A Johannesburg outdoor advertising company has lost its urgent court application to have a former employee barred from keeping the job he has taken up with a competitor.
The conflict was over the employment status of Terrance Paterson, a technological expert in the outdoor advertising industry who had worked for Epic Outdoor for 10 years. During this time, he had access to a wide range of confidential information and trade secrets.
"The strategy seems to have been to present Mr Paterson as a particularly skilled asset that only Epic Outdoor could offer to its clients. The pitfall implicit in this approach is that an employee whose status is so elevated may one day leave and take his special skills and enhanced reputation to a competitor,” Johannesburg high court judge Stuart Wilson said in his judgment on Monday.
This did happen when Paterson accepted a position at Network X, prompting Epic to lodge an urgent court application against Paterson and the company.
Confidential information
Epic claimed that Paterson “has divulged, or is shortly to divulge, confidential information conveyed to him during his employment with Epic Outdoor to Network X”, and that this was against two provisions of the contract he had with Epic.
These were that he would not divulge any of Epic’s confidential information and that he would not work for any of Epic’s competitors for a year after leaving the business.
“It is not necessary for me to deal with the nature of that information in any detail... It is commercially sensitive, and was outlined to me in a confidential affidavit which has been excluded from the public record.
“It is enough for me to say that the information is such that it would allow any of Epic Outdoor’s direct competitors to undercut Epic on price, and to extinguish competitive advantages Epic Outdoor has built up by developing a range of analytic tools and technologies while maturing its business,” Wilson said.
Are the provisions enforceable?
The judge said the question was whether, and to what extent, those provisions were enforceable.
Wilson said there was no real dispute between the parties that the confidentiality clauses in Paterson’s contract were valid and binding, and that Paterson had given written undertakings to abide by them. Network X had also undertaken not to ask Paterson to break this agreement.
Epic Outdoor argued that these undertakings were insufficient.
“I agree. Network X is now Mr Paterson’s employer. Whether or not Network X asks him to feed it confidential information, Mr Paterson has a clear incentive to do so, and there are no apparent consequences for Network X if it allows him to do so without making an explicit request,” Wilson said.
Network X, however, agreed to be bound by a stronger set of undertakings. They agreed not to keep or use any confidential information Paterson might offer, and if he did seek to divulge any of the trade secrets handed in to the court, they would immediately inform Epic Outdoor of this so that they could remedy the situation. This was more protection than Epic had asked for in its notice of motion.
Whether Paterson was permitted to keep his job with Network X was defined in his contract as an undertaking that he will not “seek employment from, or become employed by, or associated with or contracted to” any business partner or competitor of Epic Outdoor anywhere in South Africa for a year after ending his employment with the company.
Broad definition
"Given the startlingly broad definition, it is hard to see how Network X could be defined otherwise. Indeed, the effect of the restraint clause is to make Mr Paterson unemployable in the outdoor advertising industry, and in at least some of its related industries, for a year after he leaves Epic Outdoor,” Wilson said.
Considering that Paterson had been employed in the industry for 10 years, the effect of enforcing the restraint barring him from working for another company would be to “prevent him from using the untransferable skills and know-how he would have acquired during that period”.
The court said the bargaining power between the parties was heavily unequal.
“Mr Paterson was an ordinary employee, and Epic Outdoor is a company of some substance that contracted him to work for it. It decided to promote him as an industry expert on terms that he could hardly refuse.
"In that context, I cannot accept that it is reasonable to shut Mr Paterson out of the industry that he has worked in for the last 10 years solely to protect Epic Outdoor’s confidentiality interests,” the judge said.
Epic argued it was not seeking to exclude Paterson from the entire industry, simply from working for Network X. They said the fact that Paterson having worked with all Epic’s documents, sales strategies, pricing and analytic technologies meant he was likely to share this with Network X.
But, Wilson said, while it was reasonable to restrain Paterson from using Epic’s confidential information, it was not reasonable to prevent him from working for Epic’s competitors “simply because he acquired special skills and know-how”.
The court held that while a restraint of trade was enforceable where an individual’s particular skills and know-how were inseparable from the assets being sold, this was not the case.
Selling labour
"Mr Paterson sold his labour, and nothing more. If Epic Outdoor has any protectable interest in the special skills and know-how, or even the enhanced reputation as an expert with which it equipped Mr Paterson during the course of his employment, the protection of that interest does not justify excluding Mr Paterson from employment in an industry in which he has worked for 10 years.”
Epic had also not immediately objected in principle to his move to Network X
“This initial flexibility appears to me to be consistent with... Mr Paterson’s contract, which empowers Epic Outdoor to relax the restraint of trade if Mr Paterson’s employment with one of its competitors or partners is deemed to be ‘of low risk’ to its interests,” Wilson said.
“Epic Outdoor has accordingly identified no basis on which to restrain his employment with Network X per se.”
The court ordered that Paterson be interdicted and restrained from divulging Epic's confidential information and Network X was interdicted and restrained “from seeking, possessing, using or disseminating any confidential information” conveyed to it by Paterson.
Network X was also instructed to inform Epic immediately should Paterson offer to disclose any of its confidential information, setting out the date and time of the disclosure or the offer to disclose; the nature of the information and all steps taken by Network X to deal with the breach.
