A question on the mind of many professionals the past year has been whether or not the restraint of trade provision contained in their employment contracts will be valid and enforceable during the Covid-19 pandemic. As previously published by VDMA, the validity of restraint of trade provisions should be inspected on a case-by-case basis, and the question of whether or not Covid-19 plays a role on the enforceability of such agreements has gained some clarity in the recent Oomph Out of Home Media (Pty) Ltd v Brien and another [2021] JOL 49492 (GJ) ruling.

The test for reasonableness

In order for a restraint of trade provision to be enforceable, it will also need to be reasonable. In Basson v Chilwan 1993 (3) SA 742 (A), the court proceeded to formulate a test to determine whether a restraint of trade provision is reasonable. This test has proved authoritative and the court posed the following four questions:

• firstly, is there an interest of one party (e.g. goodwill and confidential information) worthy of protection?
• if so, then secondly, is that interest threatened by the conduct of the other party?
• if that is further so, then thirdly, does such interest weigh up qualitatively and quantitatively against the interest of the other party to be economically active and productive?
• fourthly, is there another aspect of public policy having nothing to do with the relationship between the parties that requires that the restraint should either be maintained or rejected?

The reasonableness of restraint of trade provisions has recently also been considered by Mbongwe AJ in Oomph Out of Home Media (Pty) Ltd v Brien and another [2021] JOL 49492 (GJ). Let us consider the facts of the case.

Background facts

The first respondent joined Oomph Out of Home Media Proprietary Limited (“Oomph Out of Home Media”) during March of 2015 as an employee, eventually moving on to become a director and shareholder and finally resigning from Oomph Out of Home Media during the course of February 2020, mere weeks before the Covid-19 enforced national lockdown.

The first respondent submitted that the two primary reasons for his resignation were a breakdown of his relationship with another director of Oomph Out of Home Media as well as the fact that he had not been paid his full salary for an undisclosed period of time resulting in Oomph Out of Home Media owing the first respondent in excess of R1 200 000 in unpaid salary at the time of his resignation.

After resigning, the first respondent took up employment with a direct business competitor of Oomph Out of Home Media, which employment contravened the terms of his restraint of trade. In short, the terms of the first respondent’s restraint of trade agreement prohibited him from joining a competitor or engaging directly or indirectly in a business similar to and in competition with Oomph Out of Home Media for a period of 18 months from the date he exits the employ of Oomph Out of Home Media.

Oomph Out of Home Media also relied on the shareholders’ agreement entered into between the parties which prohibited the first respondent from disclosing Oomph Out of Home Media’s confidential information and trade secrets to the competitor. Oomph Out of Home Media contended that such disclosure would result in the competitor gaining an unlawful competitive edge over it.

It was not in dispute that the first respondent’s new employer was a direct competitor of Oomph Out of Home Media. The court also found that the first respondent had contacted certain customers and business associates of Oomph Out of Home Media during his new employment. The first respondent countered by arguing that his restraint of trade was unreasonable and invalid as a result of the circumstances of his resignation and the fact that the Covid-19 enforced national lockdown would have prevented him from earning a living.

Although the Court found the first respondent’s challenge to the validity of the restraint of trade to be without merit, it did consider the issue of the restraint’s reasonableness. The Court considered the circumstances which arose during the period from when the restraint of trade agreement was concluded between the parties to the date of the first respondent’s resignation and found that it could not overlook the fact that Oomph Out of Home Media owed the first respondent a large amount in salary payments at the time of his resignation as well as the occurrence of the Covid-19 pandemic which would have prevented him from earning a living

The Court rejected Out of Home Media’s argument that the first respondent could seek alternative employment in a field of communications, for which he has the necessary qualifications, as the first respondent has since 2012 pursued a career in the advertising and marketing industry. For the first respondent to be forced out of a career of choice and start anew in a different field when many businesses were being forced to close and individuals were doing everything possible to survive and cope with the effects of the Covid-19 pandemic, was plainly unreasonable and contrary to public policy and constitutional values.

It was for these reasons that the Court decided that it would not enforce the first respondent’s restraint of trade agreement.

Conclusion

This case demonstrated once again that restraint of trade provisions will only be enforceable if the employer seeking to enforce the restraint has a legitimate proprietary interest worthy of protection and the restraint is reasonable.

The fact that the first respondent was owed such a significant amount by Oomph Out of Home Media, as well as the timing of his resignation shortly before the Covid-19 enforced national lockdown demonstrated that reasonableness weighs heavily on the Court in determining whether or not a restraint of trade provision is unreasonable and contrary to public policy.

VDMA’s team of experts are available to assist you and your business with any restraint of trade and employment law requirements you may have.

Published: 13 May 2021