Restraint of trade agreements and business transfers
13 Nov 2023
In the ever-evolving legal landscape surrounding restraint of trade agreements and business transfers, two significant cases, Slo Jo Innovation (Pty) Ltd v Beedle in 2020 and Avis Southern Africa (Pty) Limited and Others v Porteous in 2023, have set the stage for critical discussions. These cases concern the transferability of restraint of trade agreements when employees change employers. While the 2020 case provided one perspective, the 2023 case introduced a different approach, prompting substantial legal debate.
Comparing the 2020 case with the 2023 case
The 2020 case, Slo Jo Innovation (Pty) Ltd v Beedle, marked a turning point. It established that restraint of trade agreements included in employment contracts were transferable under the Labour Relations Act, providing legal ground for such transfers. However, in 2023, the High Court’s judgment in Avis Southern Africa (Pty) Limited and Others v Porteous presented an alternative viewpoint.
In the Avis case, the first and second respondents, David and Belinda Porteous, were central figures. David had worked with Avis since 1988, and eventually, Avis became part of Barloworld South Africa (Pty) Limited. David held the position of Chief Operations Officer of Avis’s car rental and leasing business when he resigned in 2023.
Belinda, on the other hand, started her employment with Zeda in 1999 and later became the Manager of International Sales for the Avis Rent-a-Car business, a role she maintained after her employment transferred to Zenith in 2021. She resigned in 2023 with plans to establish a consulting company in Mauritius, focusing on the mobility and tourism industry.
A critical issue in the Avis case revolved around the restraint of trade undertaking. Avis contended that the restraint undertakings were included in Belinda’s Zeda contract and continued to apply when she was employed by Zenith in 2021. This issue raised the question of whether the benefit of the restraint of trade undertaking was indeed transferred to Zenith.
Bester AJ, presiding over the case, was tasked with determining whether the restraint of trade undertakings had effectively been transferred. The court’s findings were as follows:
Bester AJ emphasised that the transfer of rights was a factual matter. To prove the transfer of restraint undertakings, the applicants had to establish that the terms of the agreement between Avis and Barloworld explicitly included these restraints. The court’s decision was to be based on the parties’ intentions, as evident in the wording of their agreement. In this case, the court was not persuaded that the applicants had effectively demonstrated the cession of the restraint of trade undertakings to Barloworld.
Bester AJ also distinguished the Avis case from the Beedle case, highlighting a crucial difference. In Beedle, the Labor Appeal Court had ruled based on the absence of a business transfer to a third party, which rendered the question of ceding restraint of trade undertakings from one employer to another irrelevant.
The Avis case holds particular importance for employers looking to enforce restraint of trade agreements, especially in cases where new employment contracts lack explicit restraint clauses. To succeed in such cases, employers must establish that both parties intended to cede restraint of trade undertakings as part of the business’s goodwill. In essence, employers must provide evidence demonstrating that both parties mutually agreed to these stipulations, even if they were not explicitly articulated in the contract.
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