General
The Importance of Protecting Your Business Secrets – Part II
Previously, in Protecting the Secret… Our protagonists, the employer and the employee, negotiated an employment contract under false pretexts. While the employer gushed about benefits, bonuses and increases, in reality the benefit was getting to the office early enough to nab the shaded parking, the bonus comprised the rare lunch hour, and the only thing increasing was the employee’s stress level. Meanwhile, the employee’s sales pitch at the job interview, punting an eagerness to learn and a burning desire to become one with the team, masked an ulterior motive: minimum input at maximum salary.
And so it has come to pass that the employee has left for greener pastures, with a head full of training and knowledge, an iPhone crammed with customer contact details, and a briefcase full of the flashdrives that were required because Apple hasn’t seen fit to install USB ports on their iPads. And both employer and employee are acutely aware that the information the employee has departed with is of maximum benefit to only one person: the opposition.
The employer’s argument
Few employees fully comprehend how much it cost the employer to hire him or her. During the recruitment process there were advertising costs, recruitment commissions, the cost of psychometric tests, lost productivity while the post remained vacant during the search for The One. Then, upon hiring the employee, there’re the direct and indirect costs of in-house training, external training, and reduced productivity while the employee is sufficiently up-skilled and competent to handle the tasks independently, and all the while being paid on full salary. In addition to the training dispensed to the employee, the employer also grants the employee access to critical information: customer lists, pricing structures, supplier details, unique company processes, and a veritable library of information intricately detailing how the employer does business. Indeed, it’s this critical information, so difficult to value, that is the most valuable to the organisation. It’s this critical information, belonging to the company and now transferred to the employee’s person and PDA, that the employer desperately wants to protect.
The employee’s argument
Finding and keeping a job can be fraught with sacrifices. Early mornings, late evenings, giving up lunch hours, working after-hours sans overtime pay, forfeiting the family holiday because it clashes with the employer’s family holiday. If the employee is expected to sacrifice health, family and sanity for the benefit of the company, the recompense should be commensurate. If the remuneration and benefits aren’t up-to-scratch, the employer must suffer the consequences, and have no say in the employee’s post-employment decision. “My mind is my own,” argues the employee. “No-one can restrict how I use it.” The right to employment, the right to choose one’s own career-path, the right to free trade, the right to earn a decent salary, the right to economic freedom, the right to do as one pleases. Seldom is the Bill of Rights, and a myriad of creative interpretations thereof, used and abused as often as when an ex-employee justifies embarking upon a new career-path with the opposition.
The impasse
This leads us to a bit of an impasse. The employer, understandably, has a vested interest in protecting the knowledge and information passed on to the now ex-employee. The employee, understandably, should be able to decide what to do with his or her career and how to earn an income without being limited by an ex-employer’s demands. The answer to this impasse lies in one word: Balance. And the solution to this balance can be found in a little document surrounded by a mountain of controversy: the Restraint of Trade.
A restraint of trade is, in short, a contractual stipulation that the employee, upon termination of the employment relationship, is prohibited from being involved in a business similar in nature to that of the employer. The restraint of trade has been described in a variety of colourful terms. The most common description, usually used by the employee, is “not worth the paper it’s written on.” In the hands of an uninformed employer, this description can be rather apt. Many an employer has overreacted somewhat when dictating the terms of a restraint of trade. When the employee resigns, such an over-zealous employer smiles smugly and informs the soon-to-be-ex-salesperson to tread carefully with his or her choice of future career, because he or she is restrained from being employed as a salesperson anywhere in the world for the next 5 years. Clearly that vital ingredient – Balance – is missing from this restraint. By failing to take into account the employee’s rights, the employer guarantees the restraint’s imminent failure.
The Balancing Act
When presented with this delicate, emotively-charged issue, our courts had this to say: upon deciding whether to enforce a restraint provision, one has to balance two equal but competing considerations.
The sanctity of contract versus the right of freedom to trade.
In deciding which consideration should take precedence, and to what extent, one needs to have regard for the public interest that is being served in the specific circumstances. Our courts have decided, after much debate, that the sanctity of contract has a marginally greater precedence in South African law. Accordingly, restraints of trade are, at face value, valid and enforceable. Unless the party being restrained can show that the restraint is contrary to public interest. In determining whether the restraint contravenes public interest, the question to be asked is whether the restraint still allows the person being restrained the freedom to engage in useful economic activity and contribute to the welfare of society. Applying this rule means that any unreasonable restriction on a person’s freedom to trade is regarded as contrary to public interest, and consequently struck down.
So what does this mean? A basic translation is that a restraint of trade, properly compiled, can be valid and enforceable, and indeed a rather useful tool when used by an informed employer. As long as it is a balanced and fair contract. But how do you know what is a balanced and fair contract? If you would allow the writer a little time and lot of Mugg & Bean cappuccinos, the next installment will be in your in-box very soon, and this all-important question can be addressed.
In Summary: When appointing a new employee, a fair and balanced Restraint of Trade can be a useful tool to protect against an ex-employee using confidential company information and causing the company harm after the employment relationship has terminated.
Please note that this information is supplied for general information and does not constitute legal advice. It is advisable for you to contact a legal practitioner for guidance in respect of your unique requirements.