Restraints of Trade (Update)

Logo_McLarensOver the past 12 months the Labour court has seen a vast increase in restraint of trade cases as opposed to the High court where these matters would normally be dealt with. The Basic Conditions of Employment Act (The BCEA) gives the Labour court concurrent jurisdiction with the civil courts to hear and determine any matter concerning a contract of employment, irrespective of whether any basic condition of employment constitutes a term of that contract (Section 77(3) of the BCEA). Even though the Labour court is in itself a more equity driven court, the principles of restraints of trade have not changed, and restraints must always be seen as serious and should not be considered unenforceable.

  1. What is a restraint of trade?

A restraint of trade is an agreement between an employer and employee which sets out that if the employee leaves the employer, the employee will not become employed or associated with a competitor of the employer within a specified area and for a specified time. The restraint of trade will commence at the date of termination of the employee’s employment with the employer or on a date agreed between the parties.

  1. How does one determine if a restraint of trade is enforceable or not?

A party seeking to enforce a restraint of trade will have to prove the existence of the restraint of trade agreement and also show that it has been breached – ie. that the employee signed a restraint of trade and has since left the employers employ and has become employed or associated with a competitor. A restraint of trade will only be enforceable if the employer can show that it has a ‘protectable interest’ which is legally recognised and deserving of protection. This would be two fold – 1. that the employee in question was privy to confidential information whilst employed which could be used by a competitor to gain an unfair advantage in the marketplace, and/or 2. That the employee in question developed relationships with customers, potential customers, suppliers, and other related parties that go to make up what is known as a trade connection of a business, which could be used to gain an unfair advantage in the marketplace. The employer must then show that the employee has or will use the confidential information or trade connections since leaving the employer to gain an unfair advantage and has therefore breached his/her restraint of trade undertakings and should be restrained.

  1. How long and how wide are restraints of trade?

Restraints of trade will only be enforced for a period of time which the court deems reasonable and will only be enforced in areas which need to be protected. An example would be a restraint of trade which is enforced in the whole of the republic of South Africa for a period of one year because the employee in question operated as a sales manager and serviced clients throughout South Africa. In this case the party enforcing the restraint would argue that to mend or maintain its relationships with these clients would take up to 12 months and therefore a 12 months restraint is reasonable. Another example would be a restraint of trade which is enforced only in the province of Gauteng or Johannesburg for a period of 6 months as the former employee only operated in Gauteng and had limited dealings with customers. Another example would be a restraint which is not enforced at all by the court despite being in existence due to the fact that the former employee was not privy to any confidential information and did not have any trade connections.

  1. Conclusion

Every situation is different and whether or not a restraint of trade is enforced entirely, whether the restraint of trade is reduced, or whether the restraint of trade is not enforced at all, is all dependant on the circumstances of each matter. Parties are advised to seek proper legal advice whenever an issue regarding a restraint of trade arises.

Warren Sundstrom

Battle of Forms

Instead of drafting contracts of sale specific to each transaction, parties to commercial transactions generally rely on their own standard terms and conditions, creating a situation of competing terms and conditions. The question is – which terms and conditions apply?

Justice Lord Denning MR, in Butler Machine Tool Co v Ex-Cell-O Corporation (England) Ltd, referred to this as the “Battle of Forms”. But who wins the “battle”?

Under common law, the law of contract is based on the basic principles of offer and acceptance also known as “The Mirror Image Rule”. According to this rule, acceptance of the offer has to match the offer in every detail. In the event that the acceptance of the offer is purported to be governed by the acceptor’s terms and conditions instead, it is not acceptance at all but rather a counter-offer rejecting the initial offer. The other party can then decide to accept or reject the counter-offer; an absence of the refusal thereof is implied acceptance.

In most cases however, this “battle” is won by the party who “fires the last shot”, termed as the “Last Shot Rule”. In this instance, the last party to put forward their terms and conditions before performance of the purported contract would govern the contract. Again, the lack of any objection thereto would be implied acceptance thereof.

In the Butler Machine Tool Co case, Justice Lord Denning asserted that a contract will exist “as soon as the last of the forms is sent and received without objection”.

In South African case law, Guncrete (Pty) Ltd v Scharrighuisen Construction (Pty) Ltd 1996 2 SA 628 (N), it is illustrated that South Africa follows a similar approach to that of the Last Shot Rule. In this case, the court held that the contractor’s acceptance of the sub-contractor’s tender, which acceptance included a clause that the contract would be subject to the contractor’s terms and conditions, amounted to a counter-offer which was “impliedly” accepted by the sub-contractor.

It must be noted that different legal systems favour different approaches to resolve the “battle of forms” as the abovementioned methods are not practiced everywhere, and while the aforesaid approaches aid the resolution of the “battle of forms”, parties to a purported commercial contract should aim to resolve the “battle” before performance by either party.

Bearing this in mind, parties to international commercial transactions should ensure that their standard terms and conditions are properly drafted for the purpose of avoiding any uncertainty by either party.

Holly Hughes

Can an Employee be dismissed on suspicion of misconduct?

There is always contention as to whether or not an Employer has followed the correct procedure and whether or not there was a fair reason for dismissing an Employee. In general there are the two fundamental legs to a dismissal dispute – procedure and substance. In Labour court and CCMA matters the onus is always on the Employer to prove the fairness of a dismissal. This is determined on a balance of probabilities which is based on the circumstances of the matter.

Section 188 of The Labour Relations Act deals with dismissals and permits an Employer to dismiss an employee for misconduct. What is unclear though is “what constitutes misconduct in the clearest sense” and “what offences may constitute misconduct”. The question then arises whether or not an Employer can dismiss and Employee because he or she suspects the employee have committed misconduct. The leading case of Algorax (Pty) Ltd v Chemical Industrial Workers Union and Another {1995} 10 BLLR 1 (LAC) says yes, provided that the suspicion is bona fide and reasonable. The more recent case of Senzeni Mbanjwa v Shoprite Checkers (Pty) Ltd and Others (DA 4/11) {2013} ZALAC says no, stating that “suspicion, however strong or reasonable as it may appear to be, remains a suspicion and does not constitute misconduct”.

The facts of the case:

The Employee was employed by Shoprite Checkers as a cashier. One day the Employee rang up certain items for a customer who was a car guard outside the shop. The customer was short on money and returned 10 minutes later to pay the difference. The items were rung up at the kiosk as opposed to the proper till as required. The assistant manager of the store watched the Employee ring the items up and overheard the Employee and customer talking during this process. For a number of reasons including this occasion, the Employee was suspicious of the Employees conduct.

The Employee was called to a disciplinary enquiry and charged with gross misconduct in that she had attempted to under ring certain items while attending to her duties as cashier. The Employee was found guilty by the chairperson and summarily dismissed. The Employee referred the matter to the CCMA and when the matter was Arbitrated, the Employee claimed that the alleged misconduct was based only on the Employers suspicion and was not bona fide or reasonable. The CCMA found in favour of the Employee and concluded that the dismissal was therefore substantively unfair. The Employer applied for the decision to be reviewed and was successful on the basis that a full and proper disciplinary hearing was done by the Employer, and the Labour court sent the dispute back to the CCMA for Arbitration once again.

Before the matter was Arbitrated once again the Employee appealed the Labour court’s decision claiming that the Labour court had dealt with the procedural issues of the dispute as opposed to the substantive issues and had therefore misdirected itself and erred. On appeal the Employee claimed that the only issue to be determined was whether or not there was misconduct and whether or not this could be proved. The Labour Appeal court found that the Employer had only a suspicion that the Employee had committed misconduct and the allegations of misconduct had not been proved by the Employer on a balance of probabilities. The appeal was therefore upheld and the Employee’s dismissal was once again found to be substantively unfair.

Conclusion:

Employers and chairpersons must be careful when dismissing an Employee and must ensure that they have sufficient proof and evidence to substantiate misconduct before making a decision to discipline or dismiss an employee. An Employer must therefore have a bona fide and reasonable suspicion that an Employee has committed an act of misconduct, and that suspicion must be backed up with solid evidence.

Warren Sundstrom

Portugal’s Golden Visa Program

The Portuguese Golden visa program is an investor residency program allowing foreigners to obtain a fully valid residency permit in Portugal. This permit not only allows investors to enter and/or live in Portugal but allows free travel within the 26 member countries incorporated in the Schengen agreement.

The program launched by the Portuguese authorities in 2012 is flexible with basic legal requirements and is fast becoming the European migration plan of choice. According to the latest Portuguese immigration statistics, at the end of January 2015, it had already attracted in excess of 1,25 billion Euros in foreign investment.

The draw for investors is a fast track entry to Schengen Europe, whilst for the Portuguese it’s attracting foreign investment helping to boost an economy still recovering from the recession.

Portugal is a southern European country on the Iberian Peninsula, bordering Spain and the Atlantic Ocean. It is an attractive small country with a temperate climate, 850kms of splendid beaches and 3000 hours of sunshine per year.

Portugal has a unique cultural heritage with a balanced blend of tradition and modernity, and where the people are very hospitable.

There are 3 options for investors namely job creation, property or capital investments. The property option is the most attractive with a minimum investment purchase price of 500,000 Euro for a property either for occupation or for rental income.

Portugal has an established rental market. The investment needs to be maintained for a 5 year period and the funds need to come from abroad.

Residency applications are approved after the investment. The visa granting process is sensible with a 7 day annual stay, and the requirement of a no prior criminal record. The golden visa is valid for 1 year and renewed for subsequent periods of 2 years, and also accommodates immediate family members.

The residency permit will entitle the investor to work and enjoy the same social benefits as the local citizens. Permanent residency can be granted after 5 years on application and citizenship after 6 years.

Sonia Rudman

PS : McLarens Attorneys is able to assist with Golden Visa application’s via its Portuguese Legal firm Associate Program.