When enforcing a restraint of trade agreement, a Court is required to determine two primary questions, namely (i) is there a valid restraint of trade agreement; and if so (ii) has the employee breached that agreement. Thereafter, the onus shifts onto the employee to prove that the restraint of trade agreement is unreasonable.
Recently, in Select PPE (Pty) Ltd v Holmes and Another (2024-115703) (3 December 2023) (LC), Select PPE (Pty) Ltd (“SPPE”) approached the Labour Court on an urgent basis to prevent Mr Ryan Holmes (“Holmes”) from remaining in his employment with Universal Safety Products (Pty) Ltd (“USP”).
SPPE was founded in 1998. It procures and distributes Personal Protective Equipment (“PPE”) to end-user customers. It has also developed an online PPE cloud-based solution (“the System”) which assists employers to comply with industry and regulatory requirements, keeps record of PPE issued, and control PPE costs. The System also allows its customers to plan what PPE would be needed in the future, and order that PPE in advance. SPPE also places PPE at employers, who are its customers. When PPE is provided to employees it is recorded on SPPE’s Vendor Managed Inventory system, known as ppp365.net.
Holmes was employed at SPPE in 2006. He was promoted to become the Information Infrastructure Co-Ordinator in 2016. When he was promoted, he concluded a restraint of trade agreement with SPPE.
Although SPPE alleged that Holmes was ‘at the centre of the development of the new ppe365.net software’ which is set to go live on January 2025, Holmes denied this. He reduced his duties to essentially being a liaison between SPPE and Crayon South Africa (Pty) Ltd, the service provider that developed the ppe365.net software.
On 31 August 2024 Holmes resigned from his employment with SPPE. After failing to convince him to remain at SPPE, he joined USP as an IT Manager. His role at USP does not involve developing any system. SPPE then brought an urgent application in the Labour Court to enforce the restraint of trade.
Holmes contended that he had not breached the restraint of trade, since USP and SPPE were not competitors. After analysing the businesses of SPPE and USP, the Court agreed, finding that SPPE sold PPE to end users, and USP manufactured PPE. In essence, SPPE was a customer of USP, and thus the two companies occupied different places in the value chain. The Court also rejected SPPE’s allegation that USP was expanding its business operations to include sales to end users.
The Labour Court then dealt with Holmes’ knowledge of the System and ppe365.net. It found that as SPPE and USP held different positions on the value chain, ‘USP has no use for it’.
On this basis the Court found that Holmes’ employment with USP ‘poses little or no risk to SPPE’. It also found that SPPE’s interests could be adequately protected by enforcing the confidentiality undertaking given by Holmes in the restraint agreement. On this basis, the Labour Court dismissed the application, save for enforcing the confidentiality undertakings against Holmes.
This Judgment is the latest instalment in a trend of cases dealing with the enforcement of restraint of trade agreements. Rather than enforcing the restraint agreement in a mechanical fashion, the Courts have started to consider whether other, less restrictive means, could adequately protect each party’s interests.
In Dot Activ (Pty) Ltd v Daubinet & Another (2023) 44 ILJ 785 (LC); Epic Outdoor Media Sales (Pty) Ltd v Paterson (High Court, Johannesburg), (Case No: 2024-024081); and B & B Plumbing and Building Supplies (Pty) Ltd v Govender and others 2024 JDR 0012 (KZD) and various other Judgments, the Courts have found that the embodiment of undertakings not to breach a restraint agreement in a Court Order is sufficient to protect the rights of the ‘old’ employer. In Dot Activ and B & B the Courts also held the ‘new’ employer to those undertakings.
This trend is gaining traction, as the Courts adopt a more nuanced approach to balance the rights of the old employer on the one hand, and the employee on the other. However, this approach cannot be applied in all cases, and the facts of each matter will need to be considered carefully. Some commentators have welcomed these developments, while others have argued that the trend emerging is likely to undermine legal certainty and, ultimately, the rule of law.
Some foreign jurisdictions have taken steps to dilute restraint covenants and their effects and the trend emerging in South Africa is having the same effect. Specialist legal advice should accordingly be obtained when drafting, enforcing, and defending the enforcement of restraint of trade agreements. This is particularly so as we approach the end of the year and restraint disputes become prevalent.
