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29 Jun 2021
BY Jayson Kent

A win for employers: restraints of trade in the time of COVID-19

Earlier this year, the High Court’s judgment in Oomph Out of Home Media (Pty) Limited v Brien and another,  dealt with the issue of enforcing a restraint of trade during the COVID-19 pandemic. In this matter, the court essentially found that it would be unreasonable and contrary to public policy to uphold a restraint of trade during the COVID-19 pandemic and it therefore refused to uphold an otherwise valid restraint of trade agreement for that specific reason.

Based on this decision, it appeared that employers may have difficulty in enforcing their restraints of trade during the COVID-19 pandemic. This was particularly concerning for employers seeking to protect their proprietary interests, especially in circumstances where the COVID-19 pandemic appears to be with us for some time to come.

It was also uncertain if this meant that employees had a free pass to effectively disregard their restraint of trade obligations during the COVID-19 pandemic.

However, the Labour Court has challenged this reasoning in two recent cases where employers have sought to enforce restraint of trade agreements, particularly where the employees in both instances have in turn sought to rely on the decision of Oomph Out of Home Media to argue that their restraints of trade should not be enforced in during the COVID-19 pandemic.

In Prima Interactive (Pty) Ltd v Lemon and others, van Niekerk J rejected the High Court’s approach, saying that at the time of the High Court judgment, as well as currently, COVID-19 has had adverse effects not only for employees but that employers have also been made very vulnerable. In addition, because restraint undertakings are made to protect business’s legitimate proprietary interests, this should not be compromised by an employee’s difficulty to secure employment, whatever the cause.

The Judge also held that that the court is in no position to make assumptions about the state of the labour market and reject restraint of trade undertakings based on isolated cases.  

The Labour Court, in Bulldog Abrasives Southern Africa (Pty) Ltd v Davie and Another, followed the approach adopted by van Niekerk J in Prima Interactive matter. In a judgment delivered on 20 May 2021, Moshoana J, also disagreed with the High Court’s reasoning in Oomph Out of Home Media. The Judge stated that the decision was “clearly wrong” and held that “to suggest that enforcing a restraint in a COVID-19 situation is contrary to public policy is to stretch the meaning of public policy beyond what it is supposed to be”. 

In addition, the Judge also questioned why employers should not be able to enforce their rights regarding breached restraint of trade agreements during the pandemic.

On 10 June 2021, the Labour Court dismissed with costs an application for leave to appeal its judgment in the Prima Interactive matter.

The approach adopted by the Labour Court in each of the above matters, and the rejection of the findings of the High Court in the Oomph Out of Home Media matter is, in our view, the correct approach to be adopted in the weighing of competing interests that are inherent in such matters. It also reaffirms the legal position regarding the enforcement of restraint of trade agreements in South Africa.

This position is also contrary to the still commonly-held misconception by employees that restraints of trade are not valid and enforceable in South Africa. Employees should therefore consider their positions carefully before entering into, and more importantly, deciding to breach their restraint of trade agreements.

It is worth keeping in mind that in both the Prima Interactive and Bulldog Abrasives matters, the restraints of trade with 24-month restraint periods were upheld and enforced by the Labour Court.

These judgments of the Labour Court should provide comfort to employers. Provided that they have appropriate restraint of trade agreements in place, their proprietary interests can still be protected by enforcing those agreements.

 

Reviewed by Ross Alcock, an Executive in ENSafrica’s Employment department.

Jayson Kent

Employment | Senior Associate

jkent@ENSafrica.com

+27 76 731 8900