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Manufacturing Indaba 2018

Supreme court rules on restraint of trade appeal

The Supreme Court of Appeal (SCA) recently turned down an employer's quest to enforce a restraint of trade covenant in a case where the employer tried to prove that the use of general skills and knowledge of former employees with a competitor meant that they were in breach of a restraint of trade agreement they knowingly signed.
In the case of Automotive Tooling Systems versus Wilkens [2006] SCA 128 (RSA), delivered on 28 September 2006, the SCA had to pronounce on the enforceability of a certain restraint of trade clause in an agreement that was entered into between an employer and two erstwhile employees, says Ndumiso Pedro Voyi, a senior associate at Leppan Beech Inc.

After the two former employees had tendered their resignations to take up employment with a competitor of their former employer, the latter, alleging that the two former employee were in breach of the restraint clause, approached the Pretoria High Court (PHC) for interdictory relief prohibiting the former employees from taking up employment with, or having any direct interest in the new employer or any other business in competition with the employer in South Africa.

Proprietary interest

The employer, being dissatisfied with the outcome of the PHC, launched an appeal with the SCA. The SCA outlined the issue to be determined as whether the employer had a proprietary interest worthy of protection.

The SCA was of the view that the mere fact that the two former employees had taken up employment with the employer's competitor did not in itself entitle the employer to any relief, if all the former employees would be doing would be applying their skills and knowledge acquired while in the employer's employ.

According to Voyi, it was the SCA's ruling that there is a distinction between a restraint of trade protecting confidential company information, on the one hand, and a restraint that prevents an employee from using his/her experience and knowledge that has been gained while working for a particular employer.

Protectable interest

After going into detail on what the employer contended to constitute a protectable interest, the SCA ultimately held that the facts of the case established that the know-how for which the employer sought protection was nothing other than skills in manufacturing machines, which skills had been acquired by the former employees in the course of developing their trade.

The SCA therefore held that such skills did not belong to the employer - as they did not constitute a proprietary interest vesting in the employer - but accrued to the former employees as part of their general stock of skill and knowledge which they may not be prevented from exploiting.

It was therefore found that the restraint of trade against the two former employees was inimical to public policy and unenforceable, as the appellant had no proprietary interest that was worthy of protection. The employer's appeal was therefore dismissed with costs.

According to Voyi, this case underscores the importance of a proprietary interest that employers would seek to protect by way of a restraint of trade covenant. It is manifestly clear from the case that restraints of trade which merely seek to curb or eliminate competition would be unenforceable, says Voyi.

In conclusion, it is important to emphasise the distinction which the SCA made in the case (which the Courts at all times make) between what is properly classified as confidential information and what has come to be called the employee's general stock of knowledge, says Voyi.
restraint of trade-
Would a 6 month restraint of trade in an area for an estate agent be considered unenforceable as well?
Posted on 6 Dec 2006 16:41