The focus of this article is on this aspect of the judgment (and not the enquiry by the court on the other questions which need to be considered for the enforceability of a restraint of trade – which relate to the existence of the restraint of trade and its reasonableness).

Facts before the Labour Court

Backsports is a company that renders broadcasting, advertising, social media and production services. Until his dismissal for misconduct, Motlhanke had been employed by Backsports as a senior stream lead. Motlhanke’s dismissal took place less than 10 months into his employment.

Backsports sought to enforce its restraint agreement against Motlhanke after it became aware of his involvement with another company, O Media Visuals.

The restraint of trade contained in the contract of employment, read as follows: “You undertake to the company and to each of the group companies that whilst you are employed by the company and for a period of 12 months from the termination date, you will not, whether directly or indirectly…”.

Shortly after Motlhanke’s dismissal, Backsports received information from various sources that he was acting in breach of his restraint agreement. This information included the alleged solicitation of Backsports’ employees, Motlhanke allegedly approaching Backsports’ clients and Motlhanke allegedly threatening to sabotage Backsports’ business. Based on the information it received, Backsports instructed its attorneys to issue a “warning letter” to Motlhanke regarding the alleged breach of his restraint agreement. Motlhanke denied that he had breached his restraint agreement and contended that Backsports merely sought to bar him from using his skills and expertise, which he already possessed, to deny him the right to make a living, as well him from competing with it, even after it had dismissed him from its employment.

The Labour Court’s decision

Ultimately, the Labour Court concluded that it would be unreasonable to restrain Motlhanke in circumstances where Backsports had failed to prove that he had access to confidential information and that he had used his trade connections to his advantage, or that of his new employer, thereby prejudicing Backsports. Despite this finding, the court went on to deal with the circumstances of Motlhanke’s departure from Backsports and the effect of this on the enforceability of the restraint.

The court held that because Motlhanke did not voluntarily leave his employment, it would “be an injustice and unjustified limitation of an individual’s right to enforce a restraint agreement against him when his ex-employer dismissed him”. The court went on to state that Backsports, having dismissed Motlhanke, expected him to “starve” by interdicting and restraining him from earning a living and from his occupation and trade.

Continuing with this line of thought, the court held that: “[Motlhanke] was permanently employed for a period of less than 10 months at the time of dismissal. This is a short period and it would be unreasonable to restrain [him] for 12 months from the date of his dismissal. In my view, the fact that [Motlhanke] was dismissed has disentitled [Backsports] from enforcing the restraint agreement. In other words, [Backsports] waived its right to enforce the restraint when [Motlhanke] left because of dismissal.”

Therefore, the Labour Court concluded that the dismissal of an employee deprives the former employer of the right to enforce a restraint agreement against that employee.

In addition, the court granted costs against Backsports because it held that the application to enforce the restraint agreement had not been brought in good faith and had less to do with Backsports’ protectable proprietary interests than with making Motlhanke “suffer”.

After the judgment, Backsports sought leave to appeal the Labour Court’s decision; however, its application for leave to appeal was dismissed. The leave to appeal was not based on the passing comments of the court on the effect of the dismissal on the enforceability of the restraint of trade.

Conclusion

The question of the enforceability of a restraint where an employee has been dismissed is not new. A well-known case is the 1996 Appellate Division decision of Reeves & Another v Marfield Insurance Brokers CC & Another 1996 (3) SA 766 (A), where the court found that the phrase “for any reason whatsoever” (which is wording often found in a restraint of trade) is to be given a restricted meaning to exclude any wrongful termination of the contract of employment by the employer. The court in Reeves cited with approval earlier authority that identical or similar phrases are wide enough to include the unlawful termination of a contract of employment by an employer. The Labour Court in Backsports did not explain on what basis it was able to depart from Reeves nor did it explain what was distinguishable from Reeves.

This question will no doubt be raised again in disputed restraints as it now another avenue upon which employees may seek an escape from their restraint obligations.

Key takeaways

Restraints of trade serve a useful and legitimate business purpose. Enforcement is always a matter of fact. Where the restraint wording is out of sync with its purpose, the restraint will not be enforced. Too often the wording of a restraint is clumsy and is the product of cut-and-paste solutions. The proper formulation of a restriction is critically important and should be properly linked to the business’ purpose.

Most restraints provide that they operate after termination of employment, “for any reason whatsoever”. A court would enforce this (Backsports aside), even if there was a wrongful termination by the employer, assuming a case exists for its enforceability on the other factors. On the other hand, where a restraint provision specifically excludes its operation on termination of employment due to an unfair dismissal, the restraint would not be enforceable, as that was the choice of the parties. This has been the prevailing law.

To leave no room for debate, employers should ensure that their agreements provide that a restraint of trade will remain in place regardless of the reason for the termination. This is likely going to be a lively issue for some time to come, unless it is resolved in the near future by other dissenting judgments or better still an appeal court.