The “enforceability of contracts is essential both for commerce and fair employment practices.”
In the recent judgment of Shoprite Checkers (Pty) Ltd v Tebogo Kgatle and Clicks Retailers (Pty) Ltd[1] the High Court upheld the enforceability of a restraint of trade and found that it was not contrary to public policy. The Court held that the contract served an acceptable employment purpose to the benefit of both parties, who possessed equal bargaining power.
Background overview
Shoprite Checkers (“Shoprite”) awarded Mr Kgatle a bursary to enable him to obtain his Honours Degree from the University of Stellenbosch. After that, he started working for Shoprite as a trainee in their logistics division. On 1 July 2021, he was promoted to a managerial position of a ‘Design Planner’ and required to sign a contract of employment with include confidentiality and restraint of trade undertakings. The restraint prohibited Mr Kgatle from being employed by any business that sells and distributes the same products as the Shoprite through retail chain stores.
Mr Kgatle resigned from Shoprite and advised that he would be taking up employment with Clicks, a significant and direct competitor selling, among other things, the same pharmaceutical and household products as Shoprite.
Shoprite instituted an application to enforce the restraint. In challenging the enforceability of the restraint, Mr Kgatle averred that it would be unfair, unreasonable and not in the public interest to enforce the restraint against him because; (a) he has given an undertaking that he will keep Shoprite’s information confidential and not share it with Clicks; (b) that his undertaking is sufficient protection for Shoprite; (c) that the enforcement of the restraint is unreasonable; (d) that the confidential information he may have been exposed to is of no commercial benefit to Clicks and, (e) that weighing up the interests of Shoprite compared to his interests, does not justify enforcing the restraint to his detriment.
Shoprite argued that Mr Kgatle must be contractually held to his agreement. Shoprite partially educated him and entrusted him with its confidential information, which was worthy of protection. Shoprite was prepared to engage with Mr Kgatle regarding his remuneration and further opportunities within the group going forward. Shoprite was also willing to allow Mr Kgatle to withdraw his resignation until he found alternative employment that would not breach his restraint covenant.
Decision of the Court
The Court held that Mr Kgatle, having been fully informed, elected voluntarily to consent to the terms of the restraint. Mr Kgatle understood what he agreed to in his employment contract and restraint.
“The contract between the applicant and the first respondent undoubtedly served an acceptable employment purpose to the benefit of both parties when it was concluded at the time that the applicant promoted the first respondent. The enforceability of contracts is essential both for commerce and fair employment practices.” (Our emphasis)
The public policy argument was based on the premise that Mr Kgatle would not have constitutionally waived his rights to freedom of employment and that, accordingly, public policy factors weigh against enforcing the restraint.
Generally, public policy dictates that parties should be bound by their contractual obligations embodied in a contract. This is primarily where the contract was entered into freely and voluntarily.
The restraint was very limited and specific. At the time the restraint was concluded, Mr Kgatle considered the terms of the restraint to be fair and reasonable. The Court found that the public policy argument was diluted.
Conclusion
This judgment supports the principle that a court will not lightly interfere with the right to freedom of contract, particularly where the parties had equal bargaining power and the contract was entered into freely and voluntarily. In such an instance, parties’ contractual obligations must be honoured.
[1] [2023] ZAWCHC 159 (4 July 2023)