This article examines the case of Merchant West Specialised Finance (Pty) Ltd v Le Grange and Another where the court found that the applicant failed to prove the existence of a protectable interest or a breach of the restraint clause of the contract of employment.
Introduction: Restraints in Employment Contracts
Restraint of trade clauses are common in employment
contracts, particularly in industries where confidential information and client
relationships are crucial. These clauses aim to protect an employer's
legitimate business interests by restricting an employee's activities after
leaving the company. For a restraint to be enforceable, the employer must
demonstrate a genuine protectable interest and that the restraint is reasonable
in scope and duration.
Background
This case, heard in the High Court of South Africa, Gauteng
Division, Johannesburg, involved Merchant West Specialised Finance (Pty) Ltd
seeking to enforce a restraint of trade agreement against its former employee,
Jonathan Le Grange
The Restraint Agreement
The employment contract contained a comprehensive restraint
of trade clause that restricted Le Grange's activities for a period of 12
months following the termination of employment. This clause prohibited Le
Grange from engaging in several specific actions, including soliciting business
from or providing services to the company's existing customers, seeking
appointments with the company's suppliers, attempting to persuade employees to
leave the company, and encouraging customers or suppliers to transfer their
business elsewhere. These restrictions were designed to protect the company's
interests and maintain its competitive advantage in the market.
Court's Analysis
Protectable Interest
The court emphasized that for a
restraint to be enforceable, the applicant must prove the existence of a
protectable interest, typically including trade connections (customer
relationships) and confidential information or trade secrets.
The court ruled against Merchant West due to insufficient
evidence of a protectable interest, citing lack of details about confidential
information and trade connections, failure to demonstrate unique methodologies
or products, and absence of proof regarding Le Grange's access to proprietary
software or databases.
Employee's Position and Access
The court determined that Le Grange's junior positions,
limited access to client data and software, brief tenure in corporate credit,
and restricted customer relationships did not justify enforcing the restraint
of trade clause.
Interpretation of the Restraint Clause and the Court’s
decision
The court interpreted the restraint clause as prohibiting Le
Grange from personally offering services to Merchant West's customers, rather
than barring employment with a competitor. Consequently, the court dismissed
the application with costs, citing Merchant West's failure to prove a
protectable interest and the absence of a breach of the restraint clause, as Le
Grange's new employment did not violate the specific terms of the agreement.1
Conclusion
This case highlights the importance of carefully drafting
restraint of trade clauses and the challenges in enforcing them. The court's
decision emphasizes that employers must:
- Clearly
define and provide evidence of their protectable interests
- Ensure
restraint clauses are specific and unambiguous
- Consider
the employee's position and actual access to confidential information or
customer relationships
The combination of a junior employee with limited access to
confidential information, a narrowly worded restraint clause, and insufficient
evidence of protectable interests led to the court dismissing the application.
This serves as a reminder for companies to regularly review and update their
employment contracts to ensure they adequately protect legitimate business
interests while remaining enforceable under the law.
