What to consider prior to transferring a business, in terms of Section 197 of the Labour Relations Act
Case:
In a recent judgment delivered on 10 August 2022 in the case of Slo Jo Innovation (Pty) Ltd v Beedle and Another (J 737/22) [2022] ZALCJHB 212, Slo Jo Innovation (Pty) Ltd (the applicant) filed an urgent application to enforce a restraint of trade undertaking contained in the first respondent’s (Ms Beedle) contract of employment. Ms Beedle was employed by Slo-Jo Trading (Pty) Ltd (Slo-Jo) as a Sales Representative and played an instrumental role in the growth of the business.
The Labour Court was tasked to consider whether a restraint of trade agreement could be the subject of a transfer from the old to the new employer in terms of section 197 of the Labour Relations Act, 1995 (“LRA”).
Background:
In 2007 Ms Beedle concluded an employment contract containing a restraint of trade clause, which the Applicant was a wholly owned subsidiary of Slo-Jo. During 2018, Slo-Jo underwent a restructure in terms of which it established three new companies, one of which being the Applicant. Ms Beedle was transferred from Slo-Jo as part of the internal restructuring under section 197 of the Labour Relations Act 66 of 1995 (LRA) to the Applicant.
Post transfer, Ms Beedle had then subsequently resigned from the Applicant’s employ and became involved with a direct competitor of the Applicant. This prompted the Applicant to approach the Labour Court on an urgent basis to enforce the restraint of trade agreement. Ms Beedle argued that the Applicant was not a party to the restraint of trade agreement and disputed that the restraint transferred from Slo-Jo to the Applicant.
Ms Beedle also argued that a restraint of trade agreement does not by law pass from one employer to another, placing reliance on the 2017 decision of the High Court in Laser Junction where the court held that only contracts of employment and not restraints of trade are transferrable under section 197 of the LRA.
The Labour Court distinguished features between the Laser Junction judgment and the merits of this matter and found that unlike the Laser Junction matter, Ms Beedle had not signed a new employment contract.
Conclusion:
The Labour Court, per Prinsloo J, held that:
“A restraint of trade agreement concluded between an employer and employee and included in a contract of employment, is transferable under section 197 of the LRA.”
Section 197 of the LRA provides for all the rights and obligations between the old employer and an employee at the time of the transfer to continue in force as if they had been rights and obligations between the new employer and the employee.
The restraint of trade between Ms Beedle and the Applicant existed as at the date of transfer and it remains in existence and continues beyond the transfer.
