Bearings International, a division of Hudaco Trading (Pty) Limited v Veeradu (D280/2021) [2021] ZALCD 64 (30 June 2021)

IN THE LABOUR COURT OF SOUTH AFRICA, DURBAN

Not reportable

Case No. D280/2021

In the matter between:

BEARINGS INTERNATIONAL,

A DIVISION OF HUDACO TRADING (PTY) LIMITED Applicant

and

TREVOR VEERADU Respondent

Heard: 18 May 2021

Delivered: 30 June 2021

Summary: Restraint of trade - an urgent application - were this application heard in the ordinary course, the whole 12 months period would probably lapse before the matter is heard - Mr Schoevaerts represented the Applicant in absence of a formal notice of objection thereto - test to determine reasonableness of a restraint of trade identified and applied - proprietary interests to be protected by a restraint agreement are essentially trade secrets, trade connections and goodwill - in casu restraint unreasonable - application dismissed.

JUDGMENT

CELE, J

Introduction

[1] This is an urgent application in terms of section 158 (1) (a) of the Labour Relations Act[1] (LRA), for a final interdict for specific performance of the restraint of trade the respondent concluded in favour of the applicant on 8 September 2017 (the 2017 restraint). The period of the 2017 restraint is 12 months (commencing on 1 April 2021), and the area is restricted to the Kwa-Zulu Natal province. The Respondent opposed the application, acting in his capacity as the erstwhile employee of the Applicant.

Factual Overview

[2] The Respondent was first employed by the Applicant as an External Sales Representative on 29 October 2015. He was appointed as the Acting Regional Manager, KwaZulu-Natal on 17 February 2017. He was promoted to Regional Manager on 8 September 2017. On 1 March 2019 he was appointed as Branch Manager, due to a structural reorganisation at the Applicant in terms of section 189 of the LRA with no change to his salary and benefits. A year later, the Applicant underwent another structural reorganisation in terms of section 189 and the Respondent was then appointed as the Regional Manager, KwaZulu­ Natal with effect from 1 March 2020. No change to his salary and benefits were made.

[3] In the latter part of January 2021 the Applicant decided to embark on another structural reorganisation to streamline its business to conform to the current economic climate. On 20 and 27 January 2021 the Applicant consulted with the Respondent in terms of section 189 (1) of the LRA. On 29 January 2021 an invitation to attend the second consultation meeting was issued to the Respondent and the applicant then advertised three posts to be considered by its staff, including the Respondent as alternative posts to apply for. On 3 February 2021 the Respondent wrote to the Applicant indicating that he had considered those posts but did not feel suited to any of the posts, stating that he was not going to accept a position because of the salary. He accepted that he was being retrenched as his position was made redundant. The Managing Director of the Applicant Mr Bart Schoevaerts and the Human Resources Manager Ms Collen Daniels tried to convince the Respondent to take up a position they thought was suitable for the Respondent. He was asked to bear with the Applicant as it was finalising specifications for a role that the Respondent had indicated he would be interested in, that of Business Development for field services, with the added benefit of an incentive scheme. Mr Schoevaerts said that the Respondent could start taking up the activities of the Business Development and he could be part of discussions as to how to roll it out.

[4] On 4 February 2021 the Respondent replied to the Applicant by stating that he would rather follow through with the retrenchment process as he could no longer go on "this rollercoaster ride" of repeated retrenchments. The Applicant informed the Respondent that by rejecting what it considered to be reasonable alternatives offered to him, he would not be entitled to severance pay in the event that he resigned. The Respondent wrote back to say one post required him to relocate while the Business Development post had still to be advertised therefore it would be unreasonable not to retrench him. He went on to say:

"You are not considering the emotional rollercoaster that the waiting is putting me through. I humbly requested voluntary retrenchment for some finality and closure to have the opportunity to plan for myself after the end of this month. I do not want to resign from Bl, this restructure was in no way my decision. I was performing my function and well up until the restructure changes were enforced. The poor planning in not conducive to a fair retrenchment process. Am I now expected to hang in the balance while you sort through those roles? And on the 28th February then there will be an email sent out with a new position? In the meantime, how do I plan for my responsibilities?

[5] On 25 February 2021 Mr Schoevaerts flew from Johannesburg to Durban to meet with the Respondent. They met and had a discussion but the Respondent could not be persuaded against a retrenchment. Mr Schoevaerts told the Respondent that, in the event he resigned, he would still be bound by the 2017 restraint of trade. The Respondent said that he thought that the restraint was no longer binding on him as he had since signed a new contract of employment upon being promoted. On 26 February 2021 the Respondent delivered a formal letter of resignation to the Applicant. Therein, he stated that his decision for resigning was premised on the tumultuous journey it had been to work for the Applicant because of the various structural changes the Applicant had undergone during the period the Respondent was employed by it. He asked to be released from the 2017 restraint of trade agreement. He said that he had signed it thinking he would be employed on a long time basis "only to find that my role is so tenuous and ever changing" that it was "unfair to put my family and myself through this again", and that "too much has happened and the relationship has been affected and the trust breached'. He ended the letter by saying:

"I hope that you will consider my request regarding the trade restraint, as it is going to cripple my career and more directly my ability to earn a living and support my family. Bl may recover, but for me, a single person, I may never recover from the financial losses. With the pressure of COVID on the job market and the added financial strain that is now the norm, jobs are few and far between, and I would be lucky to get a job in any other company when all you hear is that firms are down scaling."

[6] The Respondent's view was then that even though his salary and benefits remained the same he was being prejudiced in that he had no certainty as to whether his position would become redundant and he would have to change roles again. Every time his role changed he had to consent to another probation period which caused him too much stress. Just as he became comfortable and well versed in his role, he would receive another section 189 letter.

[7] The Applicant rejected the Respondent's request that he be released from the 2017 restraint, considering that the Respondent was a senior employee with a wealth of knowledge of the Applicant's confidential information. It took the view that the Respondent had developed strong connections with its customers and staff over his years of employment with the Applicant. The Respondent was said to be highly involved in assessing a new service offering, field services, which the Applicant intended to roll out in the next few months. According to the Applicant, the new business unit was expected to generate significant revenue for the Applicant and was developed using the Applicant's resources, skills and know-how, as ably assisted by the Respondent and other valued employees in the Applicant's team. The Respondent was described as knowing almost all material details of the strategy and market data which the Applicant used in order to set up this new business unit.

[8] A further reason to refuse to grant the Respondent's request was that during August and September 2020 the Respondent had been tasked with identifying new branch opportunities for the Applicant in KwaZulu-Natal, especially in Port Shepstone. The Applicant had identified a geographical gap that could be exploited between its branches in Durban and East London. The Respondent did the exercise extremely successfully and recommended such trade exercise to be carried out, once further investigations had been finalised.

[9] The Applicant confirmed its acceptance of the Respondent's letter of resignation in its letter of 3 March 2021. It recorded that it would not agree to waive its rights under the 2017 restraint and required the Respondent to sign a copy of the acceptance letter. It was confirmed with the Respondent that he would be paid his full salary for March 2021 and would enjoy his full employment until 31 March 2021. It was further confirmed that the Respondent would be placed on garden leave until 31 March 2021. The Respondent signed the letter as acknowledgement of receipt. On 8 April 2021 the Respondent arrived at the Applicant's Durban branch, wearing a T shirt branded with the logo of the Applicant's competitor, Bearings 2000. According to the Applicant the Respondent loudly and boastfully announced in the presence of staff and customers that he had taken employment with Bearings 2000, telling them his intentions to expand Bearings 2000. The Respondent conceded to making this visit but denied loudly boasting to all present.

[10] According to the Applicant, the Respondent breached at least two material provisions of the 2017 restraint, namely that he took up employment with a direct competitor of the Applicant and that he sought to elicit the Applicant's employees to leave the Applicant's employment to rather go and work for Bearings 2000. The Applicant said that it is clear that the Respondent has no regard for the provisions of the 2017 restraint and that the Applicant cannot rely on him to abide by the undertakings given by him in the 2017 restraint. The concern of the Applicant is further that the Respondent took up the role of a Branch Manager with Bearings 2000, an identical role to that which the Respondent performed for the Applicant for several years. On 15 April 2021 a letter of demand was then issued by the Applicant's attorneys demanding that the Respondent resign from the employment of Bearings 2000. When the Respondent did not heed the demand, it initiated the present application which the Respondent has opposed. The opposition to the application is premised on the two foreshadowed grounds. Further the Respondent said that there was no urgency in the matter and that the deponent to the founding and replying affidavits lacked the necessary authority to represent the Applicant. The deponent to these affidavits is the Managing Director of the Applicant.

Analysis

Urgency

[11] Where an employer seeks to enforce a restraint of trade agreement against a former employee, applications of that nature are usually accepted by this Court to be urgent by their very nature.[2] That observation notwithstanding, urgency must still be assessed on each case. In assessing the urgency of this application, it is useful to have regard to the fundamental principles pertaining to urgency, as correctly submitted by the Applicant. In this regard, the Courts have held that it is clear that:

"... the Court's power to abridge the times prescribed and to accelerate the hearing of the matters should be exercised with judicial discretion and upon sufficient and satisfactory grounds being shown by the applicants. The major considerations normally ... are three in number, viz the prejudice that applicant might suffer by having to wait for a hearing in the ordinary course; the prejudice that other litigants might suffer if the application was given preference; and the prejudice that respondents might suffer by the abridgment of the prescribed times and an early hearing."[3]

[12] As to the first consideration for urgency, the 2017 Restraint is of a limited duration and were the Applicant to have to wait for a hearing in due course, it will have to endure the Respondent's alleged breach of the 2017 Restraint, and the ramifications of that breach, until then. For every day that the respondent remains employed by Bearings 2000, the breach continues. More than two months of the twelve-month restraint period provided for in the 2017 Restraint have already elapsed, and were this application to be heard in the ordinary course, the whole 12 month period would probably lapse before the matter is heard. It is alleged that the respondent is already engaging with at least one of the applicant's customers, necessitating an urgent need to resolve the issues. A further allegation is that the Respondent is in possession of valuable confidential commercial information as related to the applicant's short and medium-term business plans. The respondent protested that the payment of damages could serve as an appropriate remedy in the circumstances. On his own version he is heavily financially committed and would be unable to forego even the amount of one month's salary without being left destitute and unable to honour his commitments. His protestation is accordingly patently unsustainable. Therefore, this application must be determined on an urgent basis if the applicant is to obtain adequate redress.

[13] As to the second consideration for urgency, once it is accepted that an application for the enforcement of a restraint of trade is relatively urgent, it follows that there will always be some degree of prejudice to the other litigant whenever an application of this nature is heard. This is inescapable. As to the third consideration for urgency, the applicant afforded the respondent a full week in which to deliver his answering affidavit, and then further consented to the respondent's request to be afforded an opportunity to deliver a fourth set affidavit. The respondent has not been prejudiced by this application being brought on an urgent basis. The parties have fully ventilated the dispute between them in the detailed affidavits which have been delivered on their behalf. The application was brought with all due urgency in the circumstances. The applicant learned of the respondent's breach of the 2017 Restraint on 8 April 2021, sent the letter of demand on 15 April 2021, and launched this application on 3 May 2021 after having received the respondent's response to the 15 April 2021 letter on 28 April 2021.

Authority to bring this application

[14] The Respondent submitted that a party instituting legal proceedings must allege and prove that he has the requisite locus standi, and the onus rests squarely upon the Applicant.[4] An artificial person can only function through its agents and it can only take decisions by passing of resolutions in the manner provided by its constitution. In motion proceedings it is usual and desirable for the resolution of the board of directors of a company authorising litigation to be annexed to and proved by the founding affidavit.[5] The Applicant did not provide such authority. There is no dispute about the position held in the Applicant by the deponent, Mr

Schoevaerts, to the founding and the replying affidavit, namely that he is the Managing Director, based in Gauteng. Two confirmatory

affidavits to the replying affidavit are filed by two Employees of the Applicant in support of averments made by Mr Schoevaerts. For purposes of this application I accept that Mr Schoevaerts represents the Applicant as the Respondent did not file a formal notice of objection, even in the second answering affidavit filed. There is thus locus standi in Mr Schoevaerts to bring this application. His personal knowledge on issues that transpired before he joined the Applicant fall to be resolved through probabilities.

The restraint of trade agreement

[15] As the Applicant submitted, a party seeking to enforce a contract in a restraint of trade is required to invoke the restraint agreement and prove a breach thereof. Once that has been done, the onus then shifts to the respondent who seeks to avoid the enforcement to prove, on a balance of probabilities, that the restraint agreement is unenforceable because it is unreasonable.[6] The test set out in Basson v Chilwan and Others[7] in determining the reasonableness or otherwise of a restraint of trade provision is:

15.1 is there an interest of the one party, which is deserving of protection at the termination 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; and

15.5 Does the restraint go further than necessary to protect the relevant interest?[8]

An interest worthy of protection

[16] It is well established that the proprietary interests that can be protected by a restraint agreement are essentially of two kinds,

namely: (i) all confidential matter which is useful for the carrying on of the business (referred to as "trade secrets"); and (ii) the relationships with customers, potential customers, suppliers and others that together make up what is generally referred to as the "trade connections" of the business, being an important aspect of its incorporeal property known as its goodwill. Whether information constitutes a trade secret is a factual question. For information to be confidential it must be: (i) capable of application in trade or industry, that is, it must be useful and not be public knowledge and property; (ii) known only to a restricted number of people or a closed circle; and (iii) of economic value to the person seeking to protect it.[9] The Applicant submitted that the type of information which the Respondent was in possession of, qualified as trade secrets.

[17] The respondent averred both with regards to the applicant's short and medium term business strategy and the information gathered for that purpose, as well as his knowledge regarding its pricing methodology and the discounts offered to the different types of its customers to be information in the public domain. In Experian South Africa (Pty) Ltd v Haynes and Another[10] the Court held, with reference to the respondents' contention, in that case, that the applicant's information was not confidential

because it was in the public domain and that:

"the contention was legally untenable in that it is clear from several reported judgments on this issue that irrespective of whether or not information is in the public domain, the fact that the respondent has obtained such information within the context of a confidential relationship means that it in fact is protectable."

[18] The Respondent and the Applicant had a confidential employment relationship governed by their contract of employment. When the Respondent gathered information in Port Shepstone, he was acting within the scope of his employment and for the benefit of the Applicant. This information though acquired in the public domain qualifies to be protectable. Such information is useful to the carrying on of the business of the Applicant in establishing new branches. Trade connections are likely to be established in the future, should the Applicant establish branches in Port Shepstone.

Prejudice

[19] The interest of the Applicant can very easily be prejudiced by the Applicant if he decides to avail it to Bearings 2000. While the Respondent has made an undertaking not to use any information acquired from the Applicant, this guarantee has not been made part of the employment agreement he has with Bearing 2000.

Qualitative and quantitative interest weight

[20] The question is whether such interest of the Applicant so weighs up qualitatively and quantitatively against the interest of the

Respondent that the Respondent should not be economically inactive and unproductive. It must also be considered whether the employee was possessed of the skills, expertise, qualifications and experience before joining the employer, as it could be seen as unfair in the weigh off to prevent the employee from earning a living under such circumstances.[11] The Respondent worked for the Applicant for about six years. This is a much shorter period compared to the vast experience he acquired

elsewhere before joining the Applicant. While with the Applicant the Respondent received various promotions, which means that the

Applicant found him already well trained and equipped for the job. I have to consider the nature, extent and duration of the restraint and factors peculiar to the parties and their respective bargaining powers and interests.[12]

[21] I note that the Respondent refused to take a post offered by the Applicant which would take him out of the Durban area, due to his family concerns. The restraint limits him from working in the Durban area for a period of 12 months. In my view it would not be reasonable to uphold the restraint against the Respondent, taking into account his seniority when he joined the Applicant and the disruptive effect it might have to his family. The Applicant found him already economically active and productive. There is no justification for the Respondent to be worse of when he leaves the Applicant.

Facet of public policy

[22] The question is whether there is 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. From March 2020 till the next foreseeable future the economic world has been hard hit by the advent of Covid-19. Very many employees have since lost their jobs and in this country, as with others, unemployment has risen to uncontrollable levels, leaving families destitute. Finding a job at this time is notoriously difficult. In the circumstances, the restraint should be rejected.

Extent of the restraint versus the relevant interest

[23] It is now to be determined if the restraint goes further than necessary to protect the relevant interest. Where the interest of the party sought to be restrained, here the Respondent, weighs more than the interest to be protected, here that of the Applicant, the restraint is unreasonable and consequently unenforceable. It is common cause that the Respondent was subjected to three consecutive retrenchment processes at the hands of the Applicant. In each instance his position was affected by the process. In his resignation letter, the Respondent has articulated how he felt as the Applicant considered his plight. It is a factor to consider that he was re-assured of a position in the new organogram. This was however, dependent on the decision of the yet to be appointed General Manager of that department. Until that General Manager was appointed and made his or her decision, the position of the Respondent remained uncertain even if he began to take up activities of the role. He can hardly be criticised for looking at other greener pastures. After all, a retrenchment exercise is a no blame process. In my view, the restraint will go further than necessary if it is to stop the Respondent from being employed by the Applicant's rival company. Fair competition can still be exercised by the two companies while the Respondent remained with Bearings 2000. The interest of the Respondent, is found to weigh more than the interest of the Applicant, the restraint is unreasonable and consequently unenforceable.

[24] A claim for damages remains open to the Applicant should it be determined that the Respondent has shared the Applicant's trade secrets, trade connections and goodwill. The Respondent has a secured job through which he could satisfy any judgment against him. I accept the Respondent's evidence that Bearing 2000 had Hulett as one of its customers before the Respondent joined them. Messrs Que Mkhwanazi and Dwayne Vergas were employees of Bearings 2000 that handled dealings with Hulett. Mr Mkhwanazi has since left Bearing 2000 and his job portfolio is now that of the Respondent.

[25] In the result, the following order shall issue:

Order

1. The application is dismissed.

2. No costs order is made.

H Cele

Judge of the Labour Court of South Africa

Appearances:

For the applicant: Adv.F.R.McAdam

Instructed by: Coetzee Attorneys

For the respondent: Adv.L Pretorius

Instructed by: Stroebel Singh Theunissen Inc.

[1] Act Number 66 of 1995, the LRA.

[2] ARB Electrical Wholesalers (Pty) Ltd v Grove and Others [2014] ZALCCT 31 (3 June 2014).

[3] Aroma Inn (Pty) Ltd v Hypermarkets (Pty) Ltd and another 1981 (4) SA 108 (C) at 112G-113A.

[4] Mars Incorporated v Candy World (Pty) Ltd [1990] ZASCA 149; 1991 (1) SA 567 (A) at 575H-I.

[5] See: Industries (Pty) Ltd v Griffin and another 1978 (4) SA 353 (W) at 356 and E. Mall (Cape) (Pty) Ltd v Merino Ko-operasie Bpk 1957 (2) SA 347 (D) at 351 D to 352 B.

[6] See: Experian South Africa (Pty) Ltd v Haynes and another 2013 (1) SA 135 and Braven SA (Pty) Ltd v Pillay and another 2008 (6) SA 229 (D).

[7] 1993 SA 742 (A) at 7761I-J at 767C – H

[8] See: Kwik Kopy (SA) (Pty) Ltd v van Haarlem and Another 1999 (1) SA 472 (W).

[9] See:Townsend Productions (Pty) Ltd v Leech and Others 2001 (4) SA 33 (C) at 53J-54B; Mossgas (Pty) Ltd v Sasol Technology (Pty) Ltd [1999] 3 B All SA 321 (W) at 333F; Walter McNaughten (Pty) Ltd v Schwartz and Others 2004 (3) SA (C) at 388J-389B.

[10] 2013 (1) SA 135 GSJ

[11] Automotive Tooling Systems (Pty) Ltd v Wilkens and Others (2007) 28 ILJ 145 (SCA) at para 8; Labournet (Pty) Ltd v Jankielsohn and Another [2017] 5 BLLR 466 (LAC) at paras 43 - 44; Jonsson Workerwear (Pty) Ltd v Williamson and Another (2014) 35 ILJ 712 (LC) at para 51.

[12] Reeves and another v Marfield Insurance Brokers CC and another [1996] ZASCA 39; 1996 (3) SA 766 (A) 776A­ F; Basson v Chilwan (Id fn 7) at 786B-C.