GREENDALE HARDWARE & ELECTRICAL (PVT) LTD v BANGABA 2007 (2) ZLR 17 (S)

Flynote

Contract — restraint of trade — protection of employer from mere competition by former employee — unreasonable restraint

Contract — restraint of trade — reasonableness thereof — a question of law — clause in contract that consent of employer required before prohibited D conduct is undertaken — such clause not making an unreasonable restraint reasonable — test for validity of restraint of trade — protection of proprietary interests of employer — protection must be no more than is reasonably necessary to protect such interests

Contract — restraint of trade — trade connections of employer — protection thereof — such protection achieved by a restraint against competition — when such a restraint can be considered reasonable and enforceable — such restraint must be the only way of protecting the employer's trade connections

Employment — contract of employment — restraint of trade — test for validity of restraints of trade — protection from mere competition by former employee — such restraint unreasonable

Employment — contract of employment — restraint of trade — trade connections of employer — protection of such interests by a restraint against competition by former employee — when such restraint enforceable

Headnote

The unreasonableness of a restraint of trade is a question of law. Its determination involves the application by a court of a legal standard to the facts of a particular case. The relevant circumstances are those existing at the time the restraint of trade is sought to be enforced in so far as they impinge on public interest. What constitutes public interests changes from time to time. As such the circumstances of a restraint of trade would not depend on the fact of the approval or disapproval of the conduct of the employee by the employer. restraint of trade, which is otherwise unreasonable, would not become reasonable merely because of a provision that the consent of the employer shall be sought before the prohibited conduct is undertaken. It is not a question of the restraint. It is a question of the legality of the restraint.

The correct test for the validity of a restraint of trade in a contract of employment is whether there are proprietary rights for the protection of which the restraint was imposed by the employer and undertaken by the employee. If there are proprietary interests to be protected, the next question is what are they being protected against and is the restraint more than is reasonably necessary for the protection of the proprietary interests. The onus is on the employee who seeks to resile from the restraint of trade in the contract to show that it is against public policy and unenforceable.

A restraint of trade which does no more than protect the employer against mere competition from a former employee by preventing him from carrying on business similar to that undertaken by him on entering the service of an undertaking in fear that in doing so the employee would exercise the knowledge and skill acquired during employment with him, is an unreasonable restraint. So is a restraint of trade which is too wide as to time or place or scope, depending on the nature of the business carried on, and the duties of the employee.

The respondent was a former employee of the appellant, which was part of a group of companies. The appellant carried on the business of retail and wholesale general hardware, specialising in mining and industrial cutting tools. In 1998, the respondent was employed by the appellant as a clerk and counter salesman, subsequently being promoted to an external sales representative. His contract of employment contained a restraint of trade, which prohibited the respondent, for a period of two years after termination of his employment with the appellant, from entering the employ of any undertaking involved directly or indirectly in any business undertaken by any company within the group of companies. The restraint of trade also contained other clauses, one of which was a special restraint for the protection of appellant's proprietary rights in the trade connections, against exploitation by respondent upon termination of employment. Each of the other clauses was deemed to be a separate restraint for the purposes of the contract of employment. In 2004, the respondent left the appellant's employ and joined another rival company as a salesman. In that capacity, he obtained an order from a former customer of appellant for facing and external tools. In 2005, the appellant wrote to the respondent claiming that by joining the rival company before the expiry of two years from the date of his cessation of employment with the appellant, the respondent was in breach of the restraint of trade. The respondent rejected this and the appellant sought a High Court order upholding the restraint of trade against respondent. The appellant relied on the general restraint clause. The High Court dismissed the appellant's claim. On appeal to the Supreme Court:

Held, that it must be shown that the proprietary rights in the trade connections could only be adequately protected against prejudicial interference by a former employee if the restraint against competition is imposed and enforced. In other words, there must be no other restraint protecting the same proprietary rights.

Held, further, that the appellant did not rely on the special restraint clause but rather on the general restraint clause. This clause did not even prohibit the use of knowledge of and influence over the appellant's customers. This suggested that the clause was not intended to protect the appellants' trade connections against exploitation by the respondent upon termination of employment. The clause was a restraint against mere competition in the use of personal knowledge in the trade acquired during his employment with the appellant. As such, the clause was too widely framed. It was therefore unreasonable and unenforceable.