Labour Appeal Court Upholds Restraint Agreement Against Former CEO

The LAC recently heard the matter of Jones v Compendium Group Investment Holdings (Pty) Ltd (DA20/2023; DA11/2024) [2024] ZALAC 49, the Labour Appeal Court (LAC). The dispute centred on the enforcement of a restraint of trade agreement signed in 2015, the employee’s departure, and subsequent affiliation with a competitor.

The employee had been the founder and long-standing CEO of Compendium. He was involved in the business for nearly three decades. In 2014, he sold his shares in the company to Bidvest Insurance Group for R120 million but continued to serve as CEO. In 2015, as part of the transitional arrangements, the employee entered into a restraint and confidentiality agreement that prohibited him from engaging in or soliciting business from Compendium’s clients for 36 months after his departure.

Following his resignation due to ill health in 2021, the employee transitioned into a consultancy role with Compendium. Notably, he insisted that this new consultancy agreement be concluded with a separate legal entity, iRisk Underwriting Managers (Pty) Ltd, rather than with him in his personal capacity. He signed the final consultancy agreement in November 2022 as iRisk’s representative.

This new agreement contained a limited restraint clause that only applied for three months post-termination. The employee argued that this consultancy agreement replaced (or novated) the 2015 restraint agreement, thus limiting his post-employment restrictions. However, in June 2023, Compendium discovered that he had joined TIB Insurance Brokers, a direct competitor, prompting them to enforce the original 2015 restraint in the Labour Court (LC).

The LC rejected the employee’s claim that the consultancy agreement had replaced the 2015 agreement. The Court held that novation requires clear, mutual intent to replace a prior contract. The consultancy agreement, signed only in the employee’s representative capacity for iRisk and not personally, could not serve to revoke a prior agreement entered into by him personally. The deletion of a clause that would have expressly revoked previous personal agreements reinforced this conclusion.

The employee appealed the ruling, arguing that the Court failed to consider the broader context and purpose of the agreement. However, the LAC agreed with the LC’s findings. It ruled that the employee’s own conduct and the structure of the consultancy agreement demonstrated that he was not intended to be a party in his personal capacity. As such, the 2015 restraint remained valid and enforceable.

A secondary appeal by the employee under section 18 of the Superior Courts Act – aimed at suspending the enforcement of the restraint pending the outcome of the main appeal – was also dismissed. The Court held that Compendium would suffer irreparable harm without interim enforcement, particularly since the restraint was due to expire at the end of 2024.

Both appeals were dismissed with costs, confirming the enforceability of the 2015 restraint agreement.

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