This blog was co-authored by Muhammad Mirza, Trainee Associate
On 20 February 2023, the Labour Court found that historical knowledge and information obtained by an employee during her employment with her former employer, did not constitute trade secrets or a protectable interest. The former employee (employee) was therefore free to work for the applicant’s competitor.
The employee entered into a restraint of trade agreement with the employer when she started her employment in 2006. The restraint was to protect the employer’s trade secrets and confidential information for 12 months after resignation throughout South Africa. She resigned in January 2023 and took up employment with a direct competitor of the applicant.
The employer contended that Eskom would soon be publishing a request for tenders for the supply of cables in 2023, which would replace existing contracts and in particular, the employer’s successful 2022 tender. The employee was heavily involved in the employer’s successful 2022 bid, having had access to its confidential information and trade secrets, which were not in the public domain.
The employer presumed that the requirements of the expected 2023 Eskom tender would be on the same or similar terms as the 2022 tender. The employer thus argued that the employee’s employment by the new employer would place the new employer at an unfair advantage in the anticipated 2023 Eskom tender. Consequently, the employer sought to enforce the restraint of trade and confidentiality undertakings for the 12 months in Gauteng only.
The employee accepted the existence of the restraint undertaking and that her new employer competed with the applicant. The only issue was whether her knowledge of the employer’s trade secrets and confidential information, if disclosed to her new employer, would place her new employer at an unfair advantage over the employer.
The court re-stated the questions to be asked when determining the reasonableness of a restraint of trade (in the context of employment):
- Is there an interest of the employer, which is deserving of protection at the termination of the agreement?
- Is such interest being prejudiced by the employee?
- If so, does such interest so weigh up qualitatively and quantitatively against the interest of the employee, leaving the employee economically inactive and unproductive?
- Is there another facet of public policy having nothing to do with the relationship between the parties but which requires that the restraint be maintained or rejected?
In assessing whether there was a protectable interest, the court considered that at the time of the employee’s exit from the employer, the employer had not commenced work on the 2023 tender. The fact was that Eskom had not yet issued the 2023 request for tenders, and its requirements were therefore unknown.
When determining whether the employee had the requisite knowledge of the employer’s strategy, the court cautioned against simply averring that information is strategic, and held:
“It is not sufficient to rely on the aura of confidentiality that attaches to words such as ‘strategy’ (or indeed, ‘pricing’), to contend that an employee who was privy to one or more corporate strategies should be held to a restraint. Put another way, it is not sufficient to label information as of strategic value and contend that it necessarily follows that it is confidential. More is required.”
The court found that the employee’s knowledge related to tenders that were already safely in the employer’s hands, and the employer had not established the existence of either a protectable interest or trade secrets. It was therefore unnecessary for the court to consider the other questions in the assessment of the reasonableness of a restraint agreement. The contention that the historical information constituted trade secrets in relation to the 2023 tender was purely speculative and was rejected.
Considering these findings, employers should guard against seeking to enforce restraints of trade based simply on an employee’s knowledge of historical information. While South African courts are willing to uphold restraint of trade and confidentiality agreements, they will not do so without scrutinising the merits. Employers are expected to provide specific information to establish their protectable interest.