A recent Labour Court ruling has cast doubt on whether restraint of trade agreements remain enforceable when an employee is dismissed for misconduct – a question likely to resurface in future legal disputes.
In the Backsports (Pty) Ltd v Motlhanke and Another judgment, handed down on 18 February, the court held that a former employer may not enforce a restraint of trade if the employee was dismissed for misconduct. In other words, dismissal strips the employer of the right to hold the employee to the restraint.
According to Imraan Mahomed, a director in Cliffe Dekker Hofmeyr’s Employment Law practice, and Lee Masuka, a senior associate in the same team, this issue is not new.
“A well-known case is the 1996 Appellate Division decision of Reeves & Another v Marfield Insurance Brokers CC & Another 1996 (3) SA 766 (A), where the court found that the phrase ‘for any reason whatsoever’ (which is wording often found in a restraint of trade) is to be given a restricted meaning to exclude any wrongful termination of the contract of employment by the employer,” they said.
In Reeves, the court acknowledged that such wording could, in some cases, be interpreted broadly enough to include even unlawful dismissals.
However, Mahomed and Masuka pointed out that the Labour Court in the Backsports case did not explain its reasoning for deviating from Reeves, nor did it clarify what distinguished the case from previous precedent.
“This question will no doubt be raised again in disputed restraints, as it is now another avenue upon which employees may seek an escape from their restraint obligations,” they said.
Grounds of argument
Backsports, a company operating in the internet communications and technologies sector with a focus on broadcasting, advertising, and social media production, employed Ofentse Retshidisitswe Motlhanke as a senior stream lead starting on 1 January 2024. However, just nine-and-a-half-months into his employment, Motlhanke was dismissed for alleged misconduct.
Motlhanke is also the sole director of O Media Visuals (Pty) Ltd, which was the second respondent in the case.
After Motlhanke’s dismissal, Backsports sought to enforce a restraint of trade agreement, citing several alleged violations of the terms.
Motlhanke denied the allegations, arguing that his actions did not violate the restraint of trade agreement.
He said that during his brief tenure at Backsports, he had no access to trade secrets or exclusive customer relationships. His role as senior stream lead did not involve direct dealings with customers or confidential business practices that would justify enforcing a restraint. He noted that he had not built personal client relationships or had access to sensitive company information.
He contended that Backsports was merely trying to prevent him from using the skills he had developed over his career in the broadcasting and streaming industry. He argued that the restraint was not about protecting legitimate business interests but about denying him the opportunity to continue in his profession after his dismissal.
Making the ‘trade connection’
Motlhanke’s employment contract included a restraint of trade clause that prohibited him from competing with Backsports or any of its subsidiaries for 12 months after his employment ended. The clause stated that during this period, he could not be involved in any business that competes with Backsports in the same field, either directly or indirectly. This restriction applied to any role, including employee, partner, shareholder, agent, or consultant, in businesses operating in similar areas.
Additionally, Motlhanke was forbidden from encouraging any current or former employees of Backsports to leave or join a competing business within 12 months of his termination. The areas covered by the restraint included marketing, sales, and distribution of corporate and promotional products, across all provinces in South Africa, as well as any territories where Backsports operated or planned to expand into within six months after his termination.
In the ruling, Judge Molatelo Makhura said restraint of trade agreements are not only meant to protect a former employer from competition, but also to safeguard its proprietary interests. These interests include confidential information and business relationships – often called the “trade connection” – that give a company its competitive edge.
In this case, the existence of the restraint agreement was not in dispute. What remained was whether the employer proved it had confidential information or business relationships worth protecting under that agreement.
Judge Makhura asked Backsports’ counsel what protectable interests Backsports was trying to enforce through the restraint of trade. He asked specifically whether Motlhanke had contact with clients or access to confidential information. Initially, counsel said Backsports was not relying on confidential information. Later, with help from his instructing attorney, he pointed to a paragraph in the replying affidavit claiming that:
“Motlhanke was employed in a senior position dealing with major customers of Backsports… [and] had access to Backsports’ customers lists… It is a common practice in our industry that WhatsApp groups are created… [which] naturally resulted in Motlhanke getting to know important individuals at customers of Backsports…”
The judge noted, however, that Backsports’ founding affidavit stated only that Motlhanke was introduced to clients, and the company attached a generic client list. The replying affidavit tried to add more detail, but even then, Backsports did not present enough specific evidence to prove a protectable proprietary interest.
Backsports’ main claim was that Motlhanke held a senior role, was introduced to clients, and participated in WhatsApp groups. But the judge disagreed that this was enough to prove access to confidential information or meaningful client relationships.
Motlhanke, on the other hand, stated clearly that he did not deal with clients or access confidential information, and that Backsports did not have exclusive relationships with its customers. Backsports didn’t provide his job description or explain what his daily duties were, leaving the court to guess whether he even had access to sensitive information.
The only example Backsports provided of a possible trade connection was Motlhanke contacting Sean Everett from Oban Productions about a job – but the judge pointed out that this was not proof of a business relationship, nor was Oban shown to be a competitor.
The strongest claim Backsports had was that Motlhanke tried to recruit a colleague, but this was denied by Motlhanke, who said he had simply asked the colleague for help with a photoshoot.
Dismissal nullifies employer’s right to enforce restraint of trade
The court then turned to the circumstances of Motlhanke’s departure from Backsports and how this affected the enforceability of the restraint agreement.
Because Motlhanke had not left voluntarily, the court found it would “be an injustice and unjustified limitation of an individual’s right to enforce a restraint agreement against him when his ex-employer dismissed him”.
Backsports, having dismissed him, still tried to prevent him from earning a living. As the court put it, Backsports expected Motlhanke to “starve” by interdicting and restraining him from his “occupation and trade”.
Building on this reasoning, the court noted:
“[Motlhanke] was permanently employed for a period of less than 10 months at the time of dismissal. This is a short period, and it would be unreasonable to restrain [him] for 12 months from the date of his dismissal. In my view, the fact that [Motlhanke] was dismissed has disentitled [Backsports] from enforcing the restraint agreement. In other words, [Backsports] waived its right to enforce the restraint when [Motlhanke] left because of dismissal.”
The Labour Court held that dismissing an employee takes away the employer’s right to enforce a restraint of trade against that employee.
It also awarded costs against Backsports, finding that the application was not brought in good faith and was more about making Motlhanke “suffer” than protecting any legitimate business interests.
Backsports tried to appeal the decision, but the application for leave to appeal was dismissed. Notably, the appeal did not challenge the court’s comments about the impact of dismissal on the enforceability of a restraint.
Ensure agreements leave no room for debate
Mahomed and Masuka said the enforcement of a restraint of trade depends on the specific facts of each case. If the wording of a restraint does not align with its intended purpose, the court is unlikely to enforce it.
“Too often, the wording of a restraint is clumsy and is the product of cut-and-paste solutions. The proper formulation of a restriction is critically important and should be properly linked to the business’ purpose,” they cautioned.
They noted that most restraint agreements apply after the termination of employment, “for any reason whatsoever”.
“A court would enforce this (Backsports aside), even if there was a wrongful termination by the employer, assuming a case exists for its enforceability on the other factors. On the other hand, where a restraint provision specifically excludes its operation on termination of employment due to an unfair dismissal, the restraint would not be enforceable, as that was the choice of the parties.”
This, they explain, has been the prevailing legal position. To leave no room for debate, they advised that employers should ensure that their agreements provide that a restraint of trade will remain in place regardless of the reason for the termination.
“This is likely going to be a lively issue for some time to come, unless it is resolved in the near future by other dissenting judgments or better still an appeal court.”
