South Africa: Anything You Can Do I Can Do Better! Recent Judgments Where A Former Employee Starts A Business In Competition With The Employer

Last Updated: 25 February 2014
Article by Regina Milo

Most Read Contributor in South Africa, November 2017

In recent times, our Courts have increasingly been approached to provide recourse to employers to protect their proprietary interests where a former employee leaves and starts a business in competition with the employer. Where the employer has appropriate restraint of trade agreements in place, the employer could seek to enforce those agreements and obtain an interdict restraining the employee from continuing to breach the restraint. However, in the absence of a restraint agreement, would an employer have any recourse at all?

Two recent judgments dealing with the enforcement of restraint of trade agreements make for interesting reading in this regard. They are considered below and the legal position where no restraint agreement has been concluded is also discussed.

Restraints of trade agreements which limit competition: recent developments

In the recent judgment of Freepak BK v Duraan and Another (an as yet unreported judgment of the Northern Cape High Court per Phatshoane J, delivered on 18 October 2013), Mr and Mrs Duraan ("the Duraans") managed the business of Freepak in Kimberley, which sells packaging material to wholesale and retail customers throughout the Northern Cape, Free State and Gauteng provinces. The Duraans were sales people and "the face of the business" for 16 and 15 years respectively. It was common cause that they were both instrumental in building the business of Freepak from a struggling concern to a huge enterprise.

Mr and Mrs Duraan were subject to restraint of trade obligations, in terms of their respective contracts of employment with Freepak. The terms of the restraint of trade inter alia provided that for a period of five years after the termination of employment for whatever reason, he/she could not be involved in any other business which sells similar products as Freepak.

During February 2013, Mr Duraan was subjected to a disciplinary enquiry and summarily dismissed. Mrs Duraan thereafter tendered her immediate resignation. The Duraans then set out to open a business which sells packaging material in competition with Freepak, their previous employer. Freepak, accordingly, brought an application to enforce their respective restraint of trade obligations.

Freepak argued that the Duraans had been privy to confidential information of the business and, consequently, were aware of the pricing structure of its products, profit margins and certain discounts which could be negotiated with clients. Furthermore, Freepak also sought the protection of its customer connections on the basis that the Duraans had virtually exclusive and personal contact with its clients in the Northern Cape, were in possession of the cell phone numbers of the clients and that their relationship with clients was such that clients would call one of the Duraans directly on a regular basis to place orders, to discuss their business needs and, if required, to negotiate pricing.

Even though the terms of the restraint were silent in respect of a specific geographical area within which the restraint would operate, Freepak sought an order that the restraint would only operate in the Northern Cape as that was the area in which the Duraans had operated.

The Duraans sought to avoid the restraint by arguing inter alia that the restraint was invalid and enforceable because it was overbroad and stood to exclude them from participation in the only economic activity in which they had any experience. It was also alleged that it would be unreasonable to enforce the restraint in circumstances where Freepak had dismissed Mr Duraan, which led to the resignation of Mrs Duraan. The Duraans also sought to challenge the restraint on the basis that Freepak did not have a proprietary interest worthy of protection as they were not privy to any confidential information of Freepak because all decisions were taken at the head office in Bloemfontein. The Duraans did not dispute that they had client contact details but argued that this was not indicative of a customer connection, and that a distinction should be drawn between possession of the clients' lists and customer connections. Relying upon the case of Automotive Tooling Systems (Pty) Ltd v Wilkens 2007 (2) SA 271 (C), the Duraans argued that they did not have any training and largely acquired knowledge of the business and experience as a result of their own drive, personality and initiative, which they contended constituted skills, general knowledge and experience which they could not be restrained from utilising.

The Court restated the test as set out in Basson v Chilwan and Others 1993 (3) (SA) 742 (A)in determining the reasonableness (or otherwise) of a restraint. It held that Freepak did not make out a compelling case that the Duraans had been privy to its confidential information. However, turning to the possibility of a protectable proprietary interest in the form of customer connections, the Court relied upon the principle contained in the judgment of Den Braven SA (Pty) Ltd v Pillay and Another 2008 (6) SA 229 (D). This principle provides that once it has been concluded that an applicant has trade connections through customer contact which can be exploited by a former employee if employed by a competitor who is trading in a range of similar products, there is a risk of harm to the applicant. The Court found that the Duraans did indeed have a customer connection with Freepak's clients. The Court accordingly found that the risk of harm to Freepak's customer connections could not be discounted in circumstances where the Duraans had been the "face" of Freepak's Kimberley branch for more than a decade and had almost exclusive dealings with its clients throughout the Northern Cape.

The Court dismissed out of hand the contention that it would be unreasonable to enforce the restraint in circumstances where Mr Duraan has been dismissed by Freepak, and confirmed that it was clear from the terms of the restraint that it would be triggered after all forms of termination of employment.

The Court therefore enforced the restraint against Mr and Mrs Duraan, restraining each of them for a period of two years from the date of termination of their employment from being involved in any other business which sells similar products as Freepak in the Northern Cape.

In the same month, the Labour Court in Omnirapid Mining and Industrial Supplies (Pty) Ltd v Engelbrecht (an unreported decision by Rabkin-Naicker J, dated 31 October 2013) also ordered a former employee not to compete with the business of her former employer for a period of one year by interdicting the employee from advertising, marketing or contacting certain identified customers. In this instance, the employee, who had twenty years' experience in the valve sales industry, had terminated her employment as a Sales Manager to start her own business selling valves.

Does an employer enjoy any recourse where there is no signed restraint of trade agreement in place?

Recent cases suggests that, even where an employer does not have a signed restraint of trade agreement in place, it would not necessarily be left without a remedy.

First, a recent private arbitration award has confirmed that the absence of a signed restraint agreement does not mean that it is the end of the road for an employer. In certain circumstances, the tacit acceptance of a written restraint of trade agreement may be established and the restraint accordingly enforced upon an employee.

In this specific case, two employees, who had been the co-proprietors of a business which was then acquired by another company, resigned from their employment with the business to set up a company which would compete with the business that they had sold. In brief, the acquisition agreement concluded between the employees and the acquiring company was subject to the fulfilment of a number of conditions precedent by a particular date, including the conclusion of restraint agreements. Although the parties disputed whether or not restraint agreements had been concluded, it was common cause that the acquiring company was not in possession of any signed restraint agreements. The parties however complied with other obligations arising from the acquisition of the company, such as transferring of shares and the employees were each paid the agreed purchase consideration, which consideration they accepted.

The Arbitrator considered the conduct of the parties and the specific circumstances of the case and concluded that the employees had tacitly accepted the restraint agreements. The Arbitrator accordingly granted an interim order interdicting the employees for a period of three years from conducting themselves contrary to the unsigned restraint of trade agreements.

Whether an unsigned restraint of trade agreement will be binding will always depend on the particular circumstances of the case, but the mere fact that the written agreement has not been signed by the employee does not necessarily mean that the agreement is not binding. The conduct of the parties during the negotiation of the agreement surrounding circumstances and the conduct of employees in relation to the implementation of the unsigned agreement could lead to a conclusion that the agreement is binding.

In another case, the Supreme Court of Appeal (SCA) reiterated the principle enunciated in the earlier Appellate Division (AD) case of A Becker & Co (Pty) Ltd v Becker and others 1981 (3) (SA) 406 (A), to the effect that even where the restraint period has since expired, the seller of a business would still not be permitted to solicit business from its former customers. In G Van der Watt & another v Jonker and others 2012 (JOL) 28266 (SCA), the SCA considered an appeal against a judgment of the High Court enforcing a restraint of trade agreement against Mr and Mrs Van der Watt ("the Van der Watts").

The facts of this case are as follows: Mr Jonker started various petroleum companies forming part of what was referred to as the "Agri Group". Mr van der Watt, a family friend, started working for Jonker in some of the businesses. Van der Watt was ultimately offered shares in two of the Agri Group companies and started another company in the Agri Group, which he co-owned with Jonker. The parties thereafter acquiesced to a separation of the group companies. A written agreement was concluded recording the terms upon which the parties agreed to separate the businesses, each as a going concern. In terms of this agreement, and in order to effect a fair and equitable division, Jonker would pay the Van der Watts R2 million. Both parties provided reciprocal restraint of trade undertakings in favour of the other party enduring for a period of ten years.

After the Van der Watts started a petroleum business, Dynamic Fuels, within the prohibited areas referred to in the restraint, Jonker sought interdictory relief in terms of the restraint of trade agreement. The Court found that the uncontroverted facts demonstrated that the Van der Watts actively solicited Agri group's customers by marketing their petroleum products at the Koppies Club, which a number of them frequented, at a golf day, and had also made at least one direct approach to a Agri Group customer. The Court stated that there was no difference between the type of general canvassing conducted by the Van der Watts to the Agri Group customers and the type of solicitation considered by the AD in Becker, and it was not necessary to prove that the Van der Watts had made direct overtures to Agri Group's customers.

The Court held that the matter fell squarely within what it referred to as the "Becker principles" in that the Van der Watts sought to take back that which they had sold, namely the old customers with whom they did business whilst part of the Agri Group. The Court referred to the following extract from the Becker case:

"When a business is sold with its goodwill, but without any express promise not to compete, the seller is privileged to open a new business in competition with the buyer; but he is under obligation not to solicit his former customers or to conduct his business under such a name and in such a manner as to deprive the buyer of the "goodwill" that he paid for".

The SCA thus upheld the findings of the High Court and enforced the restraint upon the Van der Watts for a period of ten years.

This judgment is not only authority for the enforcement of a restraint of trade agreement. It also reiterates the principle that, even at the end of the restraint, the seller of a business is still prohibited from soliciting the goodwill which he previously sold. Therefore, where a former proprietor who remains in the business as an employee, terminates his employment to start a business in competition with his former employer, even in the absence of a valid restraint agreement, the employee (i.e. the seller) may be prohibited from soliciting his old customers.

The best form of protection to protect an employer's proprietary interests from exploitation by a former employee remains a restraint of trade agreement. Employers should periodically identify which of its employees are privy to confidential information and/or have customer connections, and seek to ensure that appropriate restraint of trade agreements are concluded with those employees. In the absence of a signed restraint of trade agreement, however, employers are not necessarily without recourse as our Courts, in certain instances, have still afforded some protection to employers. Careful legal advice should therefore be taken in those circumstances to establish whether an employer has any right of recourse.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions