How Can My Trade Secrets Be Protected If I Do Not Have A Restraint Of Trade

How Can My Trade Secrets Be Protected If I Do Not Have A Restraint Of Trade

From a business perspective, restraints of trade (“Restraint”)) are useful tools to protect business interests, goodwill, and promote fair competition. The succinct purpose of a Restraint is to protect an Employer’s “trade secrets, goodwill and business connections.” This means that an Employer is allowed to insert into its employment agreements a clause, or clauses, to the effect that limit an Employee’s right to embark upon further employment activities should it leave the employ of that Employer. Naturally, the nature of a Restraint is quite far-reaching and would need its own limitations to prevent abuse and/or negligence. Therefore, a Court tasked with considering whether or not to enforce a Restraint would balance the competing interest of the Employee’s Constitutional right to freedom of occupation.

The Law, with respect to Restraints, is mostly in the region of express Restraints i.e. a clause or clauses contained in a Contract of Employment which restrict an Employee’s so-called ‘outside of the office’ activities insofar as business in the industry is concerned. The logical rationale behind inserting a Restraint in a Contract of Employment is because of a tendency that Judges do not to recognise the enforceability of Restraints which are not drafted with sufficient particularity, with reasonable limitations, without unjustifiably limiting the said Employee’s rights. At this stage, if an Employer is serious about protecting its business interests, proper drafting and foresight must be applied prior to the signature of a Contract of Employment, taking into account the aforementioned balancing exercise which is judicially adopted.

Although Restraints have become, through commercial practice, regular in Contracts of Employment, especially between an Employer and Employees from middle management onwards, what can an employer do if it does not have a Restraint in its favour post-conclusion of a Contract of Employment, in the fact of an Employee who is otherwise unlawfully competing with it?

The Labour Court as recently as 16 August 2018 handed down a very well thought-out judgment in the matter of The Refinery Post Production Facilities (Pty) LTd v Charmaine Lautre. The Court was approached on an urgent basis with an application to enforce a Restraint that existed by operation of law through its “common law fiduciary duties” owed by the former to the latter, as well as recognising the Applicant’s interest in terms of elaborate confidentiality provisions in the agreement. The case before the Labour Court was that the Respondent unlawfully used her knowledge of the Applicant’s business interests, which the former gained under the employ of the latter, in direct competition. The Court remarked that a successful enforcement of a Restraint will indicate that “there is a valid restraint of trade agreement, that the same has been breached or there is a reasonable apprehension that same will be breached, and that the [successful litigant] will suffer irreparable harm.” [1]

The Applicant in this case relied upon the confidentially clauses in its Contract of Employment. Firstly, these clauses endure beyond the life of a Contract of Employment. However, before the Labour Court even considered the contract itself, it had to consider that the negative aspect being whether or not the Parties were on equal footing and achieved a balance of equal bargaining power. It was concluded that no red herrings were present in this context.

The Court’s next analysis was on the interdict which the Applicant sought. In doing so, the requirements of an interdict were considered, which are, a clear right being established, injury actually or reasonably anticipated to be committed, and the lack of alternative legal remedy. The most interesting analysis was the enquiry into whether or not the Applicant had a clear right and protectable interest.

In South African Law, as mentioned above, Restraints are recognised as being commercially viable and enforceable on the face of it. However, the Applicant did not have a Restraint, only a confidentiality clause with respect to specific business interests.

It was noted that the Applicant’s interest here was that of protecting its customer connections (its database of customers) which, if it were not protected, would allow the Respondent to freely solicit and take advantage of it. The consequences of the latter were severe on the Applicant who had invested much capital and time into building those relationships. Of course, it was protectable because its exploitation would result in unwarranted disclosures of confidential information and potential contamination of well-establish business relationships.

The Court composed a rather articulate analysis which essentially concluded that confidential information is considered a trade secret if exploitation thereof will cause serious detriment to the business, its goodwill and the best interests of the Company. This is also a requirement to the reasonableness test of Restraints. The Court went further to say that, after the objective enquiry into whether or not this interest is worthy of protection, it concluded that the interest has application to that specific trade industry, the bulk of the information is secret and confidential, and it is of business or economic value to the Applicant.

The enquiry went further to look at the usefulness of the information i.e. how valuable it was in order for it to be considered protectable under confidentiality and as a trade secret.

The Respondent contended throughout that the information she used to her advantage was available publicly, she believed she was not bound by any Restraint, and that to hold her to a fictitious Restraint would be an unjustifiable limitation of her rights to trade freely. After concluding that the information was indeed not available in the public domain, it became patently obvious that the Respondent gained this knowledge by virtue of her former employment under the Applicant.

When considering the prospect of alternative remedies, it was correctly and practically observed by the Court that “the potential harm caused by an employee who is in a position to divulge trade secrets to and exploit customer connections in favour of the new employer cannot be easily remedied by a damages claim [because] by the time a damages claim is likely to be heard, the horse would have bolted and the harm would have been done.[2]

The important lesson to take from this for Corporates is that trade secrets can be strong enough for protection under confidentiality clauses, despite the lack of any express Restraints in place. However, for this to work, effective and practical wording of these clauses is required. As seen above, the whole agreement is considered together with the circumstances under which it was concluded. It is vital therefore to have an Attorney to prepare your agreements in an holistic manner.

Aleisha Oliver

 

Practising Attorney



[1] Paragraph 16

[2] Paragraph 39