The Labour Court has upheld a restraint of trade against two brokers who were found to have solicited the customers of a former employer, highlighting that playing fast and loose with confidentiality agreements can result in significant trouble.
On 16 February 2023, in the case of TWK Agri (Pty) Ltd v Botha and Others, the court upheld the application by TWK Agri (Pty) Ltd (the applicant) to enforce a restraint of trade against former employees Alma Botha (first respondent) and Tania Strydom (Strydom).
Botha and Strydom were interdicted from directly or indirectly:
- soliciting TWK’s clients or accepting business from them for 12 months;
- engaging in any business or maintaining a business relationship with clients who terminated their business with TWK after 31 December 2022; and
- sharing, disclosing, or utilising TWK’s confidential information or client list for personal or third-party purposes.
The “client list” related to any clients appearing in the “schedule” appended as Annexure A to the notice of motion – “the book”.
The facts of the matter
TWK provides support services, including short-term and long-term insurance, crop insurance, and plantation insurance. It distributes short-term insurance products through a network of brokers.
MRA Insurance Brokers, a key competitor, operates independently in Mpumalanga and was named as the third respondent but did not oppose the application.
Botha and Strydom initially worked as brokers at Platorand Makelaars (Pty) Ltd. Botha was also the owner and sole director of Platorand. In June 2019, TWK Agri acquired Platorand’s business (a non-life insurance book), and the sale was as a going concern, including goodwill. The sale agreement included confidentiality clauses.
Following the sale, Botha and Strydom transitioned to TWK as marketers effective 1 July 2019. They signed new employment contracts and confidentiality agreements.
The confidentiality agreement signed prohibited them, respectively, from persuading others to join competitors or engaging in competing businesses during employment and for one year after leaving. They also could not poach clients, suppliers, or agents.
Botha and Strydom resigned from TWK in November 2022, with plans to leave by 31 December 2022. Before their departure, they expressed an interest in purchasing a portion of TWK’s insurance book for R1.5 million (a written offer containing the list of clients), but TWK declined.
As noted in the judgment, Botha and Strydom had told TWK at the time that they were planning to start their own short-term insurance company.
The court found that after leaving TWK, Botha and Strydom contact with clients from “the book”. Evidence was presented before the court that in December 2022, Strydom contacted a client, Isaac Smith, to change contact information. On 13 January 2023, an insurer’s employee informed TWK that Strydom had requested to cancel a policy for a client previously serviced by Strydom at TWK.
Additionally, 72 clients serviced by Botha or Strydom cancelled their policies with TWK, purportedly joining MRA Insurance Brokers.
The court deemed TWK’s claim that the clients had joined MRA to be correct, as “the third respondent has not disputed this averment”, the judgment read.
Restraint of trade
TWK stated it specifically went to court to enforce the confidentiality agreement with Strydom and Botha regarding “the book”.
Botha and Strydom disputed that there was an existing restraint of trade agreement between them and TWK. They also denied having “the book” and argued it didn’t hold commercial value, claiming it could be easily found through a Google search. In addition, they held that the protection of goodwill acquired from Platorand ended on 30 June 2022.
Acting Judge Sandile Mabaso clarified that the agreement at play was not between TWK and Platorand but between TWK and Botha and Strydom.
Regarding the confidentiality agreements signed between TWK and Botha and Strydom, the judge said it was clear that the parties had agreed to a restraint of trade for 12 months after Botha and Strydom left TWK.
“More so, this restraint is very specific that the respondents should not solicit clients of the applicant. This court agrees with the applicant that the agreement exists for 12 months, counting the date the respondents exited the applicant’s employ,” the judge said.
Questions to be determined by the court
In the “reasons for order” issued on 7 March 2023 following the “urgent” order delivered on 16 February 2023, Mabaso AJ noted that the following questions needed to be determined:
- Does the one party have an interest that deserves protection after termination of the agreement?
- If so, is that interest threatened by the other party?
- In that case, does such interest weigh qualitatively and quantitatively against the interest of the other party not to be economically inactive and unproductive?
- Is there an aspect of public policy having nothing to do with the relationship between the parties that requires that the restraint be maintained or rejected? Where the interest of the party sought to be restrained weighs more than the interest to be protected, the restraint is unreasonable and consequently unenforceable.
- Does the restraint go further than necessary to protect the interest?
Confidential information
Confidential information falls under the description of protectable interest.
For information to be confidential, it must:
- be capable of application in trade or industry, meaning it must be useful; not be public knowledge and property;
- it must be known only to a restricted number of people or a closed circle; and
- be of economic value to the person seeking to protect it.
According to the judgment, when TWK bought the business from Platorand, the business was defined as including short-term insurance policies established and managed by the latter.
“So, it is the book that forms part of the economic value of the TWL,” Mabaso AJ said.
Furthermore, TWK and Platorand agreed on the confidentiality clause of the clients, and Platorand was owned by Botha.
“Clearly, these parties were aware that such a book was of economic value, and without any doubt, this was useful in the industry in which the applicant operates.”
The judge pointed out that Botha’s actions, attempting to repurchase parts of the business she sold to TWK through Platorand, and then promptly soliciting TWK’s clients upon leaving the company, “indicates that the motive of doing this was necessitated by dishonesty”.
“Therefore, this court opines that it will be unfair if these rights are not protected as they seem to be integral in the insurance business that the Applicant is involved in,” Mabaso AJ said.
Interest and economic value
During the court proceedings, TWK presented evidence that it lost about 72 of its clients immediately after Botha and Strydom had left – a direct loss of R1 149 630.71
The court concluded that TWK had demonstrated that there was a continuous harm.
“Under the circumstances, this court concludes that, indeed, there is a continuous threat, and if they are not protected, such a threat will continue and harm it further,” Mabaso AJ said.
Regarding the economic value of “the book”, the court emphasised that it wasn’t something readily available online, as Botha suggested. Instead, it was a list obtained from Platorand, showing that TWK had intentionally acquired it. The judge noted that this acquisition meant TWK would gain access to confidential information and trade secrets, which, if shared with competitors, could harm TWK’s interests.
According to Mabaso AJ, Botha and Strydom may have been within their rights to approach whoever they wanted to approach to bring business to MRA because competition is allowed.
“However, this court has to take into account when such right is being exercised and under what circumstances in order to evaluate factors such as the protection of the agreements already in place, has to take into account ‘the honesty and fairness of the conduct involved’, and ‘the motive of the actor’,” the judge said.
Was the enforcement of the restraint agreement reasonable?
The court also had to determine whether enforcing the restraint of trade agreement was unreasonable and against public policy.
Mabaso AJ explained that in this case, the onus was on Botha and Strydom, as they were the parties resisting enforcement, “considering that generally, restraint of trade agreements are valid and enforceable”.
Mabaso AJ said Botha and Strydom had not tendered any reasons why enforcing the restraint of trade was unreasonable. TWK was also not seeking an order to interdict them from working for MRA, nor suggesting that the restraint would be for years but only 12 months.
“So, this court concludes that public policy calls for the protection of the applicant’s interest herein. Moreover, there is no evidence from the competitor (MRA) suggesting that they will not be protected should the restraint be ordered. So, this court concludes that the restraint period is reasonable.”
