Nigeria: "You Are Hereby Restrained From Engaging In Same/Similar Vocation As Ours" - A Case Analysis Of The Non-Compete Clause In A Contract Of Employment.

Last Updated: 3 December 2018
Article by Perchstone & Graeys

It is expected that an employer would equip its employees with the necessary tools and resources required for the effective operation of its business. This would ordinarily include trade secrets, strategies, clients, and different forms of confidential information. It is therefore understandable that, due to the nature of information and secrets to be disclosed, the employer would want to take steps to protect such, bearing in mind its employee(s) might leave at any time, not only with the skill and expertise acquired during the job, but also the trade secrets of the employer. Thus, the employer, being fully aware of this risk, and even the greater risk of having the said ex- employee join a competitor, devises a non-compete clause, seeking to restrain the employee from joining a competitor, and disclosing the employer's trade secrets. The acceptable parameters of such 'restraint' however is a question that was tested by the National Industrial Court ("the Court/NIC") in the case of Infinity Tyres Limited v. Mr. San jay Kum ar & 3 Ors. (Sui t No - NICN /LA /170/ 2014).

FACTS

In 2011, Mr. Sanjay Kumar ("Mr. Kumar") entered into a contract of employment with Infinity Tyres Limited ("Infinity"). A condition of his employment was that Mr. Kumar would not join any other company in Nigeria for one year upon the termination of the contract. With this in view, the company made the necessary arrangements to enable Mr. Kumar relocate to Nigeria and work for it.

Sometime in 2013, Mr. Kumar was accused of being involved in financial misappropriation. He reportedly admitted to this in his response to the query issued by the company, and was consequently, terminated. In less than a year of being terminated, Mr. Kumar took up employment with Kewalram Nigeria Limited ("Kewalram"), Asahi Brand Limited ("Asahi") and Tanzanite Limited ("Tanzanite"), who were, according to Infinity, in direct competition with it. Accordingly, Infinity wrote to Mr. Kumar, notifying him of his breach of the non-compete clause under the erstwhile employment contract between it and Mr. Kumar; it also notified Kewalram, Asahi and Tanzanite of the said breach and requested for the immediate termination of the employment.

Following the failure of Mr. Kumar and Kewalram, Asahi and Tanzanite to comply with its demands, Infinity proceeded to commence an action at the NIC, claiming, amongst other things:

  1. A declaration that the employment of Mr. Kumar by Kewalram, Asahi and Tanzanite is a breach of the non-compete clause of the employment contract between it and Mr. Kumar.
  2. An order of cessation of employment of Mr. Kumar with Kewalram, Asahi and Tanzanite, as the said employment is wrongful and lawful.
  3. An order restraining Kewalram, Asahi and Tanzanite from further inducing the breach of the employment contract between the company and Mr. Kumar.
  4. Damages in the sum of N100, 000, 000 (one hundred million Naira) and cost of the action.

FINDING/DECISION

After a careful review of the submissions of both parties, the Court held as follows:

1. Covenants in restraint of trade (non-compete clauses)

The NIC noted that whilst covenants in restraint of trade are generally unenforceable, there will be an exception where such clauses are shown to be reasonable. Reasonability will be determined by the circumstances of each case, considering factors such as geographical area of coverage, economic activity covered, and the duration of the non-compete clause. It is the party seeking to enforce such a clause therefore that has the burden of proving that such a covenant is reasonable.

2.  The words of the non-compete clause

The non-compete clause as drafted in the employment contract between Mr. Kumar and Infinity states: "Please note that all the above terms and conditions are subject to you agreeing not to join any other company in Nigeria for one year if you cease working with us." This, by the literal interpretation of the Court, the clause as drafted was stated as being very broad, to cover any organization whatsoever, whether in the line of the company's business or not. Thus, whilst the restraint for one year, and within Nigeria was reasonable, the non-compete clause restraining Mr. Kumar from joining "any other company in Nigeria" was unreasonable and unenforceable.

3. Breach of Contract

On whether Kewalram, Asahi and Tanzanite's employment of Mr. Kumar amounted to inducing a breach of contract, the Court held that since the covenant in restraint of trade (non-compete clause) is unenforceable for being unreasonable, Kewalram, Asahi and Tanzanite cannot be liable for inducing a breach of the covenant.

4. Applicability of the African Charter

In Mr. Kumar's counter-claim, he argued that the non-compete clause constituted an infringement on his fundamental right of employment to work under equitable and favorable conditions. In arguing his case, Mr. Kumar relied on The African Charter on Human and Peoples' Rights (Ratification and Enforcement) A rned African States to  protect the human rights of their citizens within the territorial jurisdiction of their countries. Thus, Mr. Kumar, being an Indian citizen, cannot rely on Article 15 of the African Charter to make his claim.

In all, the Court held that neither Infinity's claims nor Mr. Kumar's counterclaim succeeded, and the case was accordingly dismissed.

COMMENTS

Generally, covenants in restraint of trade are viewed as unenforceable, except where they are shown to be reasonable, with references to the interest of the parties concerned, and of the public. What then is reasonable?

The Supreme Court has held that if the covenant affords adequate protection to the covenantee (the employer), the requirement that it must be reasonable in the interest of the parties is satisfied. Furthermore, depending on how the covenant is framed, an employer can lawfully prohibit the employee from setting up his own business, or accepting a position with one of the employer's competitors, so as to be likely to adversely affect the employer's trade by a misuse of the employee's acquaintance with the employer's clients, or trade secrets. These are instances therefore of reasonability, depending on the facts of each case.

Some may be quick to argue that regardless of the severity or broadness of the non-compete clause, the employee was aware of the contract he was signing, and parties are by law bound by contracts freely entered into. However, the courts have argued that, in many cases an employee cannot really be said to have a bargaining power in the negotiation of employment contracts. In fact, in Iscare Nigeria Limited V. Mrs Victoria Akinsanya, Mr Bankole Emmanuel Abimbola NICN/LA/484/2012, the court held that "I find that the 1st Defendant had no bargaining power and was in a weak position on account of her 'unemployed status'. In the circumstances of inequality of bargaining power, her freedom to contract by the operation of the doctrine of sanctity of contracts was in my view an illusion.......".

In Mr. Kumar's case, the concern of the Court was not the restraint itself, but the reasonability of the restraint. Without a doubt, the achilleas heel in the employer's case arose from the poor drafting of the non-compete clause. Perhaps the Court may have reasoned differently if the restraint was limited to "companies in direct line of competition with the employer". However, the reasonableness of such a request (industry and specialization considered), in light of the geography and timing would need to be measured as well. Indeed, points to ponder.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions