Process Pipe (Natal) (Pty) Ltd v Naidoo and Another (J 998/23) [2023] ZALCJHB 252 (23 August 2023)

IN THE LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG

Not Reportable

Case No: J 998/23

In the matter between:

PROCESS PIPE (NATAL) (PTY) LTD Applicant

and

ANAND NAIDOO First

Respondent

MACSTEEL SERVICE CENTRE SA (PTY) LTD Second Respondent

Heard: 16 August 2023

Delivered: 23 August 2023 (This judgement was handed down electronically by circulation to the parties legal representatives by email, publication on Labour Court website and release to SAFLII. The date and time for handing down is deemed to be 12:00 on 23 August 2023)

JUDGEMENT

BALOYI AJ

Introduction

[1] This matter concerns an urgent application brought by the applicant specifically seeking to enforce a restraint of trade covenant against the first respondent. Following his resignation, the first respondent went on to accept an offer of employment with the second respondent. The application is opposed by the first respondent.

Factual background

[2] The applicant and the first respondent entered into an employment relationship in August 2019 in terms of which he was appointed toga position of external sales representative. It is worth noting that prior to employed by the applicant, he had an employment relationship with the second respondent which came to an end through retrenchment. Clause 14 of the contract of employment between the applicant and the first respondent makes a provision for a restraint of trade which reads as follows:

‘ 14.

RESTRAINT OF TRADE

It is recorded that the employee has; and will continue to receive certain know-how and confidential information, which if made

available to the employer's competitors would diminish or be damaging to or destroy the goodwill attaching to the to the employer.

14.1 The employee agrees that for the period of his employment and one year thereafter, he shall not within the Province of KwaZulu Natal:

Be concerned, engaged or interested in any business similar to or competing with the business of the Employer.

Directly or indirectly accept any benefit whether in money or otherwise for any service which is supplied or furnished or product which is manufactured or sold or leased to or otherwise made available to any person, firm or corporation who is or at any time during the period of the Employee's employment was a customer of the Employer.

The expression "customer' shall in this case be deemed to include a prospective customer whose business was the subject of negotiation with the Employer at any time during the period of employment of the Employee.

4.2 The Employee undertakes not to do any of the things set forth herein either directly or indirectly and whether as a director or partner or member or principal or a agent or representative or shareholder or financier or employer or in any other manner whatsoever.

[3] On 30 May 2023, the first respondent tendered resignation within 30 days' notice. The applicant addressed a letter to the first respondent a ted 31 May 2023 reminding him of the restraint of trade. He was further warned that legal action will be instituted against him should he carry out his intention to commence working for Macsteel (the second respondent) which is its competitor as this is prohibited in terms of the restraint. The first respondent responded by stating that the second respondent has specifically appointed him to deal with the sale of valves. The product in question is not in direct competition with what the applicant is dealing with. He went on to ask for the applicant's understanding that his acceptance of the second respondent's offer came as a relief for his financial difficulties.

[4] At the end re notice period, the first respondent left the services of the applicant and resumed duties at the second respondent. This prompted the applicant through its attorneys to address a letter to both the first and second respondents. The essence of the letter is that the first respondent has breached a restraint of trade by taking up employment with the second respondent An undertaking was demanded from both respondents that they should cease and desist from any contravention of the restraint of trade Furthermore, the first respondent must furnish an undertaking that he shall abide by all provisions of the restraint. Failure to provide such undertakings would lead to the taking of legal action on an urgent basis.

[5] The second respondent replied, and such reply was restated in the applicant's founding affidavit in which it specifically said that it had no involvement in the contractual relationship between the applicant and the first respondent. Should the applicant become aware of the first respondent's disclosure of confidential information, same should be brought to its attention and will be addressed accordingly.

[6] The first respondent's silence, together with the second respondent's response, left the applicant dissatisfied hence the filling of this application. At the centre of this application is the protectable interest raised by the applicant in that:

6.1 The metal industry has few established businesses that competitive for the same business from the same proof of customers.

6.2 Majority of products sold by the applicant and the second respondent are manufactured abroad and imported for resale b various competitors in the industry.

6.3 The products are not unique to highly competitive in that any particular supplier, but the pricing is highly competitive in that any supplier with the best price gets business. The pricing is in fact a closely guarded secret in view of varying in

methodologies applies across the suppliers.

6.4 The applicant’s strategies in terms of procurement of product, storing same, logistical, sales strategies and marketing aspects are not of public knowledge and therefore confidential.

[7] The first respondent’s contention is essentially that the restraint is unreasonableness as it has the effect of depriving him of an opportunity to earn a better living. What the second respondent offered him in terms of earnings is more favourable than what he was receiving from the applicant. Being unemployed for twelve months will only bring dire financial consequences to him. At the age of 59, he does not stand any better chance of securing any further opportunities in future.

[8] Doing sales in the steel industry is the only work he performed for the past 39 years. Prior to taking employment with the applicant, he was the employee of the second respondent who retrenched him. Although the applicant and the second respondent are competitors within the steel pipes space, the second respondent has specifically employed him to sell valves, which is not a product supplied by the applicant, there is no competition between the applicant and second respondent insofar as this product is concerned. He never dealt with pricing during his service at the applicant and there is no confidential information that he is likely to share with the second respondent to the detriment of the applicant.

[9] The applicant argued that it has established its case that the first responder has breached the restraint clause. The first respondent has failed to discharge his duty to prove that the restraint is unreasonable. The first respondent presented facts that are mutually destructive regarding the valves. At one point, he stated that the applicant does not manufacture valves whilst on the other hand, he stated that the applicant does not supply valves but resells them. The other incoherent point is about his claim of missing on a once-in-a-lifetime opportunity should the order sought be granted whilst, at the same time, he claimed to be guaranteed employment at the second respondent even after 12 months.

The applicable principles

[10] The Courts' approach to restraints of trade is well settled. The test restated in Basson v Chilwan and others[1] provides guidance in dealing with restraints of trade The undertaking was sought from both respondents. To a little extent, same secured from the second respondent which indicated that the applicant should bring any disclosure of confidential information by the first respondent to its attention should such happen so that it can address same accordingly. In view of the Labour Appeal Court's decision in Ball v Bambalela Bolts (Pty) Ltd and another[2], the undertaking bears no significance as the employer does not have to show that the former employee has utilised its confidential

information but merely that he could do so.

Analysis

[11] Whilst the existence of the restraint of trade is not in dispute the applicant case seems to be more emphatic on the first respondent's acceptance of the second respondent's offer as a breach of the restraint of trade. of remedying the breach will be to cease working for he second respondent. This could be clearly seen from its letter of 31 May 2023 addressed to the first respondent which in essence is conveying a bar to taking up employment the second respondent. A subsequent demand by its attorneys addressed to both respondents also moves towards the same direction. The second respondent's confidential know-how about the applicant is heavily rested on the pricing which, according to the applicant, renders the entire employment relationship between the first and second respondents a breach of the restraint. The second respondent's undertaking coupled with an invitation to the applicant to report any breach should it arise did not satisfy the applicant. There is no doubt that the applicant is seeking a clear disassociation between the first and second respondents. It is not interested in looking at whether the existing facts establish a risk of its confidential information on the pricing which may, through the first respondent, unduly get into the hands of the second respondent to its detriment.

[12] There is no doubt that restraints of trade are incorporated into the contracts for a reason and parties to it must accordingly abide. It is not within the scheme of public policy that the mere existence of a restraint clause means a total prohibition of employment of an employee by another employer in the same industry on reason that it is a competitor. The restraint will be unreasonable if the fear of possible divulging of confidential information is overly speculated, most particularly if no clear facts are established to suggest that a former employee by nature of his work is capable of doing so.

[13] In this instant case, the applicant's arguments are strongly leaning towards what the first respondent has failed to put forward in defence of the case or what the applicant regards as inconsistencies in the first respondent's case. The reading of the applicant's case only conveys pricing as a protectable interest. The applicant does not dispute that the first respondent has and is capable of influencing the pricing that may cause loss of business on is part should he divulge same to the second respondent, be it for valves or any other steel product. On this note, this Court does not find the now-hon confidential pricing to be a protectable interest that is worth of protection or may cause harm to the applicant's business should the employment relationship between the first and second respondent be allowed to exist further.

[14] The applicant was informed as early as 2 June 2023 through a letter from the first respondent that he will be focusing on the sales of valves within the second respondent's operations. The applicant did not address this issue in its subsequent demand through its attorneys to the respondents nor did it indicate that the sales of valves present a competition that will negatively affect its business. It is only during arguments that the applicant criticised the second respondent for non stating the nature of his role in the sales of valves. As pointed out above the applicant’s wishes are nothing else but to see no employer relationship taking place between the first and second respondent. In Labornet (Pty) Ltd v Jankielsohn and another[3], the Labour Appeal Court held that:

A restraint is only reasonable and enforceable if it serves to protect an interest, which, in terms of the law, requires and deserves

protection. The list of such interest is not closed, but confidential information (or trade secrets) and customer (or trade) connections

are recognised as being such interests.'

[15] The cumulative effect of this is that the application as it stands, does not present the first respondent's know-how in so far as formulation and adjustment of prices. With the above being said, a restraint of trade is primarily created to protect the business interests of the employer from the employees who leave the employer to join a new company that is in competition with such an employer. The claim for such protection should without any doubt be enforced in a manner which is not aimed at eradicating the non-existent fear. The applicant in this case has failed to show that the first respondent's sales of valves (that are not even appearing in the applicant's list of products) will interfere with its protectable interest.

[16] In the circumstances, the application should fail. Regarding costs, it will n be in the interest of law and fairness to make a cost order in applicant's right to approach the Court to assert its right in terms of the contract. That the attempt to enforce such a right was posted on the wrong footing cannot in this regard justify a cost order. The parties were in any event also not pursuing this aspect with vigour.

[17] In the premises, the following order is made:

Order

1. The application is dismissed.

2. There is no order as to cost.

M Baloyi

Acting Judge of the Labour Court of South Africa

Appearances:

For the applicant: Adv.

S Swegers

Instructed by: Strydom

M & Associates

For the first respondent: Adv.

N Momla

Instructed by: FAM

Attorneys

[1] [1993] ZASCA 61; 1993 (3) SA 742 (A). The test can be summarised as follows: (i) Does the one party have an interest that deserves of protection after termination?

(ii) If so, is that interest threatened by the other party? (iii) does such interest weigh qualitatively and quantitatively against the interest of the party not be economically inactive and unproductive? (iv) Is there an aspect of public policy having nothing to do with the relationship between the parties that

requires that the restraint should either be maintained or rejected? (v) Whether the restraint goes further than necessary to protect the relevant interest.

[1] [1993] ZASCA 61; 1993 (3) SA 742 (A). The test can be summarised as follows:

(i) Does the one party have an interest that deserves of protection after termination?

(ii) If so, is that interest threatened by the other party?

(iii) does such interest weigh qualitatively and quantitatively against the interest of the party not be economically inactive and unproductive? (iv) Is there an aspect of public policy having nothing to do with the relationship between the parties that

requires that the restraint should either be maintained or rejected? (v) Whether the restraint goes further than necessary to protect the relevant interest.

[2] (2013) 34 ILJ 2821 (LAC) at para 21.

[3] (2017) 38 ILJ 1302 (LAC) at para 41