If an employer should approach the court for the enforcement of a restraint of trade, a favourable order will not only be enforceable against its former employee, but also the employee's new employer.
However, what consequences remain for parties who fail or refuse to comply with the order? The Labour Court recently dealt with this situation in Orthocraft (Pty) Ltd t/a Advanced Hair Studios and Anne Musindo & others.
The employee, working as a hair stylist, resigned and took up employment with a competitor - despite being bound by a restraint of trade agreement.
The employer approached the Labour Court and sought relief against both the employee and her new employer. An order was granted in favour of the employer, interdicting the employee from remaining in the employ of the new employer (or taking up employment with any other competitor).
In contravention of the court order, the employee remained in the employ of the new employer which led the previous employer to bring an application to declare that the employee and the new employer were in contempt of court.
It was common cause between the parties that the Labour Court had granted an order enforcing the restraint and that the employee and the new employer had not acted in accordance with the order. Furthermore, the employee admitted that she breached the order, and failed to provide a reasonable explanation as to why she had done so.
Due to the willful breach of the restraint of trade agreement, the Labour Court found that the employee and the new employer were in contempt of court and ordered that the employee be imprisoned for a period of 30 days, suspended until the end of the restraint. The Labour Court ordered further that the new employer pay a fine of R 20 000 (equal to two months' remuneration of the employee), also suspended until the end of the restraint period. The Court further held that the employee and the new employer were jointly and severally liable for the costs of the application.
In light of the above, where an employer considers hiring an employee, it is prudent to ascertain whether the employee is bound by a restraint of trade agreement. Ideally, this should be dealt with in the interview process. Where the employee warrants that he is not bound by a restraint of trade, the employer should ensure that such a warranty is included in the employee's employment agreement. The new employer may even get an undertaking from the applicant that he will repay any legal costs the new employer may incur in the event of litigation by the applicant's previous employer.
Additionally, if the old employer obtains an order enforcing a restraint of trade, and such order is operable against the new employer, the new employer must adhere to the order. If the new employer fails to adhere to the order, it may be found to be in contempt of court and a fine or imprisonment may be imposed on the new employer.
It bears mentioning that under the common law, there is no hard and fast rule concerning the type of order that a court may impose where a party is in contempt of court. As such, where a new employer is found to be in contempt of court, a fine or imprisonment may be imposed on a director of the new employer, or other such person in charge. The reputational ramifications of such an order are likely to be significant. Furthermore, the new employer may also be held liable for the costs of the application.
Options available to an employer
Where an employer wishes to employ an individual who is bound by a restraint of trade, the employer must consider the terms and conditions of the restraint, as well as any court order that has been granted.
A number of options may be open to a new employer that may not constitute a breach of the restraint of trade or a court order, subject to the wording of the restraint or court order. These may include:
- Sanitising the employee from the new employer's business by, for instance, placing the employee on garden leave for the duration of the restraint.
- Negotiating with the previous employer on an agreed limitation on the restraint of trade.
- Employing the employee temporarily in a division of the business that does not compete with the previous employer.
It is important that a company employing a newcomer bound by a restraint of trade agreement obtains legal advice before soldiering on in breach of the restraint or, even worse, an order upholding the restraint.