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.

Temporary employment laws in South Africa

 

A client asked: “Can my employee keep me on as a temporary employee, indefinitely, and dismiss me whenever it feels like it?” 

Regarding temporary employment contracts, our Labour Relations Act (LRA) provides that: 

·         If a company employs a person for longer than three months, he or she would be ‘deemed’ to be an ‘indefinite period employee’ (i.e., permanent employee) of the employer. 

·         This principle will not apply if there is a justifiable reason to retain him or her as a temporary employee.

 ·         The LRA protects them against unfair dismissal. 

·         If a labour broker employs a person, he does not become the client company’s employee after three months. However, if the broker dismisses the employee after three months for a reason, he believes is unfair, both the client company and the labour broker can be taken to CCMA and held jointly and severally liable. 

·         These provisions only apply to employees who earn less than the Basic Conditions of Employment Act threshold (currently R205,433.30 per year). 

·         It is also not applicable to businesses that employ less than ten people or new companies that employ less than 50 people within the first two years of the business opening.

Justifiable reasons

There are circumstances when an employer is justified in employing someone on a temporary contract for longer than three months without becoming a permanent employee. E.g., if the employer can satisfactorily prove that the nature of the work is for a limited and definite period, or there is another justifiable reason for temporary employment such as:

 

• Replacing of another employee who is sick or absent from work.
• Employment on account of a temporary increase in the volume of work, which will likely not last longer than 12 months.
• If a company employs a student or recent graduate to gain work experience.
• It employs a person for a specific project which has a limited or defined duration.
• It employs a non-citizen who has a work permit for a specific duration.
• It employs a person to perform seasonal work.
• Employed for an official public works scheme or similar public job creation scheme.
• Employed in a position that is funded by an external source for a limited period.
• If an employee reaches the expected or agreed retirement age applicable in the employer's industry.

Equal Treatment

Another change made to the temporary employment laws is that, after three months of employment, a fixed-term employee (even if the reason for the fixed term is justified) the employer cannot treat the employee less favourably than a permanent employee unless justified.

A justifiable reason includes when the different treatment is because of the application of a system that considers:

• Seniority, experience, or length of service
• Merit
• The quantity or quality of work performed
• Or other criteria of a similar nature

The above is not applicable if such a reason is prohibited by Section 6(1) of the Employment Equity Act (this refers to human-rights grounds such as race, religion, gender etc.)

Employers must also provide employees with equal access to opportunities to apply for vacancies, whether on permanent or fixed-term contracts.

 

Negotiating successfully

 

Negotiation is when two or more parties with different needs and goals try to find a mutually acceptable solution. A successful outcome will help the parties build better relationships, lasting, long-term solutions that satisfy both parties' needs and assist in avoiding future problems and conflicts.

As Steven Covey suggests in his book "The 7 Habits of Highly Effective People", negotiating requires give-and-take that is a win-win for both parties. A good negotiation leaves each party satisfied and ready to do business with each other again.

Good negotiators are flexible, creative, aware of themselves and others, good planners, honest, win-win oriented and good communicators.

Lawyers train to be confrontational and to posture, scoring points with their clients. Aggression will only alienate other parties and destroy negotiations.

The trick is to be calm, confident, and considerate. A skilled negotiator will keep the discussion going and facilitate mutually beneficial outcomes. He or she will not confuse negotiation with confrontation and will remain calm, professional, and patient. They will never make it personal or become angry or hostile.

A good negotiator will consider the expectations of both sides and prepare for compromise and mutually beneficial solutions. Most importantly, they will put things in writing. Compromise does not mean capitulation but settling for a result that is moderately satisfactory to the participants. A good tactic is conceding a point that is not vital to one party but is critical to the other.

Experience shows that it is better to avoid a stern approach and adopt principled negotiation as the best practice. A skilled negotiator will focus on interests, not positions, and generate various objective criteria before settling on an agreement.

A successful negotiation requires strategy, planning, and preparation. Define the minimum acceptable, anticipated, and ideal outcome. Write a plan to list, rank and value the issues and any compromises or concessions parties might make.

A skilled negotiator will know when to look for closing signals like fading counterarguments or tired body language from the other party. They will summarise where negotiating positions converge, and articulate agreements reached, and concessions already made.

They will get the agreement in writing and signed as soon as possible.

Contact me if you need my help. I have been settling disputes since 1974.