Esti Nadel, Adv, Gill Nadel, Adv.
As we know, the field of international forwarding is a competitive field, characterized by high mobility of employees, customers, and providers. The different players in the field make an effort to protect themselves from the competition of rivals by attempting to limit the mobility of their employees to their competitors. The field of international forwarding has provided legal rules that relate to the laws of employment restrictions in general, and to the laws that characterize employment and confidentiality restrictions in this field specifically.
The old decision on “Playing Cargo”
Already in 1996, the National Court for Labor dealt with the definition of “commercial confidentiality” in the field of international forwarding, in the decision on “Playing Cargo” (דב”ע נו.298-3) In that case, the company Playing Cargo filed suit against one of its employees who served as a middle man between it and its customers in the south. The employee was caught photographing price lists that were given to the company’s customers (customers with whom the employee had no direct connect, and therefore had no justification to be photographing the price lists), and as a result of the incident, he was immediately fired, taking with him the price lists. Later, he joined a competitor of Playing Cargo (Courier Network)
In the Labor Court, Playing Cargo requested that the employee be forced to honor the employment restriction clause that he had signed, which limited him from working for a competing company for 12 months.
The National Court for Labor ruled that the company had confidential information regarding its customers and that this information included: the identity of the customers; their middle-men; the special needs of the customers and their specific problems; the type and scope of the customers’ activities regarding types of shipments, timetables, price lists, credit conditions, and buying prices of Playing Cargo versus Federal Express. It was also emphasized that Playing Cargo generally compiles personalized price lists for each customer, tailored to its needs. These unique price lists also represent a trade secret. In light of the secrets that were proven, the employment restriction clause of the employee was enforced.
Since the Playing Cargo case, there have been significant developments in the decisions of the Labor Court
However, since the decision was given on the Playing Cargo case, things have happened in the field of commercial competition law. In June 1999, the National Court for Labor issued a ruling on Dan Promer v. Redguard (more familiar by the name: “The Checkpoint Decision”) The decision initiated a revolution so immediate and so significant in the field, that it entirely changed the accepted rules of the game on everything having to do with commitments on limiting employment and forbidding competition.
In the decision it was ruled that an employment restriction clause in a work contract between employer and employee is “inherently invalid” unless it is intended to protect the employers protected interests. A protected interest can be a “trade secret”; special compensation given to the employee for his commitment; unique and expensive training which the employee received from the employer; and relationships of special trust between employer and employee. The conditions listed in the decision for giving validity to the clause are so strict that it seemed as if the employment restriction clauses had become entirely theoretical.
Soon after the Checkpoint decision was given, the High Court also issued an instructive and precedential ruling in the decision on the case AES System Inc. v. Moshe Sa’ar (28.8.00) In that decision, the court confirmed the Checkpoint ruling and turned it into a rigid and binding precedent.
Since the issue of the above pair of rulings, it was popular to think that employment restriction clauses were extinct. The new ruling was so internalized that employees to this day tend to see employment restriction clauses in contracts that they sign, as a ‘dead letter’ that they can ignore. Employers, on the other hand, tend to despair in cases that a clause of this sort is violated, and relinquish taking legal steps from the beginning.
Too Soon to Mourn Employment Restriction Clauses
However, from the string of decisions given in the past year, it seems that the court has returned to the trend that it raised in the Playing Cargo decision. True, the enforcement of employment restriction clauses is still difficult and unusual, but they are certainly not a ‘dead letter‘, and the mourning was premature.
The ruling today focuses on directed elements known as “trade secrets” and sharpens the definitions so that they are not theoretical. Thus, for instance, a list of customers is recognized as a legitimate and defensible trade secret. However it must be emphasized- regarding a list of customers, the intention is not a simple list (identity of customers). It has been clarified in decisions (for example, the decision on עע 1141/00 Har Zahav Food Services Ltd. v. Foodline Ltd.), that “in many cases, the importance of a list of customers does not come from the identity of the customer but from the conditions of dealing with him, from the products that he purchases and from the attention that he enjoys. In many cases, the important perspective regarding lists of customers is the special prices and conditions of payment given to the customers. True, in many branches there is a general price list that includes prices according to the amount purchases and the payment conditions. However, in these cases, the importance of the information about the former employer’s customers comes from the special and unique conditions given to the customer above and beyond the pricing list.”
Updated Rulings: The Tanko v. Bell-Mar decision
Also in the field of international forwarding, the court has returned and revived the old definitions that were established back in the Playing Cargo decision. In the last year, the District Court in Haifa discussed a senior marketing manager’s leaving the company Tanko International Ltd. (a company that deals with shipping and handling via land, air, and sea of dry loads and liquid loads using isotanks) and joining the company Bell-Mar Ltd. (בש”א עב (Haifa) 1800/00 Tanko International (97) Ltd. v. Bell-Mar et al.) Tanko claimed that the manager diligently planned her departure and kept it secret. The manager said that her intention was to work as a travel agent or in high-tech. After she joined Bell-Mar Co., Bell-Mar began to deal in sea shipping (a field in which it was not involved prior to the joining of the manager) and some of Tanko’s customers left and turned to Bell-Mar. The court ruled that the list of a number of key customers of Tanko, not specifically in view of the identity of the customers, but specifically in view of the sum of the information that the company had on these customers (pricing suggestions, costing formulas of pricing suggestions including costs of different components of the services provided to the customer, their acquisition routines, the credit conditions given to them, and so forth)- was privileged information and defensible. Information regarding conditions “above and beyond” the standard and uniform company pricing list (such as: special sales, bulk discounts, etc.) is also considered privileged information. Similarly, the court ruled that the manager acted with a lack of demonstrated good faith (like a “Trojan horse”), especially considering that fact that she was such a senior employee.
Because of the two combines factors: the existence of a trade secret, and the bad faith of the manager, the court decided that the manager should be forced to honor the employment restriction clause regarding the key customers that were recognized as a trade secret. The period of restriction was set at 6.5 to 19 months.
We can summarize and say that, as of today, to the degree to which an employment restriction clause is proportional, focuses on the protection of a trade secret, and does not deviate from a reasonable period of restriction- it will be possible to enforce it via legal means. On the other hand, a “tricky” employment restriction clause, intended solely to limit the legitimate commercial competition between competing players in a free market, without there being a real need to protect secrets or other protected interests of the employer- will not be enforced even today.
Esti Nadel, Adv. is a partner in the Rubin-Shmuelevich Law Offices specializing in labor law.
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