A recent High Court judgment provides insights into the classification of employment and contractual obligations when determining the applicability of restraint of trade agreements. It highlights that the classification of a person as a consultant is not determinative in deciding whether a restraint of trade applies.
The background to the judgment is an urgent application brought by Simah Risk Advisors (Pty) Ltd to enforce confidentiality and restraint of trade undertakings in respect of two former employees who resigned and subsequently joined a competitor, Mountsure Brokers (Pty) Ltd.
In July, Judge Derek Wille granted the relief sought. He also interdicted them and the Mountsure (the third respondent) from using Simah’s confidential information.
Judge Wille handed down the reasons for his decision this month.
One aspect of the judgment addresses the argument by the first respondent, Michiel van Niekerk, that the restraint covenant did not apply to him because he was not employed by Simah but rather engaged as a consultant.
Van Niekerk had initially worked for Simah’s predecessor and later continued his association with the company under a consulting arrangement. The first respondent contended that because the applicant’s predecessors had initially hired him as a consultant rather than an employee, the restraint of trade covenant was not enforceable against him.
Judge Wille, however, rejected this argument. It found that the Sale of Business Agreement and the Cession Agreement clearly stated that Simah was entitled to enforce Van Niekerk’s restraint of trade obligations, irrespective of the exact nature of his engagement. The agreements outlined that Simah’s entitlement to enforce the restraint was not contingent on whether Van Niekerk was an employee but was based on the overall nature of the relationship and the agreements that were in place.
Essential purpose of restraint covenants
The court dismissed the distinction between employment and consulting, emphasising that the essence of the restraint covenant was to protect the applicant’s business interests, not to classify the respondent’s position in a specific category. The court’s decision reinforces the idea that restraint agreements are enforceable based on the terms negotiated by the parties, rather than merely the formal classification of the relationship.
In his ruling, Judge Wille described Van Niekerk’s defence as “artificial”. He said the terms of the agreements clearly allowed Simah to enforce the restraint covenant regardless of whether the first respondent was categorised as an employee or a consultant.
The court further pointed out that the agreements between Simah and Van Niekerk comprehensive and aimed to prevent the very type of competition that occurred when he joined a direct competitor. The restraint of trade covenant was therefore designed to safeguard the applicant’s confidential information and business relationships, which were integral to the competitive landscape of the industry.
Judge Wille also noted that Simah’s attorneys consistently argued that Van Niekerk was employed by the applicant, a position that was never challenged by the first respondent’s legal team. “This was not the subject of any challenge,” Judge Wille observed, underscoring the lack of any significant dispute regarding the applicant’s claim of employment.
The judgment reinforces that consultants, like employees, can be bound by restraint of trade agreements, particularly when they have access to confidential business information. It also reiterates that public policy generally favours the enforcement of contracts entered voluntarily by the parties, particularly when there is no evidence that the respondents were coerced or had unequal bargaining power.
