“Gardening leave” and the enforceability of restraints of trade
16 Feb 2016
The South African Labour Courts have, until now, not had the opportunity to consider what impact, if any, a so-called “gardening leave” provision may have on the enforceability of a restraint of trade. This issue, among others, came before the Labour Court in Johannesburg in the case of Vodacom v Godfrey Motsa and MTN Group (J74/16). Judgment was handed down by Van Niekerk J on 9 February 2016. The Labour Court was also called upon to pronounce on the issue of whether specific performance is an appropriate remedy given the personal nature of an employment contract.
The notion of gardening leave
As a general principle, an employee does not have a right to work (with some exception) and the employer therefore does not breach the contract of employment if it does not provide work to the employee. The term “gardening leave” arises from this general principle and refers to an employer’s legal right to require (usually senior) employees not to report for duty during the notice period, but where the employee is still entitled to his or her full benefits during the period of gardening leave. Gardening leave clauses are often inserted into the contracts of employment of senior employees, with the aim of “sterilising” the confidential and proprietary information held by them, and to prevent such employees from immediately taking up employment with competitors and utilising such confidential and proprietary information to unfairly compete with their erstwhile employers.
The Motsa case
The facts that the Labour Court had to consider in the Motsa case can be briefly summarised as follows:
- Godfrey Motsa commenced employment with Vodacom in January 2007. With effect from 1 April 2015, he was appointed as Vodacom’s Chief Officer: Consumer Business Unit in terms of a written contract of employment concluded in June 2015.
- His contract of employment contained a six-month notice period. It also contained a gardening leave provision, which entitled Vodacom to require him not to report for duty during his notice period. In addition, he was bound by a restraint of trade in terms of which he was restrained, for a period of six months from the termination of his employment with Vodacom, and in respect of, inter alia, South Africa, from being employed by, associated with and/or engaged by any entity that competes with Vodacom.
- On 23 December 2015, Mr Motsa resigned from Vodacom’s employ. Importantly, the day prior to his resignation, it came to Vodacom’s attention that Mr Motsa had apparently been engaged in discussions with MTN to commence employment with it, with effect from 1 January 2016.
- Vodacom sought to enforce Mr Motsa’s six-month notice period, and expressly communicated to him that he would be placed on gardening leave until the termination of his notice period on 23 June 2016. Mr Motsa, however, alleged that Vodacom had waived its right to enforce his notice period and was now estopped from seeking to enforce it. In this regard, Mr Motsa sought to rely on an internal communique issued to Vodacom’s employees, which stated that he was “leaving with immediate effect”.
- Mr Motsa had access to significant confidential and proprietary information relating to Vodacom’s business and such information had a useful life span of more than one year in some instances.
Specific performance and the notice period
Van Niekerk J first dealt with the issue of the enforcement of Mr Motsa’s contract of employment insofar as his notice period was concerned. Ordinarily, where an employee breaches his employment contract insofar as notice is concerned, an employer would be entitled to enforce the contract (i.e. claim specific performance), or accept the employee’s repudiation and sue for damages. Mr Motsa argued that, given the personal nature of an employment contract, specific performance is not an appropriate remedy even if the Labour Court finds that he breached his notice obligations (which is denied). Vodacom, however, sought to enforce the contract. Van Niekerk J held that Mr Motsa had failed to discharge the onus of proving that Vodacom had elected to waive its right to enforce his notice period in terms of his contract of employment. The Labour Court held that, in such circumstances, there is no reason why specific performance should not be awarded. The Labour Court accordingly held that Mr Motsa remains an employee of Vodacom until the end of his notice period on 23 June 2016.
Restraint of trade
Mr Motsa furthermore argued that even if the Labour Court were to enforce his notice period and find that his engagement with MTN constituted a breach of his restraint undertakings, Vodacom should not be entitled to enforce his restraint undertakings for a further period of six months after the termination of the employment relationship on 23 June 2016. It was argued on behalf of Mr Motsa that any confidential and proprietary information held by him would effectively be sterilised during the gardening leave period, and that it would therefore be unreasonable to also enforce his restraint for a further period of six months after 23 June 2016. Vodacom, on the other hand, argued that both the period of gardening leave and the post-termination restraint should be enforced and that there was no basis on which it could be said that this is unreasonable, having regard to the nature of the information Mr Motsa had access to.
A proprietary interest worthy of protection
After giving due consideration to international authorities, the Labour Court referred, with approval, to a case from the New Zealand Employment Court, Air New Zealand Limited v Grant Kerr ( NZEmpC 153 ARC 38/13), in which the court held that the correct approach to adopt is that a gardening leave provision should be taken into account by a court when considering the reasonableness of the duration of any post-termination restraint covenant. The Labour Court held that there is no reason why a different approach ought to be adopted in South Africa.
Van Niekerk J concluded that the Labour Court was entitled to have regard to both the gardening leave sterilisation period and the restraint period in determining the reasonableness and necessity of the restraint period.
The Labour Court held that Mr Motsa had access to significant confidential and proprietary information and that Vodacom clearly had a proprietary interest worthy of protection (for a period exceeding one year). On such basis, the Labour Court enforced Mr Motsa’s restraint undertakings, in addition to, and notwithstanding, the six-month gardening leave period.
* ENSafrica acted for Vodacom in this matter.
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