Sometimes the courts can go for months without hearing any restraint of trade cases. And then, suddenly, there’s a flood – at least three decisions so far this year, all dealing with a restraint of trade dispute and all of them concerning medically-related practices. Between them, they spell out principles that are crucial for consideration by employers and employees.
Employers and employees alike should read this story, and the three judgments, before signing any restraint agreement or finalising any agreement for staff to sign.
Vague clauses
The case of Umhlanga Rehabilitation Centre (URC) v Bhavan Sewram, heard in the Durban High Court, is a good place to start, because it illustrates the importance of drafting a proper restraint agreement in the first place.
URC provides physiotherapy services in two major hospitals in the Umhlanga area and describes itself as specialising in rehabilitative physiotherapy. Sewram, a senior physiotherapist, worked for URC for just over eight full months.
After she left the practice, URC wanted to impose a restraint of trade on her – but what exactly did the contract stipulate? Paragraph 15 of Sewram’s employment agreement deals with this issue, and here is the full text of that (extremely brief) clause:
15. Trade Restriction
Two year 8km restriction in event of termination/expiry of contract.
What on earth did that one-liner mean? The judge summed it up like this: “It appears plain to me that this clause is lacking in substance.”
Courts don’t have ‘the powers of Father Christmas’
For one thing, it doesn’t say when the two-year restriction starts. This is important because there was a dispute about it. URC says the two years should begin from the date of a court order imposing a restraint. The judge on the other hand said ‘logic dictates’ that a restraint clause should begin when the employee’s employment ends.
But there are more problems with the agreement. For example, what does “8km restriction” refer to, and what is being restricted by the clause?
URC argued that the court should ‘read into’ the contract what URC contended it meant, but this suggestion didn’t meet with the judge’s approval. Quoting earlier decisions, the judge said that legal principles didn’t confer on a judge ‘the powers of Father Christmas.’
“I cannot rescue the un-rescuable.”
Nonkosazana Nkosi 8 May 2023
Court’s warning about poorly drafted restraint agreements
If, as URC argued, the restraint of trade clause was so important to it, why was so little effort put into drafting the clause, asked the judge, adding this important paragraph:
It is common that SMME businesses are reluctant to seek advice from attorneys, and (no) less so to employ attorneys to prepare important legal agreements. This pattern, fuelled undoubtedly by the rising cost of legal charges, often results in unforeseen circumstances by the time the matter reaches a litigious stage. … (But) it is then too late to cure the challenges that have arisen, and the court cannot then, at that late stage, return to the contractual drawing board.
So, in this case, what should the judge order? A principle approved by the Constitutional Court, and quoted in this judgment, is that a restraint will be considered unreasonable, contrary to public interest and unenforceable “if it does not protect some legally recognisable interest of the employer but merely seeks to exclude or eliminate competition.”
Pricing no great secret
But URC gave the court very little to go on, to justify its claim of a ‘recognisable interest’. For example, it claimed that Sewram acquired information about the “confidential strategy and pricing processes” of URC.
But, asked the judge, how could a pricing process be a protectable interest in a service industry like this, when any member of the public could simply phone the URC office and ask what treatments cost?
Not surprising then, that URC lost its application, meaning there is now no restraint imposed on Sewram.
Garden leave during notice period
In the second case, Claire Kourie Physiotherapists v Nyimba, another set of physiotherapists, this time in Pretoria, were also trying to impose a restraint of trade on a former employee.
Claire Kourie Physiotherapists (CKP) brought their action against a former staffer, Wezi Nyimba, based on an employment agreement signed by both sides in 2019.
Some years later Nyimba resigned. Her notice expired on 31 October 2024, but for most of her notice period she was put on garden leave by her employer.
Jacques van Wyk & Andre van Heerden 8 Mar 2023
Was the matter urgent?
The first thing of interest in this case is that it took seven weeks before the employer took any legal action, and yet CKP’s Claire Kourie asked that it be heard as an urgent matter. Nyimba argued that the initial delay undermined CKP’s claim of urgency.
The court found that no credible explanation was given for the seven-week delay in bringing the litigation. Kourie said she put Nyimba on garden leave because she was “bad-mouthing” CKP to the doctors at the hospital and told hospital management and staff that she would be starting her own practice.
The problem with those claims was that none of the people from whom Kourie said she heard these things provided any supporting evidence, while Nyimba herself denied they were true. Without confirmatory affidavits from the people she allegedly heard from, what Kourie said was “inadmissible hearsay”, said the court.
Doctors complained about employer’s service
What makes the story even more interesting is that Kourie contacted two doctors who said they wanted Nyimba to treat their patients, rather than employees of CKP. Kourie expressed her sadness and disappointment that they didn’t want to continue with CKP and asked to discuss the situation with them.
They agreed to meet, and the reasons given by them for preferring to work with Nyimba put quite a different gloss on the situation.
One complained about a lack of consistent staff or locums from CKP, adding that the issue became glaringly obvious when Nyimba was booked off for an extended period. He complained about his patients not being seen, or being attended to late, as well as “an overall deterioration in the quality of the service” provided by CKP. His patients expressed their concern about the situation on many occasions. Based on all these problems, he decided that a working relationship with CKP wasn’t “viable”.
Restraint application dismissed in this case too
On the other hand, patients “loved” Nyimba and they didn’t want to lose her, and this was what caused concern when Nyimba resigned.
In the court’s view, the decision of the doctors to end their relationship with CKP “has a lot to do with the doctors’ dissatisfaction” with the services provided. And that, in turn, led the court to conclude that the situation in which CKP found itself had little to do with the alleged breach of restraint, and everything to do with how (CKP) runs its practice.
The reasons given by the unhappy doctors “do not by any stretch of imagination” show that Nyimba engaged in unlawful conduct, said the judge. Nor was there any ‘fact’ presented to the court to support the claim that Nyimba breached her restraint of trade agreement as alleged. Without these key elements, CKP’s application was dismissed, with costs.
Employee training cost R1.5m
Now comes the third decision, Torrente v Grant Monaghan, this time from the Labour Appeal Court (LAC).
The case also involves a medical practice, Grant Monaghan and Associates (GMA), fitters and providers of orthotics and prosthetics for patients referred by doctors. Its head office is in Sandton, with offices in Parkwood and Mayfair.
In 2017, Yovanka Torrente asked GMA for a job as a student intern, so she could be trained. GMA agreed and said her training cost R1.5m after which she was employed by them from 2 January 2018.
Brett Abraham & Jenna Atkinson 1 Mar 2023
Restraint applied over the whole of the ‘greater Gauteng area’
GMA has extensive restraint of trade provisions in its employment contract. But the disputed section in this case restrained former employees for two years from doing anything that competes with GMA “at any place within the greater Gauteng”.
Torrente resigned in December 2022, and her last day was 20 January 2023. GMA’s Grant Monaghan began to investigate when he realised Torrente was practising in Bedfordview. When he discovered from two of GMA’s usual referring doctors that she was opening a practice in Bedforview, Petervale and Bryanston, all centres that fall into ‘greater Gauteng’, he went to court.
Monaghan wanted the court to order that Torrente observe the restraint agreement she signed. He said that by starting her own practice in the greater Gauteng area, she would be using confidential information obtained during her employment with GMA to gain an unfair advantage as a competitor.
Was it reasonable to apply restraint to the whole of ‘greater Gauteng’?
The Labour Court decided that Torrente’s engagement with patients and doctors during the time she served out her notice at GMA showed that GMA had a protectable interest in relation to her potential inducement of GMA customers and staff to transfer to Torrente.
But the Labour Court also considered the area that should be covered by the restraint order and found that GMA’s demand for the restraint to apply to “the greater Gauteng” was not reasonable, and that a practice based in Bedfordview, 27km from GMA would be reasonable. In other words, he made the restraint apply to a smaller area.
Torrente then appealed, because she wanted to be able to practice more widely.
Bradley Workman-Davies and Kerry Fredericks 9 Feb 2023
Court balances competing interests
The judges of the Labour Appeal Court restated what was required in a restraint of trade case: the court must make a value judgment between the public interest that requires parties to stick to the agreement they made (about restraint), and the right of everyone to choose their trade, occupation or profession freely.
The two need to be balanced and a court does this by carefully examining three things: the nature of the activity prevented by the agreement, the area of operation of the restraint and the ‘overall balance of the competing interest’ between the parties.
In Torrente’s case, the LAC said the judge in the court below “correctly crafted a narrow restraint”: it was for one year, expired on 9 February 2024, applied for a restricted area – outside a radius of 27km from GMA’s premises – and prevented Torrente from employing any GMA staff.
‘Reasonable’ restraint is all-important
Thus, the essence of the restraint was maintained because it gave GMA protection from activities by Torrente that were directly or indirectly in competition with it.
As the court acknowledged, Torrente’s conduct around the time she left GMA clearly indicated that she had ‘important and valuable connections with patients and (GMA) employees’ that allowed her to divert them to her own business. At the same time, the large area covered by the original restraint agreement just wasn’t reasonable.
It's this freedom (and duty) of a court to weigh competing interests in restraint of trade cases that the Torrente case underlines. And it shows that sometimes even an extensive, carefully worded agreement won’t be upheld by the court if it is found to be ‘unreasonable’.
These cases clearly indicate that our courts will not hastily intervene in a restraint of trade of dispute, unless a court is satisfied that in the circumstances of a particular case: there is a ‘protectable interest’ on the part of the ‘restrainer’ (viz. normally the former employer); the terms of restraint are clearly stipulated and reasonable.
Employers and employees should be guided by these essential principles before electing to ventilate a restraint of trade dispute before a court of law.
