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Worklaw subscribers receive a monthly newsletter containing commentary on the latest labour law cases and trends. This newsletter contains an article on the ability of the buyer of a business to immediately restructure that business to run it in a different way. We also look at two new cases: the first dealing with whether a restraint of trade agreement can be enforced and the second dealing with whether it is unfair discrimination to overlook an internal applicant - a white woman – in favour of an external application by an African woman.
This public newsletter is a free edited version of the Worklaw subscriber newsletter.
Restraining the ex-employee
One of the on-going concerns of employers in competitive markets is the danger posed by ex-employees setting up in competition against the ex-employer, using information gained during employment. The client base, product information and market trends constitute knowledge essential for effective employees but dangerous for the ex-employer when the former employee uses that knowledge to edge in on the market.
The issue of restraint of trade agreements arose recently in the case of Lifeguards Africa (Pty) Ltd v Raubenheimer (2006) 27 ILJ 2521 (D). When relations between the CEO and national operations manager of the plaintiff soured, it was agreed that the latter would vacate his position and would be paid R200 000. He undertook not to go into competition with the plaintiff. Shortly after leaving employment, the defendant re-entered the same industry as a consultant to a close corporation which he was instrumental in establishing. The close corporation then tendered for two lucrative contracts previously held by the plaintiff. The plaintiff sought relief in the High Court contending that the defendant's undertaking was a term of a contract in restraint of trade for which the plaintiff had paid R200 000.
Finding that R200 000 was too high a figure to constitute severance pay, the court held that the figure had been paid to induce the defendant not to compete with the plaintiff. A restraint of trade agreement had been entered into, even though it was an oral agreement. The onus rested on the defendant to prove that the restraint was unreasonable. The defendant had 8 years experience with the plaintiff and had a thorough knowledge of the plaintiff’s customers. This was proved by the dubious way in which the plaintiff had lost two important customers after the defendant re-entered the business. It was clear, the court found, that the defendant had taken advantage of the trade connections of the plaintiff.
The court was satisfied that the defendant had unlawfully breached the restraint of trade by competing with his former employer. By taking advantage of trade connections, the defendant had abused the plaintiff’s protectable interests. The court said that it would be against public policy for the court to allow the defendant to disregard his commitment not to compete with the plaintiff. The court found that it was reasonable to enforce the restraint of trade agreement to prevent the defendant from carrying on the business of supplying lifeguards to the plaintiff’s two former customers.
This case is interesting because usually restraint of trade agreements are signed at the commencement of employment rather than at the end of it. Second, it was a verbal agreement, but the court was willing to find that it was taken seriously enough (because of the R200 000 paid as an incentive) to interpret it as a restraint of trade agreement. Third, the agreement was not precise as to the period for which the ex-employee could not compete or the geographic area in which he could not compete. Rather than setting aside the whole agreement for vagueness (and thus unreasonableness), the court was happy to prevent competition in two specific locations – Durban Water Wonderland and Sun City – because the plaintiff previously held these contracts.
The lesson of this case is that upholding restraint of trade agreements is seen as important for public policy and that courts will overlook vagueness and the unwritten nature of the undertaking, if the circumstances point to a deliberate breach of an undertaking.
Designated groups and discrimination
We know that the Employment Equity Act targets “designated groups” as the beneficiaries of affirmative action measures. The designated group includes blacks, women and persons with disabilities. Is it unfair discrimination when an employer appoints an external applicant over an internal applicant where both fall into the designated group?
This issue arose in Henn v SA Technical (Pty) Ltd (2006) 27 ILJ 2617 (LC). An applicant for a job, a white female, was not successful in her application because of employment equity demographics at the company. The company conceded it had discriminated against her on the basis of her race, but argued that it was obliged to apply affirmative action measures and therefore had not unfairly discriminated against her. She argued that it was unlawful to discriminate against her as she also fell into the designated groups.
The Labour Court found that as the company had conceded that there had been discrimination, it bore the onus of establishing that the discrimination was fair. The Court stressed that the principle that there are different degrees of discrimination to which people within the designated groups were subjected has been acknowledged in the employment context.
The Court was satisfied that the company’s conduct was not contrary to its policy. It was justified in giving preference to African females who were suitably qualified, even if they were obtained outside its workforce.
The Court therefore found that the company was entitled to discriminate on the basis of race as it was taking affirmative action as provided for in s 6(2)(a) of the EEA. The lesson of this case is that achieving targets so that the workplace is representative of the demographics of society is more important than simply being a member of a designated group.
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