In the case of Epic Outdoor Media Sales (Pty) Ltd v Terrance Paterson and Network X (Pty) Ltd, judgment was handed down on 18 March 2024, by the Gauteng Division of the High Court, Johannesburg. The court dealt with the enforceability of a restraint of trade clause in a contract of employment between Epic Outdoor Media Sales (Pty) Ltd ("Epic Outdoor") and its former employee, Terrance Paterson. In its judgment, the court addressed two contractual undertakings agreed to in the restraint of trade and, whether the current legal position supports a strict enforcement of both these provisions.
Background
Paterson's employment contract included a restraint of trade clause, barring him from disclosing any of Epic Outdoor's confidential information imparted to him during his tenure. Additionally, Paterson was prohibited from seeking employment from or becoming employed by, associated with, or contracted to a 'business partner' or a 'competitor' of Epic Outdoor. This restraint clause applied throughout South Africa and endured for one year after Paterson's employment with Epic Outdoor came to an end.
Epic Outdoor alleges that Paterson materially breached his contractual obligations by joining a competitor, Network X (Pty) Ltd ("Network X"), and by having the potential to disclose confidential information to Network X conveyed to him during his employment with Epic Outdoor as a highly-skilled 'technological expert.' The information he had access to could enable competitors to undercut Epic Outdoor on pricing and extinguish any of their competitive advantages within the outdoor advertising industry.
In its judgment, the court noted that the enforcement of any restraint of trade clause requires a balance between two conflicting principles of public policy, both of which enjoy some Constitutional recognition. In this regard, a court must weigh the importance of the sanctity of contracts freely entered into (which is incidental to the Constitutional right to dignity as expressed in Brisley v Drotsky) against an individual's section 22 Constitutional right to choose a trade, occupation, or profession freely.
The starting point in this balancing act involves recognising any power imbalance between the parties, followed by an assessment of the consequences of enforcing this restraint against the parties. As explained in Magna Alloys and Research v Ellis, a court is entitled to enforce the restraint only if it is deemed reasonable to do so and aligns with public policy. If a party alleges that a restraint will operate too harshly against them, this party bears the onus of demonstrating this on the facts.
The court held that the parties, in this case, occupy clear unequal bargaining powers, as Paterson is merely an ordinary employee, whilst Epic Outdoor is a "company of substance" that contracted him to work for it. The court further noted that enforcing the restraint clause would render Paterson unemployable in the South African outdoor advertising industry, as well as some of its related industries, for a year after leaving Epic Outdoor. Paterson would also be restricted from using the skills and know-how that he has acquired from an industry in which he has worked in for 10 years.
The court concluded that it is reasonable to restrain Paterson from using or disseminating the confidential information to which he had access in the course of his employment with Epic Outdoor to Network X. However, it was found that it was unreasonable to restrain Paterson from working with any of Epic Outdoor's competitors or business partners simply because he acquired special skills and know-how during his employment with Epic Outdoor. Indeed, the court noted with reference to ASI Capital (Pty) Ltd v Mann, that this latter restraint is only enforceable where an individual's particular skills and know-how are inseparable from the assets being sold as part of that individual's business. However, this is not applicable in this case since Paterson merely 'sold his labour' and nothing more. In addition, the confidentiality interests of Epic Outdoor could be separately protected by an interdict.
The court also remarked that Epic Outdoor did not immediately object to Paterson's intention to start working for Network X. This appears to be consistent with clause 2.4 of Paterson's employment contract which empowered Epic Outdoor to relax the restraint if Paterson's employment with one of its competitors or business partners is deemed to be "of low risk" to its confidential interests. The terms of the contract itself thus envisaged that the interests underpinning the restraint may be protected by something less drastic than a complete ban on Paterson being employed by any of Epic Outdoor's business competitors or partners.
This demonstrates that enforcing the restraint clause is only necessary insofar as it protects another of Epic Outdoor's specific and identified interests, which in this case, entails its confidential information. Once that is adequately protected, the terms of the contract – together with Epic Outdoor's initial failure to object to Paterson's move to Network X – suggest that there is no need to discontinue Mr Paterson's employment with Network X.
Conclusion
The court concluded by granting an interdict against Paterson which restrained him from divulging Epic Outdoor's confidential information to Network X or any further party. Additionally, Network X is interdicted and restrained from seeking, possessing, using or disseminating any of Epic Outdoor's confidential information that may be conveyed to it by Paterson. Finally, the court ordered that if Paterson discloses, or offers to disclose, any of Epic Outdoor's confidential information to Network X, then Network X must inform Epic Outdoor about the nature of these disclosures and the steps taken by them in dealing with this.
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