In the absence of any restraint covenant any claim against an ex-employee must be based on unlawful competition, or in other words not to prevent lawful competition.  The issue of unlawfulness relates to  the employer’s confidential information or documents and use of them to compete with the former employer.  This has to be reconciled with the right of an ex-employee to apply the skills and specialised knowledge of a particular trade or industry acquired in the course of employment. A value judgment is required in each case.  This involves a careful weighing up of the conflicting interests of the employer and ex-employee using the criterion of reasonableness or the boni mores given all the relevant circumstances.  Unlawful competition can only relate to ‘trade secrets’ and three criteria are used to decide if information does qualify as a ‘trade secret’ and essentially as an independent legal object.

The three requirements are:

  • the information must relate to and be capable of being applied in a trade or industry;
  • the information must be secret or confidential, or in other words only available and known to a restricted number of people i.e. not public knowledge; and
  • the information must, objectively viewed, be of economic (business) value to the former employer.

Motion Transfer & Precision Roll Grinding CC v Carsten [1998] 4 All SA 168; [1998] JOL 3045 (N) per N Page J.

Headnote:

Unlawful competition – Goodwill – Every employee occupied in the field of customer relations must become acquainted with and build up a relationship with his employer’s customers – It would be totally unrealistic to expect an employee after termination of his employment to shun all such customers.

Unlawful competition – Trade secrets – A distinction must be drawn between the position of a person still in the employ of the proprietor of the information and one whose employment had terminated – Where the employee is still employed the revelation of trade secrets to a rival during that period will ordinarily amount not only to unlawful competition but will also constitute a breach of an express or tacit term of the contractual relationship between the parties – The position of the employee after his employment has ceased is complicated by the fact that the proposition that it is unlawful for him to take his master’s confidential information or documents and use them to compete with his master has to be reconciled with his right to be entitled to apply the skills and specialised knowledge of a particular trade or industry which he has acquired in the course of his employment elsewhere after the termination of that employment –The Court must in each case pass a value judgment as to whether the use of the information by the ex-employee is justified despite its confidential nature – Such judgment should involve a careful weighing up of the conflicting interests of the employer and ex-employee utilising the criterion of reasonableness or the boni mores in the light of all the relevant circumstances of the case.

Unlawful competition – Trade secrets – Whether the information in casu could qualify as a trade secret and therefore as an independent legal object – In order to do so it had to comply with three requirements:

  • the information must relate to and be capable of application in trade or industry;
  • the information must be secret or confidential. The information must only be available and known to a restricted number of people i.e. not public knowledge;
  • the information must, objectively viewed, be of economic value to the plaintiff.

“The position of employees after their employment has ceased is complicated by the fact that the proposition that it is unlawful for them to take the employer’s confidential information or documents and use them to compete with the former employer has to be reconciled with the right to be entitled to apply the skills and specialised knowledge of a particular trade or industry which  has been acquired in the course of employment elsewhere after the termination of that employment”.

 

Townsend Productions (Pty) Ltd v Leech [2001] 2 All SA 255 (C) per Erasmus AJ

Headnote:

[1]  Civil procedure – Application – Authority to bring – Deficiency in authority can be cured by ratification having retrospective operation.

[2]  Contract – Restraint of trade agreement – Enforceability – Restraint must protect some proprietary interest of the person seeking to enforce it – Cannot be aimed at eliminating competition – Reasonableness of restraint assessed against public policy.

[3]  Interdict – Final interdict – General rule – An application for final relief is generally decided on the respondent’s version.

[4]  Restraint of trade agreement – Enforcement – Need for ratification of contract where present applicant was not the same entity as that in whose favour the restraint was signed.

 

“In order to qualify as confidential information, the information concerned must comply with three requirements:

“First of all, and this is really self-evident, the information must not only relate to, but also be capable of application in, trade or industry. 

Secondly, the information must be secret or confidential.  The information must accordingly – objectively determined – only be available, and thus known, to a restricted number of people or to a closed circle; or, as it is usually expressed by the courts, the information ‘must be something which is not public property or public knowledge’. 

Thirdly, the information must, likewise objectively viewed, be of economic (business) value to the plaintiff.”

(Van Heerden & Neethling Unlawful Competition at 225; see also Alum Phos (Pty) Ltd v Spatz & another [1997] 1 All SA 616 (W) at 623g–624a; Motion Transfer & Precision Roll Grinding CC v Carsten and another [1998] 4 All SA 168 (N) at 175d–j; Aranda Textile Mills (Pty) Ltd v Hurn & another (supra) at 190i–191d).

The information that the applicant seeks to protect complies with the first and third of the above requirements, but none of it is within the context of the circumstances of this case secret or confidential.  The information is widely known in the industry.  The free flow of information about participants in the industry is apparent from Annexure “E”, and according to the first respondent, the information is also available on the internet.

The service providers, as has been shown above, are independent contractors whose services are available to every other photographic stills production house.  There is no secrecy or confidentiality about who they are and the nature of the services they provide.  The production houses are their clients and they seek the business of the production houses, for it is through the production houses that their products and services are marketed to the overseas clients of the production houses”.

“Fees and prices are a matter of negotiation between the production house and the client, and the production house and the service provider. The first respondent says that trade discounts are negotiated on a continuous basis, and that there is nothing secret about discounts. The fees and prices in the industry are:

  • not confidential or secret – in the applicant’s brochure, fees and prices are listed for the information of the applicant’s clients;
  • subject to constant change – for example, the fees and prices reflected in the brochure of 1999 have by now been superseded; and
  • are frequently negotiated on an ad hoc basis for a particular shoot.

The applicant also claims protection of matters relating to its organisation and general method of business, what Morrow calls the applicant’s modus operandi. In this regard, there are two conflicting interests that have to be balanced: on the one hand, the interest of the applicant in the maintenance and protection of its trade secrets and confidential information, and, on the other hand, the interest of the first applicant to use her know-how and skills elsewhere after the termination of her employment with the applicant. In other legal systems, attempts have been made to divide confidential information into general and special knowledge (in American law), or trade secrets and other confidential information (in English law) – see Van Heerden & Neethling Unlawful Competition at 237.

Attempts have been made to import the distinction into South African law (see Knox D‘Arcy Limited v Jamieson 1992 (3) SA 520 (W); Meter Systems Holdings Limited v Venter 1993 (1) SA 409 (W)). I am, however, in agreement with Page J in Motion Transfer & Precision Roll Grinding CC v Carsten (supra) at 176h that the approach suggested by Van Heerden & Neethling Unlawful Competition at 237–238 is to be preferred.

On the approach suggested by the learned authors, it must first be determined, with reference to the requirements of confidentiality and economic value, whether the information concerned actually constitutes a trade secret. If the information does not constitute a trade secret, cadit quaestio: the employee is entitled to use it. If the information is found to be a trade secret, the court must pass a value judgment as to whether the use of the information by the ex-employee is justified despite its confidential nature.

Such judgment involves a weighing up of the conflicting interests of the employer and ex-employee employing the criterion of reasonableness or the boni mores in the light of all the relevant circumstances of the case.

The matter which the applicant seeks to protect is not confidential or secret; in other words, the applicant has not passed the first hurdle of the test enunciated by Van Heerden & Neethling Unlawful Competition at 237–238. As the first respondent says, what she has gained from being employed by the applicant are generic organisational skills even though they have been honed within the environment of the photographic stills production industry.

The matters relating to the applicant’s organisation and general method of business do not amount to such trade secrets or confidential information as the applicant is entitled to protect by a restraint of trade. Though the skills acquired by the first respondent through her employment by the applicant, might serve to equip her as a possible competitor, they do not constitute the kind of trade secrets or confidential information which can reasonably be protected by a covenant in restraint of trade. The first respondent does not violate any obligation towards the applicant by using the general knowledge she has acquired of its organisation and methods (see Recycling Industries (Pty) Ltd v Mohammed & another  1981 (3) SA 250 (SE) at 256E, 259E–F)”.