One of the staff members was a trainee who had never worked with customers. (Arkadiusz Wargula/Getty Images)
- An appeals court has ruled against an “unreasonable” restraint of trade enforced against five ex-employees of an Ermelo car dealership.
- The five were blocked from working at rival dealerships within 300km of the Mpumalanga town for a year.
- The court found the restraints unreasonable, as the five took no confidential information or trade secrets to their new employer.
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Five ex-employees of an Ermelo car dealership, who were blocked from working within 300 km of their hometown in a restraint of trade case, have won their legal battle on appeal.
A court found that their former employer, Twenty Four Motors – trading as Ford Ermelo – overreached when it insisted they not work for another car dealership within 300km of the Mpumalanga town after they resigned.
It also found that the Johannesburg Labour Court, which first heard the case last year, erred in agreeing with their ex-employer that they be blocked from working “in any way whatsoever” for a year at a competitor.
“[Ford Ermelo] proved no evidence of confidential information, trade secrets, or trade connections held by the former employees that warranted protection,” said the Labour Appeals Court in a new ruling penned by Judge Kate Savage.
“It was not proved that the appellants were aware of trade secrets or had trade connections,” she added.
The case involves trade restraint agreements that bar former employees from working for competitors for a set time in specific areas.
The five former employees of Ford Ermelo were part of a group of seven who resigned from the dealership in September following a change in how commissions were calculated. They soon found new jobs at a local second-hand car dealership.
Ford Ermelo then sought to enforce its restraint of trade agreement against them, saying they had had “unfettered access to confidential information” about its clients, banks, service providers, and suppliers.
The Johannesburg Labour Court last year agreed to enforce the contract despite the ex-employees arguing that this would render them “professionally inactive in their chosen trade.”
Five of the seven then took the case on appeal to the Labour Appeals Court, sitting in Johannesburg with the backing of the Motor Industry Staff Association, a trade union. Ford Ermelo did not oppose the appeal.
The appeals court found that enforcing the restraint of trade would be unreasonable.
It noted that only very specific information, technology, or know-how that is “objectively worthy of protection” with “actual economic value” can be covered by such agreements. Blanket restraint of trade contracts that cover widely available information are unenforceable.
“Nothing proved that any of the appellants were in a position to exert influence on customers, on the basis of specific and unique knowledge held by them, to the prejudice of the respondent,” read the ruling, adding:
Far from being unique to the respondent’s business, the information and connections it sought to protect were available widely in the industry.
One of the five was, for example, a trainee who had never worked with customers.
The appeals court set aside the Labour Court’s ruling and ordered Ford Ermelo to pay costs.
The ruling means the five can continue working at the rival dealership they joined in their hometown.
