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“Garden Leave” and restraint of trade agreements

By Jacques Van Wyk, Director, Andre van Heerden, Senior Associate and Staci Jacobs, Candidate Attorney, Werksmans Attorneys

 

Vodacom (Pty) Ltd v Motsa & another (174/16) [2016] ZALCJHB 59

 

Issue

Does the placing of an employee on “garden leave” affect the enforceability of a restraint of trade agreement against that employee?

 

Court’s Decision

In the case Vodacom (Pty) Ltd v Motsa & another (174/16) [2016] ZALCJHB 59 (9 February 2016), Mr Godfrey Motsa resigned as a senior executive employee of Vodacom and took up a position with MTN, one of Vodacom’s main competitors. Motsa had signed an employment contract which provided, inter alia, that he would be bound to a notice period of six months.  The employment agreement also contained a restraint of trade undertaking for a further six months. Vodacom brought an urgent application to hold Motsa to the terms of his contract of employment.

 

Clause 16 of Motsa’s employment contract provided for a six month notice period. The clause also allowed Vodacom to place Motsa on ‘garden leave’ during the notice period. He could therefore be required to serve out his notice period without being required, or allowed, to attend at his employer’s premises but would be entitled to be remunerated during such period.

 

The central issue in this case was the date when the restraint of trade undertakings in his contract of employment should start operating: the date Motsa resigned or at the end of the period of garden leave. Motsa contended that the restraint of trade became operative on the date at which Vodacom made the election not to require him to work during his notice period. He contended further that to restrain him from working for a period in excess of six months would be unreasonable in the circumstances. By conflating the garden leave and restraint period Vodacom rendered the restraint unenforceable. It was only ever intended that Motsa would be restrained for period of six months, in totality.

 

Vodacom argued that the restraint of trade period would only take effect once the notice period had run its course, even though Motsa had been placed on ‘garden leave’.

 

In considering the matter, the Court noted the general principle that a restraint of trade period is enforceable unless it is unreasonable. Having regard to foreign jurisprudence the Court, while recognizing the existence and acceptability of garden leave, noted that “a garden leave provision should be taken into account by the court when considering the reasonableness of the duration of any post-termination restraint covenant”.

 

The Court held that the purpose of garden leave is to keep employees out of the clutches of competitors and protect confidential information, while still being remunerated. In the case of a restraint of trade agreement, the employee is not commercially inactive outside the bounds of the agreement. Finally the Court held that “where the garden leave is found to have been excessive, the subsequent restraint might not be enforced, or fully enforced.”

 

Taking into account both the garden leave period as well as the restraint period, which amounted to a period of one year, the restraint was reasonable taking into account the entire period on the facts of the matter.

 

Importance Of This Case

Any period of compulsory inactivity prior to the termination of the contract of employment will be taken into account in assessing the reasonableness of the length of a restraint of trade agreement. Factors such as the combined periods of the restraint and the garden leave, the seniority of the position which an employee had held and the intimate knowledge that he or she possessed (in other words, on the specific facts of the matter the restraint was found to be reasonable) would be relevant in this determination.

 

For more information, please contact Jacques Van Wyk at  , or  Andre van Heerden at   

Article published with the kind courtesy of Werksmans Attorneys www.werksmans.com

 

 

 

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