South Africa: The Definition Of A "Competitor" And Why It Is Important To Know

In the recent judgement of INTER-WASTE (PTY) LTD versus VIAN SMITH and a TMS GROUP INDUSTRIAL SERVICES (PTY) LTD (Labour Court – Reportable case: J 197/2021), the Court had to determine whether the employee (Mr Smith) had taken up employment with a competitor to his former employer and if so, the plaintiff was seeking an order to enforce the restraint of trade and non-compete in his employment contract.

It is a valuable judgement noteworthy to all employers in South Africa.

Background

Initially, the Applicant (inter-waste) was seeking an interim order. However, it later changed course and requested final relief to enforce a restraint of trade agreement against Mr Vian Smith, a former employee of the Applicant. There was no dispute that Smith bound himself to a non-compete clause, nor that Smith had taken up employment with TMS Group Industrial Services (Pty) Ltd (TMS). To a large degree, the dispute is whether TMS is a competitor of the Applicant or not.

The Business and the Contract

Smith was employed as a manager in the specialized cleaning division of the Applicant. His mandate was to grow the Applicant's industrial cleaning services division. In September 2019, Smith concluded a written contract of employment. The agreement contained a restraint of trade clause, which prohibited him from being employed by a competitor of the Applicant for a period of six months after termination within the Republic of South Africa.

The Enforceability debate on Restraints of Trade

The onus to disprove enforceability rested on Smith, based on Basson v Chilwan and Others 1993 (3) SA 7 42 (AD):

"... the covenanter seeking to avert enforcement is required to prove on a preponderance of probability that in all the circumstances of the particular case it will be unreasonable to enforce the restraint... The covenanter is burdened with the onus because the public policy requires that their contractual undertakings bind people.

The Meaning of "Competitor"

Applying the principle in Natal Joint Pension Fund v Endumeni Municipalit [2012] 2 ALL SA 262 (SCA) with regard to interpretation, the grammatical and literal meaning of the word "competitor" means a person who takes part in competition, a rival. The grammatical meaning of the word "compete" means to strive against another or others to attain a goal, such as advantage or victory. It was not too difficult to conclude that the Applicant and TMS are competitors, simply from their website.

In Lorimar Productions Inc v Sterling Clothing Manufacturers (Pty) Ltd; Lorimar Productions Inc v OK Hyperama Ltd; Lorimar Productions Inc v Dallas Restaurant 1981 (3) SA 1129 (T) Van Dijkhorst J had the following to say:

"In general terms, competition involves the idea of a struggle between rivals endeavouring to obtain the same end. It may be said to exist whenever there is a potential diversion of trade from one another. For competition to existing, the articles or services of the competitors should be related to the same purpose or must satisfy the same need."

Later in Payen Components SA Ltd v Bovie Gaskets CC 1994 (2) SA 464 (W), Van Zyl J described the term in similar terms and said the following:

"The nature of competition is that competitors have the same or similar goals, chief among them at least is to attract the custom of the same group of clients."

On the facts of this case, TMS and the Applicant are competitors. Supreme Court in the matter of Tillman v Egon Zehnder Ltd [2019 UKSC 32 (3 July 2019) had the following to say about such clauses:

"... an employer was entitled to reasonable protection against the dissemination of his trade secrets... in other words against misuse of his property, but not directly against the employee's use of his skill and his manual or mental ability..."

Smith was operating at a high level of employment at the Applicant. He must have known who is and who is not a competitor of the Applicant. In Tillman, the following was said:

"High-ranking employees can do particular damage to the legitimate interests of their employers following termination of their employment; and it may be that when they enter into their post-employment covenants, they can negotiate with their employers on nearly an equal footing...."

Conclusion

The Court found that Smith was in breach of the restraint and that his conduct was prejudicing the Applicant's protectable interest. The Applicant was successful in its suit. It is therefore critical that senior employees' restraint clauses are carefully considered and constructed from the outset.

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.