Restraints of Trade

 

What is a contract in restraint of trade?

·      No legislation or regulation gives an employer a right to this type of protection, and any restraint must be in writing.

 

·      A restraint is a clause in an employment contract that provides that when an employee resigns, or his contract ends, he may not perform work at a new employer that competes with his/her former employer, for a prescribed period and in a specific geographical area.

 

·      The rationale is to safeguard the previous employer's protectable proprietary interests, such as client and customer connections, trade secrets and confidential information.  

 

·      The proprietary interests that a restraint agreement can protect are of two kinds. The first consists of the relationships with customers, potential customers, suppliers, and others (trade connections). The second consists of all confidential matter that is useful for the carrying on the business that a competitor may use to gain a competitive advantage (trade secrets).

To what extent can an employer restrain a former employee?

·      If an employee has no special skills or access to client and customer connections, trade secrets or confidential information, it would be unfair and unconstitutional to prevent an employee from taking up work elsewhere to earn a living. An employee generally has the right to choose a trade, occupation, or profession. 

·      Suppose an employee only possesses the skills of the job that the restraint prevents him from performing. In that case, the consideration of the employee's ability to continue to earn a living may pose a problem for the enforceability of the restraint. 

·      Ultimately, the courts perform a balancing act between the right of the employee to choose his trade and not to compete unfairly with the former employer at his new workplace. The court must balance conflicting interests between the employer and employee considering the public interest. 

·      The courts point out that "It is in the public interest that agreements entered into freely should be honoured and that everyone should, as far as possible, be able to operate freely in the commercial and professional world." 

·      It will generally be contrary to the public interest to enforce an unreasonable restriction on a person's freedom to trade. However, where the proprietary interest of the company which needs protection outweighs the employee's interest in continuing his trade, such restraint will be reasonable and enforceable. 

·    In Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 (4) SALJ 874 (A), the court laid down the general principle that, on the face of it, restraint undertakings are not unconstitutional. Every restraint agreement signed by an employee is assumed to be lawful and enforceable. The onus lies on the employee if he/she wishes to be released from the restraint to show that the condition is unreasonable and contrary to public policy.

 

·      In determining whether a restraint is enforceable, a court will consider, among other things, the following factors:

o   the length of time for which the restraint operates;

o   the geographical area to which the restraint applies;

o   did the employer pay the employee a restraint payment;

o   can the employee still can earn a living;

o   the proprietary interest or capital asset that the employer seeks to protect.

·  Each matter will need to be determined on its facts on a case-by-case basis. The general principle remains that restraint will only be enforceable if: 

o   the employer that is seeking to enforce the restraint has a legitimate proprietary interest worthy of protecting,

 o   the restraint is reasonable in as far as the geographical area and duration of the restraint are concerned, and 

o   the restraint is evident in its meaning and application.

 

POPI – REGISTRATION OF INFORMATION OFFICERS AND DEVELOPING CODES OF CONDUCT

In terms of the Protection of Personal Information Act, 2013 (“POPIA”), the Information Regulator in South Africa (“Regulator”) requires the appointment and registration of an Information Officer and compliance with the Regulator’s codes of conduct,  

The Regulator, in her notice of 22 February 2021, indicated these effective dates:

• Regulation 5 (Application for Code of Conduct) – 1 March 2021; and
• Regulation 4 (Responsibilities of Information Officers) – 1 May 2021, and
• the remaining Regulations will take effect on 1 July 2021.

Registration of Information Officers

Every organisation is required to appoint an Information Officer to ensure compliance with the provisions of POPIA and for the development, implementation and maintenance of a compliance framework.

To assist Information Officers, the Regulator has developed and published a guidance note, the purpose of which is to provide guidance and procedures for the (i) obligations and liabilities of Information Officers and Deputy Information Officers, (ii) registration of Information Officers with the Regulator, (iii) updating the details of Information Officers, (iv) designation of Deputy Information Officers, and (v) delegation of duties and responsibilities of the Information Officers to the Deputy Information Officers.

Guidelines to develop Codes of Conduct

The  Regulator published a set of guidelines that became effective from 1 March 2021. The Guidelines assist organisations in developing codes of conduct or applying the approved codes of conduct.

The published Guidelines broadly cover the following:

• the legislative framework (the objectives of the Guidelines, who should use them and the purpose thereof);
• issuing a code of conduct by the Regulator(the general principles applicable to a code of conduct);
• code governance (governance arrangements and the monitoring of compliance with a code of conduct);
• complaints handling; and
• reviewing, varying and revocation of an approved code of conduct.

Prior authorisation notification

From 1 July 2021, companies must notify the Regulator if the processing of a data subject’s personal information is subject to prior authorisation, as contemplated by sections 57 and 58 of POPIA.

Prior authorisation is required, amongst others, when processing ‘any unique identifiers’ of a data subject (like a telephone number) ‘for a purpose other than the one for which the identifier was specifically intended at collection’ and ‘with the aim of linking the information with information processed by other responsible parties’ Prior authorisation is also required when processing (i) ‘information on criminal behaviour or on unlawful or objectionable conduct on behalf of third parties’, (ii) ‘information for the purposes of credit reporting’, and (iii) when transferring special personal information or the personal information of a child to ‘a third party in a foreign country that does not provide an adequate level of protection’.

Polygraph tests in the workplace

Can an employer dismiss an employee if he fails a lie detector test?

The Labour Appeal Court dealt with this issue in DHL Supply Chain (Pty) Ltd v De Beer No and Others (2014) (LAC), where it held that the mere fact that an employee fails a polygraph test is not in itself sufficient to find an employee guilty of dishonesty. The onus rests on the employer to lead expert evidence to prove the polygraph test’s cogency and accuracy.

The Labour Court had to consider this issue in Goldplat Recovery (Pty) Ltd v Commission for Conciliation Mediation and Arbitration & Others (26 January 2021). A syndicate stole gold concentrate worth approximately R850,000. Goldplat subjected each of the employees who worked in a restricted area to a polygraph test. Only one Maziya failed the test and was subsequently charged with misconduct and ultimately dismissed. Maziya referred an unfair dismissal dispute to the CCMA, where the Commissioner found his dismissal to be unjust and awarded him maximum compensation. The Commissioner found no direct evidence that implicated Maziya, and the assumption made by Goldplat that he was guilty by failing his polygraph test, was mere speculation.

Goldplat took the finding on review to the Labour Court.  The Court had to decide if a reasonable decision-maker on the same material facts would have made the same finding as the Commissioner.

In dealing with the polygraph tests’ reliability, the Labour Court referred to the DHL Supply Chain case. It found that as Goldplat failed to call an expert witness and relied only on the polygraph result to establish Maziya’s guilt, it upheld the Commissioner’s findings and dismissed the review application with costs. 

Employers should be wary of relying on polygraph tests when they intend to use these tests to discipline and ultimately dismiss an employee who fails the test. The sole reliance on failed polygraph tests will be insufficient to prove that an employee is guilty of misconduct or has lied. A polygraph test can only be relevant if it corroborates any other evidence that demonstrates that an employee is guilty of misconduct.