The High Court in Johannesburg has dismissed a financial services provider’s application to enforce a restraint of trade, saying it had presented insufficient evidence to demonstrate a protectable interest or that the former employee breached the restraint.
In June, Merchant West Specialised Finance (Pty) Ltd brought an urgent application seeking an interdict to enforce a restraint of trade against a former employee, Jonathan le Grange, from 18 June 2024 to 17 June 2025.
Acting Judge Ettian Raubenheimer dismissed the application, with costs, because he was not persuaded Merchant West had demonstrated a protectable interest. Last week, Raubenheimer AJ provided the reasons for his order.
Merchant West employed Le Grange as a junior credit analyst in April 2021, initially in the corporate credit department and then in the administration department. He resigned in May this year after successfully applying for a job at Centrafin (Pty) Ltd.
Centrafin specialises in financing office automation, and security, audio-visual, manufacturing, and plant equipment.
In its founding affidavit, Merchant West suggested that Le Grange’s mere employment with an entity it deemed to be a direct competitor, in and of itself, constituted a breach of the restraint of trade agreement.
Le Grange denied that Centrafin is a direct competitor of Merchant West, saying Centrafin’s business focuses on asset finance specific to business equipment.
Furthermore, even if Merchant West made out a case that Centrafin is a competitor in certain areas relating to asset finance for business equipment, it made no factual averments that he attempted to breach his contractual obligations.
Legal principles
Raubenheimer AJ drew on case law to set out several important principles regarding what constitutes a protectable interest in the context of a restraint of trade agreement.
He said a protectable interest typically comprises a business’s:
- Trade connection – its relationships with its customers, potential customers, suppliers.
- Trade secrets – confidential matter that is useful for the carrying on of the business and which could be used by a competitor, if disclosed to it, to gain a relative competitive advantage.
The protection of a trade connection arises where the employee not only has access to customers but is also in a position to establish a relationship of such nature that he would easily be able to induce or persuade the customers to follow him to the new employer when he leaves the current employer.
For a relationship such as this to develop, the employee would have to be in a position where he acquires such personal knowledge of and influence over the customers of his employer as would enable him, if competition were allowed, to take advantage of his employer’s trade connection.
Determining whether this threshold has been attained is a factual question and depends on the following factors:
- the employee’s duties;
- the employee’s personality;
- the frequency and duration of the contact between the employee and the customers;
- where the contact occurred;
- what knowledge the employee obtains about the business and requirements of the customers;
- the general nature of the relationship between the employee and the customer;
- the extent of reliance on the employee by the customer;
- the degree of personal involvement of the relationship; and
- whether the position occupied by the employee would provide him with access to customers and customer information.
Confidential information must not be in the public domain and must objectively be worthy of protection and must have value. Information is classified as confidential if:
- it is received by an employee about business opportunities available to an employer;
- it is useful or potentially useful to a competitor, which would find value in it;
- it relates to proposals, marketing, or submissions made to procure business;
- it relates to price and/or pricing arrangements not generally available to third parties;
- it has actual economic value to the person seeking to protect it;
- it concerns customer data, details and particulars;
- the employee is required to keep the information confidential via contract, regulation, or statute;
- it relates to the specifications of a product, or a process of manufacture, either of which has been arrived at by the expenditure of skill and industry that is kept confidential; and
- it relates to know-how, technology, or method that is unique and peculiar to a business.
Raubenheimer AJ said that to demonstrate it has a protectable interest, an employer must not only allege facts from which the conclusion can be reached that the information is confidential and that the trade connections are protectable, but it must also set out when and how the employee was exposed to them.
The existence and essence of the protectable interest should be disclosed in such detail to afford the court with evidence as to the existence of such a protectable interest in accordance with the general principles applicable to motion proceedings.
Case not made
Applying the above principles to this matter, Raubenheimer AJ said Merchant West provided very limited details about its alleged protectable interest. There was scant evidence on both the confidential information and trade connections, which the court found insufficient to establish a protectable interest.
Credit scores are regularly calculated across the financial services industry. Merchant West did not demonstrate any unique methodology or factors that would differentiate its risk assessment or credit score calculations as proprietary.
Le Grange held a junior position, primarily in office administration, and had no substantial access to client data or relationships that could enable him to influence customers to follow him to a new employer. His access to software was limited, and he had minimal exposure to any of Merchant West’s trade secrets.
The restraint provisions in the employment contract prohibited Le Grange from providing “any service or competing service” to Merchant West’s customers, but no evidence showed that he breached or attempted to breach this provision. Additionally, there was no claim that the new employer was a customer of Merchant West.
There was no provision in the restraint clause that prohibited Le Grange from taking up employment with a different employer. In fact, the restraint clause did not expressly prohibit him from taking up employment with a competitor.
Raubenheimer AJ concluded that Merchant West had neither proved the existence of a protectable nor that the restraint had been breached.
