6], the court emphasized 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.”

[23]     Given the applicant has not sought to convince the Court that it has invested training in Adams and taking into account her limited role and remuneration, I am of the view that her skills and know-how should not be subject to the restriction sought in casu.

[24]     It was stated in Rawlins v Caravantruck[7] 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”.

[25]     This above cannot be said to be the case on the papers before me taking into account the limited amount of customers Adams dealt with and her undertaking in this respect. Her disclosure that one client of Applicant contacted her strengthens her case.

[26]     In all the above circumstances, it is the Court’s view that on the papers before me, Adams has succeeded in establishing, on a balance of probabilities, that the restraint in question is unreasonable and contrary to public policy. I therefore make the following order:

            Order

1.    The application is dismissed.

2.    Applicant to pay the costs.

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                                                                                                H. Rabkin-Naicker

                                                                        Judge of the Labour Court of South Africa

 

Appearances:

Applicant: Herman Nieuwoudt with Gert Gagiano instructed by SLH Attorneys

Respondents: M.A. Lennox instructed by Botoulas Krause & Da Silva Inc

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