Stifling skills: Springboard and unenforceable restraint

1 Comment

1. 

   GilesFiles on December 9, 2015 at 11:50 am

   Read Prof Darcy du Toit’s latest Editorial: Restraint of trade: the burden of proof reversed? published by LexisNexis on IR Network [subscription required]
   Excerpts [without footnotes]

   Restraint of trade clauses are, generally, aimed at preventing former employees from misusing confidential information obtained during employment and competing with their former employer for a stated period after termination of employment. Since the last comment on this topic in IR Network, two trends seem to have crystallised.

   One is that restraint of trade clauses, and disputes arising from them, remain a significant and possibly growing feature of the labour relations landscape. Given the increasing instability of employment and diversity of work relationships in globalised labour markets, this should not come as a surprise. Restructuring, changing job descriptions and employee turnover create a climate where employers may experience a growing prospect (or fear) of competition from ex-employees and design employment contracts to forestall it.

   And, if outcomes are anything to go by, the law is fairly supportive of this aim. Out of eight cases so far reported in 2015 where the enforceability of restraint clauses was at issue, six were decided in favour of the employer and only two in favour of employees.

   This may be so because the law is clear. A restraint of trade agreement in favour of an employer is an enforceable contract like any other, provided
   • it protects the legally recognised interests of the employer seeking to enforce it;
   • it is “reasonable” and not contrary to public policy; and
   • it does not merely seek to limit competition.

   To establish whether such a clause is “reasonable”, the following questions must be answered:
   (a) Is there an interest of the employer which deserves protection at the termination of the agreement?
   (b) Is that interest being prejudiced by the ex-employee?
   (c) If so, does that interest weigh up against the right of the former employee to remain economically active and productive?
   (d) Is there any other facet of public policy, unrelated to the relationship between the parties, requiring that the restraint should either be maintained or rejected?
   . . . .

   More recently, in Festo (Pty) Ltd v Wesley and others the former employer (Festo) sought to prevent two former employees from being employed by its main competitor (SMC) on the basis of a restraint of trade agreement. Again there was no real issue of special expertise or knowledge acquired by the employees during their employment with the company. The employer’s “protectable interest” once again consisted of its customer connections.

   Unlike in FMW Admin Services (above), however, the court found no evidence of existing Festo customers having moved across to SMC with the ex-employees. In addition, the restraint of trade clause purported to restrict the employees across a far larger geographical area than that in which they had actually worked for the company. Based on these considerations Rabkin-Naicker J found that “the restraints were primarily directed at protecting Festo from the footprint of a new competitor on the national scene” (para 51). Noting also that at least one of the Festo employees would be required to service not former Festo customers but existing SMC customers, she concluded that “the enforcement of [the restraint clauses] would not be in line with public policy and in the public interest” (para 52).