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Labour Complexity

Restraint of Trade

The in’s and out’s of setting up and enforcing restraint of trade agreements.

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Question:

Can you bind employees to honour a restraint of trade that is written into an employment contract?

Answer:

A proper restraint of trade is enforceable and remains the best way for employers to protect their business against competition by former employees.

A restraint of trade defined:

  • A restraint of trade protects an employer from competition from former employees. Given the new Constitutional principles of fairness, are employers still entitled to such protection in law?
  • It prejudices an employee’s right to free economic activity, but the employer has a right to protect his business. Which right has preference?
  • Restraints of trade are, in principle, enforceable. If an employee agrees to a restraint of trade in his employment contract, he is contractually bound. The restraint can be enforced in court through a damages claim or an interdict.
  • Problems arise in its legal enforcement being subject to a judge’s discretion, irrespective of the contract, based upon the principle of what’s called “public interest”. The judge will ask whether it’s in the public interest to enforce the restraint.

To ensure that employers’ restraints of trade are protected and in the public interest, these requirements should be adhered to:

  • The restraint of trade must be in writing and signed by the employee;
  • It must define the business of the employer to determine the protectable interest;
  • It must set out for how long the employee is restrained and in what area;
  • It must record that the employee is aware of all its terms and voluntarily concluded the same; and
  • It must specify what activity of the employee will be restrained (such as employment with a competitor or soliciting the employer’s staff or customers).

Terminology

The term “public interest” covers these issues:

Is the restraint reasonable?

  • This relates to the job, the area of the restraint and information the employee had access to.
  • Does the employer have a protectable interest?
  • The business must be worthy of protection – there must be something a third party or competitor will not have access to, that he values. Also, what’s protected must be lawful (for example, one cannot protect a brothel).

Sean Snyman, director, LabourNet Tel: +27 11 532 8801, http://www.labournet.co.za/

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1 Comment

1 Comment

  1. webactive

    Jun 29, 2011 at 17:10

    I recently went through one of these without being in breach of restraint. I was forced out of a job as a result of the tactics adopted by opposing council, time of year and an inexperienced judge. I have very little faith in our legal system and companies don’t care who they hurt.

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Company Posts

How Medical Savings Accounts Are Changing – For The Better

By Jeremy Yatt, Principal Officer of Fedhealth

Fedhealth

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The concept of medical savings accounts (MSA) emerged in the industry in the early 1990s, reputedly when Discovery founder Adrian Gore was working at Liberty. At that time medical scheme benefits for different kinds of day-to-day healthcare were specified, so for example, you’d get a certain amount of Rands to spend on your over-the-counter medicine, or for optometry services. But this was problematic, as people’s daily medical needs are all so different. So, you’d have medical aid members calling their medical schemes saying, “I haven’t used my spectacle limit this year, so can I transfer it to use on medication instead?”.

The idea for MSAs was to pool these separate benefits into a total Rand amount, that you could then spend how you wanted, and more importantly, retain if you didn’t use them all. Initially, medical schemes were reluctant to follow this idea, as they thought it would lead to under-servicing: medical aid members might be unwilling to spend their savings, and so might not get the proper day-to-day medical attention until it became a crisis and they were hospitalised. However this was not the case, and MSAs proved very popular.

At first, there was no real limit on how much of your contributions as a member could go into your MSA, so most schemes allocated around 40-50%. Many schemes also pushed major medical procedures like MRI scans into savings, which was effectively a way of forcing members to self-fund these costly medical expenses. As a result, the Medical Schemes Act was amended in 1998 to impose a 25% limit on the benefits that could be put into MSAs, which largely forced the schemes to be responsible for these major costs.

Related: Why Your Employees’ Health Is Your SME’s Wealth

Under the previous structure there was no disincentive not to use your benefits, particularly as they didn’t roll over from year to year like Medical Savings do. It was therefore not uncommon for a call centre to get queries from members asking how much was available in their different benefit areas, so that they could make sure they used them all up.

MSAs solved these sorts of problems by giving medical aid members increased convenience and autonomy, which is why schemes have been using them for the past 20+ years.

The concept of an MSA isn’t far removed from a loan. Like a loan, an MSA lets you use a sum of money when you want to, but you still have to pay for it regardless of whether you use it or not. It forms part of the registered gross contribution to the medical scheme. Take the example of a member who has R12 000 they can access in their MSA each year. Effectively they are paying for this “loan”, contributing R1000 a month, starting in January. However an MSA means they can use all of that R12 000 upfront, such as if they need expensive dental treatment (crowns etc.) at the start of February that costs R12 000.

In this situation, the member has only paid for R1000 worth of that R12 000 “loan” (with their January contribution), so they effectively “owe” the medical scheme R11 000, which they then pay off over the remainder of the year. If the member left the scheme straight after their dental work, the scheme would then contact the member to repay the R11 000, as they still owe that amount.

Related: Is There A Link Between Physical And Financial Wellness?

The concept of giving members access to medical financing led us to develop our new MediVault offering for day-to-day medical expenses. Describing it as a loan holds negative connotations for some, but it’s not that different from the concept of an MSA: in fact, we see the MediVault as a natural evolution. All it means is that you won’t need to pay for day-to-day savings upfront. Instead, you’ll be allocated money for these everyday medical expenses in your personal MediVault and, once you’ve taken the money out, you only have to pay it back over a period of 12 months – completely interest-free. This is a far better option than taking out an expensive loan from a traditional loan company, or getting it from an unscrupulous loan shark.

Our MediVault offering is not at all about loaning funds to people irresponsibly. We’re not creating a monster that’s going to indebt you – we’re just changing the way you can access funds for your healthcare. After all, health is everyone’s most worthwhile investment, and we want to give people the flexibility to make it their top priority.

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Labour Complexity

Year-End Reviews Are Not Always A Positive Experience

This is largely due to parties entering into it without proper preparations, thinking that it can be done in one meeting.

Adri Dörnbrack

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Performance reviews are similar to entering a race. It’s all about race day, but what you put in before the event (the discipline to wake up and train, the commitment to push yourself and stick to your training plan) is what makes race day either a great positive journey or a terrible experience. The same principle applies to performance reviews. It should not be a once-a-year meeting. It should be part of the monthly job description for both the manager and employee to be able to compare, adjust and review on an ongoing basis. Then, once a year, all the insights gathered during the year should be reviewed to plan for the next year. 

Performance excellence reviews contribute to the culture of a company

We always say that attitude determines outputs or achievements. Personal attitudes, and the character of the business, is the culture. A great culture will lead to great achievements.

Performance excellence reviews are the tool we use to compare, adjust and shape what we want to achieve and then benchmark to know if it has been achieved. 

Employee performance reveals a lot about the business’ achievements. A business is great when it is profitable, cares about and looks after their people, and contributes towards the wellbeing of society and/or the planet. It is all about performance. What you put in is what you get out. And this is what we need to understand. 

Related: How to Set Up Employee Assessments

Performance excellence reviews can be a positive experience

Know the individual and their needs. There are really no one size fits all generic option.

There are however a few general good practices :

  • Managers should firstly understand the value that performance excellence reviews contribute towards overall achievements.
  • When the manager is positive about the reviews and the value it adds, automatically the employees follow.
  • On a monthly basis, review the employee’s feedback relating to the progress of the functions / tasks.
  • Be understanding as a manager – not all functions might haven been able to be completed due to job changes or the complexity of a growing job function.
  • As employee, understand that a manager is employed to manage the performance of the team, the department and the business. This entails understanding the employees’ performance.
  • New employees need to be reviewed more frequently eg. Bi weekly. When the employee has found their feet, review monthly or bi monthly.
  • Do not review performance once a year only. Review frequently, and once a year have a focused meeting around performance to discuss what was achieved during the last 12 months.
  • Managers should be responsible, and held accountable, to get all staff to complete their reviews (monthly, quarterly etc). It is the managers responsibility and it should be one of their functions.
  • Employees should know that performance reviews are simply there to understand the job, and help to align the job and the person’s talents to get the best outputs. It’s about continuously striving towards efficiency and effectiveness.
  • As a manager: Communicate progress feedback and offer assistance.
  • Be consistent. Review frequently.
  • Celebrate achievements.

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Labour Complexity

When Culture And Law Clash

Fortunately, our courts have begun to provide guidance as to how to deal with this potential conflict in the workplace. We deal with two such cases below.

Aadil Patel

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With 11 official languages and nearly 56 million citizens, South Africa is a true melting pot of diverse cultures, traditions and beliefs. Our country’s rich diversity raises interesting and complex questions from an employment perspective. Although the Constitution protects diversity, it is often difficult for employers, especially entrepreneurs, to align their business needs with the cultural, religious and traditional beliefs of their employees. Fortunately, our courts have begun to provide guidance as to how to deal with this potential conflict in the workplace. We deal with two such cases below.

The employee who sought to become a sangoma: Kievets Kroon Country Estate (Pty) Ltd v Mmoledi and others [2014] 1 All SA 636 (SCA)

The employee in question sought one month of unpaid leave to attend a ritual ceremony for sangoma training. She submitted a certificate from a traditional healer (and other supporting documents) to substantiate her request. The employee also informed the employer that this was a calling from her ancestors and that if she did not fulfil the request, she would die. The employer refused the request.

Nevertheless, the employee went on the training without permission and she was subsequently charged with insubordination and absence from work and thereafter dismissed.

The employee did not argue that she was sick in the conventional sense. She said that, owing to her cultural beliefs, her ancestors had called her to undergo training to become a sangoma. The interesting question before the court: Was the employee’s absence from work justifiable?

This case shows how employer and employee interests often conflict. On the one side, you have an employer who is trying to run a business while on the other, you have an employee who believed that her ancestors were summoning her to become a sangoma.

The Supreme Court of Appeal confirmed that South Africans have different belief systems which form part of their culture (that is, customs, ideas and social behaviour). A court (in general) are not equipped to evaluate the acceptability or consistency of a belief – it can only scrutinise the sincerity (or reasonableness) of an employee’s belief. In this case, the court found the employee’s belief to be reasonable.

Related: What The Law Says About Employee Leave And Absence

Traditional dispute resolution practices verse disciplinary codes: Harmony Goldmine Company Limited v Raffee N.O. and Others (JR1205/15) [2018] ZALCJHB 169 (8 May 2018):

An employee (Mr Ndele) was assaulted by a fellow employee (Mr Ndabeni) at a hostel bar. Mr Ndele fractured his leg during the assault. Although this case is related to Mr Ndabeni’s assault by of Mr Ndele, it concerns a different employee: Mr Puzi. Mr Puzi was a colleague and friend of Mr Ndabeni and from a cultural perspective, Mr Puzi formed part of Mr Ndabeni’s “delegation”.

After being released from hospital, Mr Ndele informed the employer’s mine governor about the assault. Mr Ndabeni (and his delegation) then, in terms of the Mpondomise tradition, visited Mr Ndele to ask for forgiveness and to offer monetary compensation. However, the parties could not agree on the amount of compensation. Mr Ndele then formally reported the assault incident to the employer.

Due to his involvement in what the employer viewed as behind-the-scenes negotiations, the employer charged Mr Puzi with bribery and dishonesty, and the employer later dismissed him.

The matter posed two interesting questions:

  • In a culturally diverse workplace, to what extent should the employer embrace employees’ individual cultural norms and traditions?
  • Would the practice of those cultural norms and traditions prohibit the employer from disciplining employees?

An expert (on African norms) submitted, in court, that the practice of traditions cannot be used to defeat the ends of justice or conceal a transgression.

However, the court considered the Ubuntu approach to conflict resolution and stated that “ubuntu societies place a high value on communal life, and maintaining positive relations within the society is a collective task in which everyone is involved… if an individual is wronged, he or she may depend on the group to remedy the wrong”.

In this matter Mr Ndabeni (and his delegation) sought to make peace, through methods of cultural conflict resolution, with Mr Ndele following the assault. However, the employer viewed the actions of the employees as constituting dishonesty and attempted bribery. The court disagreed, holding the claims to be unfounded. The following extract from the judgment is worth noting:

Even though employers may not be bound by the cultural traditions, they cannot simply ignore the reality of their existence, especially in instances where the cultural traditions are aimed at achieving societal good and are not in conflict with the Constitution… where the perpetrator showed true remorse and was willing to promote peace with the victim in accordance with their norms and traditions, the employer would be expected to earnestly consider same in good light.

Related: Master The Ins And Outs Of South Africa’s Labour Laws

These cases provide two overarching lessons for employers and entrepreneurs:

  • If employees provide reasons for absence from work that relate to cultural, religious and/or traditional beliefs, you should carefully consider these requests and, where possible and reasonable, be accommodative to such employees; and
  • You must be cautious in applying disciplinary codes in a blanket manner, without taking cognisance of employees’ cultural methods of conflict resolution.

At the end of the day, entrepreneurs must be cognisant of the fact that employees have their own unique religious and cultural belief systems. Implementing an approach that is blind to this reality may result in employers treating their employees unfairly.

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