Will our Courts enforce a 2 year restraint of trade?

On the face of it, preventing somebody from being employed in their chosen field for a period of two years because that is the restraint of trade agreement that they signed, seems to be a very long time and to be completely unreasonable.

There have been two very recent decisions by the Labour Appeal Court (LAC) where in both cases the period of the restraint of trade was for a period of two years. In the one case the LAC found that the two year restraint of trade throughout South Africa was reasonable and could be enforced, whereas in the other case, it was found that a two year restraint of trade could not be enforced.

Interestingly enough, it was the same three Appeal Court Judges that decided both matters, and the respective judgments in each of the matters were handed down on the same day.

The first matter was that of Beedle v Slo-Jo Innovations Hub (Pty) Ltd. The company specialises in the development of designer beverages. The employee was focused on the research and development aspects of the business which involved working with Slo-Jo’s suppliers and manufacturers; in particular to ensure that the taste of its products was maintained as well as the quality thereof. She was also responsible for introducing new products into the business, and played an integral part in forming, relationships with Slo-Jo’s key and primary manufacturers.

The employee’s case was, inter alia, that a two year restraint was unreasonable.

It was argued by the company that the employee had acquainted herself with sensitive trade secrets and confidential information in her capacity as head of the research and development team, and that she had information regarding the primary business model and general modus operandi of the company as well as its process of research and product development and the recipes and flavour profiles of the main products. She also enjoyed key relationships with Slo-Jo’s manufacturers and suppliers.

In regard to the issue of the two year restraint, the Court found that the company  had offered a comprehensive explanation as to why two years was necessary to protect its interests. It explained that the lead time for the conceptualisation of a product required by one of its customers until the product is brought to market, can take between 24 to 36 months, and the thus a two year restraint period was found to be reasonable and enforceable.

In Sadan  and Another v Workforce Staffing (Pty) Ltd, the company provided staffing solutions, human resources, staff placement, and related services throughout the country.

The one employee was employed a General Manager of Sales, while the other employee was employed as the National Sales Executive.

Both employees established close relationships with the company’s customers and had become privy to information, inter alia, regarding pricing strategies, costing of its products and profit margins. They also had access, inter alia, to the company’s client database, marketing material, business strategies and financial information.

The General Manager was responsible for developing and implementing sales strategies for allocated regions, revenue generation, achievement of sales targets and recruitment, as well as selling staffing services and solutions to customers.

The National Sales Executive, entertained customers, inter alia, by hosting them for breakfast and arranging social events such as golf days. In the course of executing his responsibilities, which related, inter alia, to the procurement of new business and managing existing customer relationships, and was intricately involved with customers.

After their resignations they both took up employment with a competitor.

Other than relying on the cursory assertion that a restraint of two years is required to protect its proprietary interest, namely its relationships with clients, the Court found that the company had failed to provide any compelling evidence to justify such a manifestly onerous and unreasonable limitation of the employees’ constitutional rights to ply their trade and engage in commerce, and that a period of two years was an inordinately long time to allow new employees to meet with and develop relationships with existing clients.

The Court concluded that a partial enforcement of the restraint for a shorter period would suffice to ensure protection of the company’s proprietary interest, and that the restraint was thus only enforceable for a period of one year.

As the cases above demonstrate, the facts are decisive in each instance, and that expert legal advice should be sought whether one is seeking to enforce or seeking resist a restraint of trade agreement.