Landmark Lac Decision Outlines When Restraint Of Trade Can Hold Following Employee Misconduct Dismissal

The judgment provides important guidance for employers seeking to enforce restraints following dismissals and clarifies the scope of the Labour Court’s jurisdiction in related matters.

Background

Backsports (Pty) Ltd, a company in the internet communications and technology sector, employed an employee as a senior stream lead for 10 months until his dismissal for misconduct on 16 October 2024. His employment contract contained a restraint of trade clause which, among other things, prohibited him from competing with Backsports or any of its subsidiaries, and from soliciting employees, for a period of 12 months from the termination date of his employment.

Following the employee’s dismissal, he referred an unfair dismissal dispute to the Commission for Conciliation, Mediation and Arbitration. However, he later withdrew his claim.

Due to concerns that the employee was breaching his restraint of trade undertakings, Backsports approached the Labour Court seeking an order to restrain the employee from soliciting its customers and employees, and from threatening and harassing its employees and directors, or sabotaging its assets.

In the Labour Court

The Labour Court refused to grant the interdict, on the basis that Backsports had failed to prove that the employee had access to confidential information or that he used his trade connections to his, or his new employer’s, advantage and to the prejudice of Backsports; that the duration of the restraint was unreasonable, given the employee’s short service; and that Backsports had effectively waived its right to enforce the restraint when it dismissed the employee for misconduct.

It also found that it lacked jurisdiction to grant interdicts in respect of threats and sabotage, as the employment relationship had ended.

Backsports appealed to the LAC on an urgent basis.

In the LAC

The LAC found that the Labour Cout had misdirected itself in many respects. Firstly, the court a quo erred in finding that dismissal meant that Backsports was precluded from enforcing the restraint.

Relying on binding authority in Reeves and Another v Marfield Insurance Brokers CC and Another 1996, the LAC held that restraint of trade provisions are generally enforceable regardless of the reason for termination, unless the dismissal was fraudulent or in bad faith – for example, where an employee is hired and fired for the sole purpose of imposing the restraint.

Considering the wording of the clause in the employee’s employment contract, which simply referred to the ‘termination date’, the circumstances that led to termination were irrelevant to the operation of the restraint.

The employee did not allege that his dismissal was fraudulent – he pled guilty to the misconduct charges and subsequently abandoned his unfair dismissal dispute. The Labour Court therefore erred in finding that Backsports had waived its right to enforce the restraint by dismissing the employee.

Secondly, the court a quo erred in finding that Backsports had failed to satisfy the requirements for the protection of a proprietary interest and show the reasonableness of the restraint. Backsports had in fact succeeded in proving the contract and its breach.

In this regard, the employee conceded that his employment was subject to a restraint of trade but denied being in breach, as he claimed that he had no relationship with customers and could not compete with Backsports.

However, he also conceded that he had reached out to Backsports’ customers about a business opportunity and urged employees of Backsports to collaborate with him in providing streaming services at a customer’s awards ceremony. By doing so, he breached the restraint agreement directly.

Thirdly, the LAC confirmed that, in terms of sections 151(2) read with 158(1)(j) of the Labour Relations Act, for convenience and effectiveness, the Labour Court was not prevented from considering ancillary matters related to the threats made to Backsports’ employees and assets, provided it had jurisdiction over the main claim (ie. the enforcement of the restraint, which it did have jurisdiction over).

In this regard, Backsports led evidence to show that the employee had made threats to ‘take down’ Backsports and its COO and interfere with Backsports’ outside broadcasting vehicle. The claim for an interdict relating to these threats should not have been dismissed based on a lack of jurisdiction and, considering that the employee merely proffered a bald denial to these allegations, the interdict should have been granted.

The LAC accordingly granted the relief sought by Backsports, including enforcement of the restraint for the remainder of the restraint period.

Key takeaways

This decision reaffirms the following established principles:

• Where the wording of a restraint of trade is clear that it operates once an employment relationship terminates; the circumstances in which the employment relationship comes to an end (including the fact that an employee is dismissed) is irrelevant to the enforcement of the restraint, unless the dismissal was fraudulent or effected in bad faith.
• A protectable proprietary interest, such as confidential information or customer connections, must be established to justify enforcement of a restraint.
• Where the Labour Court has jurisdiction over a restraint of trade matter, it can also grant interdicts on related matters such as threats, harassment, and damage to assets.

Employers are advised to ensure that restraint provisions are clearly drafted, that proprietary interests are well-documented, and that any enforcement action is supported by evidence of actual or threatened breaches.