Restraint of trade: Limits on what is morally, socially or legally acceptable

Nic Jooste

This column originally appeared in the March 2018 edition of sister publication Produce Business magazine.  

Recently our company had a court case involving a restraint of trade and we won‭, ‬in as much as there is ever a winner in cases such as these‭. ‬If we had not protected ourselves at the outset we might have ended in a situation in which unethical behavior by an‭ ‬ex-employee might have affected our company adversely‭. ‬

It is every fresh produce company’s nightmare‭: ‬a senior commercial employee with years of service informs you he/she is leaving to join a competitor‭. ‬After the initial shock and questions regarding the decision‭, ‬the negotiations to wind down the employer/employee relationship commence‭. ‬Invariably‭, ‬the main issues revolve around a restraint of trade that was signed at the beginning of the relationship‭. ‬As with a marriage that ends in a divorce‭, ‬so it is with the separation between an employer and his employee‭: ‬you get what you put in writing‭. ‬But even a written agreement is subject to many rules and interpretations‭. ‬

In English law‭, ‬the principle applies that an individual should be free to follow his trade and use his skills without undue interference‭, ‬rendering void a contractual term purporting to restrict an individual’s freedom to work for others or carry out his trade or business‭, ‬unless it is‭:‬

•‭ ‬Designed to protect legitimate business interests‭; ‬and

•‭ ‬No wider than reasonably necessary‭.‬

The absence of a non-competition clause does not give an ex-employee free reign‭. ‬It remains forbidden to attempt to convince colleagues‭, ‬clients and suppliers to move with the ex-employee to the new employer‭. ‬However‭, ‬without a signed and therefore legally‭ ‬binding restraint of trade document‭, ‬it is a lot more difficult to enforce any transgressions‭. ‬

It must be noted that a non-competition clause is a legal means to protect an organization against any malicious intent by employees who are no longer employed by the organization‭. ‬An employee who simply goes to work for a competitor is not by definition breaking the law‭. ‬

What happens when the employer discovers that his soon to be ex-employee has been transferring company-sensitive information to‭ ‬the new employer‭, ‬prior to leaving his/her current position‭?

This malicious intent can manifest itself in actions such as sharing confidential information with the new employer or illegal use of company assets‭ (‬mostly information relating to the client and/or supply base‭) ‬to his/her own advantage‭. ‬The inclusion of a‭ ‬restraint-of-trade clause that contains specific references to clients and suppliers in your contracts of employment is always‭ ‬advisable‭. ‬The simple reason is that an ex-staff member who has malicious intent can cost you a lot of money‭. ‬

In The Netherlands‭ ‬‮–‬‭ ‬the main European import hub for fresh produce‭ ‬‮–‬‭ ‬the issue of restraint of trade is often at the center of‭ ‬court cases‭, ‬and often results in friends turning into enemies‭. ‬The frequency and arrogance with which senior employees transgress the conditions that were agreed upon is mind-boggling‭. (‬To clarify‭, ‬‘transgress’‭: ‬to go beyond the limits of what is morally‭, ‬socially or legally acceptable‭.) ‬Some of these transgressions are so flagrant‭ ‬‮–‬‭ ‬and in my mind even criminal‭ ‬‮–‬‭ ‬that much higher sentences and/or penalties are justified‭. ‬

Not every non-competition clause is allowed‭. ‬The Dutch constitution says citizens have the right to choose labor freely‭. ‬A restraint of trade clause breaches this right‭. ‬The courts consider how a non-competition clause can co-exist with the above-mentioned‭ ‬fundamental right to work‭. ‬

Most importantly‭, ‬a restraint of trade is only valid and effective if‭: ‬

•‭ ‬It is agreed upon in writing‭; ‬

•‭ ‬Preferably it does not form part of the employment contract‭, ‬but is drafted and signed as a separate contract in its own right‭;‬‭ ‬

The employee is above the age of 18‭ ‬years‭; ‬

‬It does not involve a fixed-term or temporary employment contract‭; ‬

It defines‭: ‬the type of work‭; ‬the type of employer‭; ‬the geographical limitations‭; ‬the time frame‭; ‬the penalty for any transgression‭. ‬

So‭, ‬it stands to reason that an employer cannot restrict an employee to‭ ‬‘ever again work in the fresh produce sector’‭ ‬or‭ ‬‘work nowhere in The Netherlands‭.‬’‭ ‬An added complication is that the rise of‭ ‬‘digital work’‭ ‬makes it really difficult to define the geographical limitations‭. ‬An example of a simple restraint clause could be as follows‭:‬

It is forbidden for the employee to‭ ‬‮–‬‭ ‬without the prior consent of the employer‭ ‬‮–‬‭ ‬be employed as a sales person by a company that trades pineapples from Costa Rica and that is situated within a radius of 20‭ ‬kilometers measured from Amsterdam Central Station‭, ‬for a period of one year after leaving the employment of the employer‭. ‬

To make it even more enforceable‭, ‬the restraint of trade document may include a list of clients and/or suppliers with which the‭ ‬employee is not allowed to conduct business within a period of‭ (‬e.g‭.) ‬one year‭. ‬

After examining court cases in The Netherlands‭, ‬it appears as if a restraint of trade that restricts an employee for 12‭ ‬months after termination is only likely to be enforceable in respect of senior members‭  ‬who have access to significant confidential information and whose competitive activity post-termination could significantly damage the employer‭. ‬

There is one aspect that is a gross transgression of ethical and moral limits‭. ‬Whenever an employee goes to work for a direct competitor‭, ‬the ex-employer is concerned with safeguarding the ongoing business with its suppliers/clients and wants to protect its intellectual property‭. ‬Information relating to clients and suppliers‭, ‬as well as finances‭ ‬‮–‬‭ ‬including sales statistics‭ ‬‮–‬‭ ‬is crucial in managing a modern-day business‭. ‬

What happens when the employer discovers that his soon to be ex-employee has been transferring company-sensitive information to‭ ‬the new employer‭, ‬prior to leaving his/her current position‭? ‬Does it serve any purpose to approach the Court‭? ‬Yes it does‭! ‬Sharing information is an illegal act and can‭ (‬and should‭) ‬be brought before the Court‭. ‬

In our recent case‭, ‬the court upheld our contention that channeling company-specific information‭ (‬such as grower and client information‭) ‬while in the employ of Company A to Company B‭ (‬the new employer‭) ‬is indeed a transgression of the law‭. ‬Whilst this verdict does not fix the damage that has been done‭, ‬at least it shows that justice still prevails‭. ‬

Maybe being‭ ‬‘hung‭, ‬drawn and quartered’‭ ‬is not fitting in this day and age‭, ‬but we contend that actions such as these amount to‭ ‬‘stealing from the hand that feeds you‭.‬’‭ ‬That justifies more than a slap on the wrist‭. 

Nic Jooste is the director of Marketing and CSI at Cool Fresh International‭, ‬a Rotterdam-based global marketing organisation for‭ ‬fresh produce‭. ‬




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