Understanding restraint of trade when changing employment

Keenan Hing // Pointer SA (Pty) Ltd – GAJB 7470/2021 (CCMA)

When moving employment between employers within the same industry, who may be competitors, it is important to first consider the impact any existing restraint of trade may have on the employee and his/her new employment. Often, new employers may seek confirmation from the newly hired employee that the employee has been released from an existing restraint of trade with his/her previous employer. If this is not obtained, how does the new employer address the situation? This issue was the subject of an arbitration award in the matter of Keenan Hing // Pointer SA (Pty) Ltd at the Johannesburg CCMA. 

Mr. Keenan Hing signed a letter of appointment with Pointer SA (Pty) Ltd on 17 February 2021 and it was agreed that he would physically start work with Pointer on 1 April 2021. Before resigning from his previous employment, Hing informed Pointer that his previous employment was subject to a restraint of trade agreement. At the time of his signing the letter of appointment, Pointer instructed Hing to obtain a ‘release from restraint’ letter from his previous employer and stated that his employment with Pointer was conditional thereon. According to Pointer’s National Sales Manager Hing verbally agreed to do so. Hing failed to provide Pointer with the ‘release from restraint’ letter and when he arrived at Pointer’s offices on 1 April 2021 to commence work, Pointer’s CEO and National Sales Manager informed him that, in the absence of the ‘release from restraint’ letter, his employment offer had been rescinded. 

Hing referred an unfair dismissal dispute to the CCMA. The Commissioner held that, while the dismissal was substantively fair. The reasons for the Commissioner’s decision was as follows:

a) Substantive fairness – (a) Hing was not entitled to repudiate the restraint of trade agreement he signed with his previous employer and (b) the restraint of trade precluded Hing from working for his former employer’s competitors. Hing entering into an employment relationship with Pointer during the effective period of the restraint, is akin to misconduct;

b) Procedurally unfairness – No disciplinary enquiry or fair procedure, as provided for in the Code of Good Practice on Dismissals, was followed before taking the decision to terminate the employment relationship.

The Commissioner awarded the employee four months’ remuneration (R131 484.00) as compensation for the procedurally unfair dismissal. 

Based on my reading of the arbitration award, it could be understood that (a) an employment relationship came into existence between Hing and Pointer and (b) Pointer had given Hing an instruction, and (c) by not producing the ‘release from restraint’ letter as instructed, Hing committed an act of misconduct. However, the possibility of performance by Hing (obtaining the ‘release from restraint” letter) was limited by his previous employer’s agreement to do so.  

I am of the opinion that had Pointer instead dealt with the issue through a retrenchment exercise, the outcome may have been different. It would also have been a fairer approach given the circumstances. 

Employees are cautioned to disclose to their new employers if there are existing and effective restraints imposed upon them as a result of previous employment. Likewise, employers are cautioned to make offers of employment conditional upon unhindered acceptance.   

Candace Bachmann – Associate Attorney – Justine Del Monte & Associates Incorporated

Image Credit: Scott Graham via Unsplash