Trade restraint contract 'vital'

A PORT Elizabeth labour law expert has warned employers to ensure they have a restraint of trade clause or contract in all employment contracts to ensure the survival of their businesses.

This comes after the Port Elizabeth High Court dismissed an application brought by a Bay disposable packaging company seeking to interdict one of its former directors from running a business which is in direct competition with it.

The former director had not entered into an restraint of trade agreement with the firm.

Deal Party-based RJL Procurement Solutions approached the court seeking to interdict Paul Ladds from doing business, either personally or through his new firm, GP Distributors, with any of RJL Procurement Solutions' customers for a period of two months.

Ladds, a founding member and former director at RJL Procurement Solutions, resigned on April 30 to start GP Distributors, which also supplies disposable packaging to the takeaway food and catering industry.

Pumeza Bono, owner and director of Pumeza Bono Incorporated, who deals in labour law, said a restraint of trade agreement or clause was imperative.

"If you are running a business and have a management level and employees, you must ensure that you have a restraint of trade clause [in] your employment contract.

"This will ensure that a partner or employee does not resign and start a new business to compete with you. There is always a possibility of a break-up and this will ensure that you are covered," she said.

Bono advised businesses as small as spaza shops also to ensure they were covered.

"If you are selling apples you will state that the person cannot sell apples within a certain distance of your business for a certain period. It has to be fair because the person still has to make a living, but if they ever choose to leave you can still ensure that your business and your customers are protected," she said.

Court papers filed by RJL Procurement Solutions through its directors, Bernard Reed and Warren Jamieson, state that Ladds has been conducting business with a number of clients who had previously been or still are their customers since his departure from the company in April.

It also lists various of its customers who have since been conducting business with Ladds and states that as a result of these developments its turnover for May this year was about "50% down on what it should be".

Ladds's attorneys, however, said that because he had never entered into a restraint of trade agreement, he was at liberty to compete against the business.

RJL Procurement Solutions also states that it is suffering "severe prejudice" as a result of Ladds's actions.

"Without such an order the applicant (RJL Procurement Solutions) will not survive. Its turnover is already down 50%.

"The applicant accepts that it cannot prevent other people from competing with it. However what it is seeking in this application is to prevent the first respondent [Ladds] from competing unlawfully, which is what he is doing," court papers state.

But in his judgment Judge Jannie Eksteen said: "I do not think the applicant has established any improper use by the first respondent of the knowledge which he has of the applicant's customers. In each instance where it has been established that the first respondent has concluded business with a former or current client of the applicant, the initiative came from the customer."

He said Ladds had also been engaged in a similar business prior to starting RJL Procurement Solutions in October 2012 with Reed and Jamieson. - Lee-Anne Butler