Treading Legal Waters: Enforcing a Restraint of Trade Pending the Adjudication of an Appeal

In the realm of employment law, the imposition of restraint of trade clauses often serves as a contentious issue, balancing the rights of employers to protect their interests against the freedom of employees to pursue gainful employment.

In the recent case of Twenty Four Motors cc Ford Ermelo v Venter (J1338/2023) [2024] ZALCJHB 33, seeking to enforce the restraint agreements which would preclude its employees from taking up employment with any competitor in a 300km radius, the Applicant approached the Labour Court on an urgent basis and sought to enforce its restraint of trade clauses and interdict the Employees from exploiting its confidential information.

During October 2023, the First to Seventh Respondents, being 6 junior Sales Representatives and a Trainee Finance and Insurance (F&I) employee took up employment with the Eighth Respondent, a second-hand car dealership in Ermelo, after the Applicant unilaterally amended their commission structure in direct contravention of the MIBCO Collective Agreement.

The Respondents opposed the application based on inter alia the fact that the First Respondent’s employment was not subject to a restraint of trade, the absence of a protectable interest and the unreasonableness of the restraint.

The Court ruled in favour of the Applicant, upholding the restraint of trade for a period of 12 months post-resignation for a radius of 300km. The Respondents challenged this decision, leading to a subsequent application for leave to appeal, pursuant to which the Applicant brought an urgent application to enforce the order pending the adjudication of the Application for Leave to Appeal.

The crux of the current matter is embedded in the interpretation of Section 18(3) of the Superior Courts Act 10 of 2013, which states that unless the court under exceptional circumstances orders otherwise, the operation and execution of a decision which is the subject of an application for leave to appeal or of an appeal, is suspended pending the decision of the application or appeal.

The Applicant pleaded the existence of special circumstances by virtue of the fact that the restraint of trade would lapse on 2 September 2024, and that by the time that the appeal was finalised, the restraint of trade or a substantial portion thereof would have lapsed, rendering the relief granted futile in that the Applicant would derive no benefit from its successful litigation. The Applicant further submitted that it would suffer irreparable harm as the Respondents would be allowed to continue to make use of its confidential information to springboard off the Applicant’s intellectual property, thereby assisting their new employer, the Eight Respondent to unlawfully compete with the Applicant.

Central to the Respondents' case was the absence of exceptional circumstances, the lack of a protectable interest given the absence of tangible influence over clientele, the standardised practices prevalent in the automotive industry, and the fact that the undue hardship imposed by the restrain of trade far outweighing any potential benefits to the Applicant, thereby rendering the enforcement thereof against public policy.

The Respondents further argued that their skills and experience pertained to the motor industry, specifically selling vehicles and performing duties associated therewith, and that the enforcement of the restraint pending the finalisaiton of the Appeal would not only render the Respondents economically inactive and unproductive in their chosen profession, but would result in the Respondents and their families having to relocate to an area more that 300km away, which would in essence exclude 4 of the 9 provinces in the country.

In evaluating the Applicant’s case, the Court noted that the question of whether circumstances are truly exceptional, and whether an extraordinary deviation of the normal position would be justified is fact- specific, and that exceptional circumstances cannot be assumed or accepted merely because the matter involves a restraint of trade.

The Court found that establishing the existence of exceptional circumstances further warranted an evaluation of the Applicant’s prospect of success, and held that taking into account the questions raised regarding the existence of a protectable interest and the wide area of the restraint, it is likely that leave to appeal would be grated to the Respondents and that the Labour Appeal Court will reach a different finding on appeal.

The Court further held that the Applicant’s contention that the Respondents could simply apply their knowledge and skills in any other sales role did not pass muster, and that the Applicant, on a balance of probabilities failed to establish that Respondents would not suffer irreparable harm in the event that the judgment was enforced pending the finalisation of the appeal.

The case of Twenty Four Motors cc Ford Ermelo v Venter once again underscores the intricate balancing act inherent in employment law, particularly regarding restraint of trade clauses, and ultimately serves as a reminder of the ongoing evolution and complexity of legal interpretation and the importance of scrutinising exceptional circumstances when seeking to enforce a judgment pending the finalisation of the appeal process