18 June 2010

Restraints of Trade - One size does not fit all

The recent decision of Interpark (South Africa) Limited v Andre Joubert and Another demonstrates the careful scrutiny which a Court will adopt in considering whether or not a protectable interest is served by a restraint of trade.

The facts

At the time of his resignation, Mr Joubert was employed by Interpark as an Operations Manager. His contract of employment included a 12 page standard form restraint in which he recognized that he had access to trade secrets and confidential information and was prohibited from becoming involved in any undertaking that carries on the 'prescribed business' or provides the 'prescribed services' anywhere in the 'prescribed area'.

Prescribed business and prescribed services were widely defined and were supposed to be detailed in an annexure, which was never attached to the restraint. The prescribed area was each province of South Africa, Swaziland and any other country where Interpark conducted business.

Mr Joubert took up employment with Easipark, being a direct competitor of Interpark.

Mr Joubert contended that the park management business is not sophisticated, the same suppliers are used, there is little to differentiate between the two modes of operation and the equipment and software used by Interpark are also used by other parking management companies. If there was proprietary information which was unique to Interpark, Mr Joubert claimed that he was not privy to such.

In response, Interpark conceded that Mr Joubert did not have access to the management programmes themselves, but argued that he was exposed to unique procedures. Interpark alleged that it could not divulge the exact details of such unique procedures as this would defeat the application and the restraint.

The Court took a dim view of this approach. It held that Interpark's allegations cannot be properly tested and its failure to make use of the procedures to ensure that sensitive information is provided to the Court without risk of being revealed, should be held against it.

The applicable legal principles

Since Magna-Alloys and Research SA (Pty) Ltd v Ellis, a restraint of trade will be enforced unless it is contrary to public policy. The principle enquiry is whether or not the party seeking to enforce the restraint has a protectable interest.

The Court found that the determination of what constitutes trade secrets or confidential information is an objective one and not the subjective view of the parties who signed the document. The mere elimination of competition is not a protectable interest even if the restraint is required in order to recoup time and money incurred in training the employee.

Conversely, where an employee is paid compensation in order to sterilize his economic activities, it would make it difficult for a Court not to enforce the agreement and "hold him to his bargain".

The Court found that Interpark had difficulties in identifying precisely what constituted its protectable interest. Very little thought had gone into the particular circumstances of a specific employee and the threat which he/she may impose. The Court held that the "one size fits all approach" may expose a restraint as being found to be fundamentally flawed.

The Court found that there was little protectable interest being served, if any. The annexure addressing material provisions had been omitted from the restraint. The period and scope of the restraint was found to be extremely extensive and bore little relation to the interest sought to be protected. The Court dismissed the application with costs.

Conclusion

Clients should avoid a standard form or generic restraint of trade which applies across the board to all employees.

In drafting a restraint, carefully consider the employee's specific position and functions, particularly the protectable interest being served.

A rational basis must also exist for the period, area and scope of the restraint.

Bear in mind that the enforceability of the restraint will only be tested at the time when it is crucial that the restraint be upheld.

Melanie Hart, Director, Employment Law

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