Non-Compete And Restraint Of Trade Clauses In Employment Contracts: Enforceability Under Nigerian Law

Introduction

The tension between an employer’s interest in protecting its trade secrets, confidential information, and business goodwill and an employee’s right to earn a livelihood lies at the heart of disputes concerning restraint-of-trade clauses. In Nigeria, non-compete clauses in employment contracts have become increasingly common, particularly for senior employees with access to sensitive business information and commercial relationships. This article examines the enforceability of restraint-of-trade clauses under Nigerian law, their development in Nigerian courts, and statutory regulation under the Federal Competition and Consumer Protection Act 2018.

Conceptual Framework

A restraint of trade clause is a contractual provision that limits an employee’s freedom to engage in a competing trade, business or profession, whether during or after the term of employment. Restrictive clauses take several forms, the most common being:

1. Non-compete clauses: Prohibiting the former employee from working for, or setting up, a competing business within a defined period and geographical area;
2. Non-solicitation clauses: Preventing the former employee from soliciting the employer’s clients, customers or staff; and
3. Confidentiality/non-disclosure clause: Restraining the use or disclosure of confidential information and trade secrets acquired in the course of employment.

This article focuses principally on non-compete clauses and, more broadly, on restraint-of-trade covenants of general application, while noting that the doctrinal tests discussed apply with equal force to non-solicitation Clauses.

Development of the Doctrine in Nigerian Courts

The locus classicus on restraint of trade under Nigerian law is the Supreme Court’s decision in Andreas I. Koumoulis v Leventis Motors Ltd (1973) LPELR-1710 (SC). The appellant, a spare parts specialist manager, had agreed not to engage in a competing business within a fifty-mile radius of any of the respondent’s trading stations in West Africa for one year following termination. Delivering the leading judgment, Udoma JSC held that, generally, all covenants in restraint of trade are prima facie unenforceable at common law, and are enforceable only if reasonable with reference to the interests of the parties concerned and of the public. On the facts, the agreement was upheld as reasonable, and the appellant was held liable in damages for its breach. Koumoulis remains the binding statement of principle by which subsequent decisions, including those of the National Industrial Court, are bound under the doctrine of judicial precedent.

The establishment of the National Industrial Court of Nigeria (NICN) as the specialised forum for employment disputes, with constitutionally entrenched jurisdiction over employment matters under the Third Alteration to the 1999 Constitution, Nigerian jurisprudence on restraint of trade has developed further nuance, generally tilting toward protecting employees’ mobility absent clear proof of a legitimate protectable interest.

In iROKOtv.com Ltd v Michael Ugwu, the NICN declined to enforce a two-year restraint, relying expressly on the Koumoulis formulation and holding that the claimant bore the burden of proving that the restraint was reasonable in the circumstances before the onus could shift to the defendant. The Court found that the claimant had not established a legitimate interest (such as a genuine trade secret) warranting protection and, further, that even if such an interest existed, the restraint was not properly balanced against the defendant’s and the public’s interests. The Court also observed that denying a citizen the legitimate use of an acquired skill is itself contrary to the public interest, given its implications for the individual’s livelihood and, more broadly, for economic productivity.

Statutory Intervention: The Federal Competition and Consumer Protection Act 2018

Prior to 2018, the enforceability of restraint of trade clauses in Nigeria rested entirely on common law principles as developed through case law. The enactment of the Federal Competition and Consumer Protection Act 2018 (FCCPA) introduced, for the first time, a statutory dimension to the analysis. Section 59 of the FCCPA generally prohibits and renders void any agreement between undertakings that has the purpose or likely effect of preventing, restricting or distorting competition in any market, including arrangements such as price-fixing, market allocation and collusive tendering.

Section 68(1)(e) of the FCCPA, however, carves out an exception specifically applicable to individual employment and service relationships. It provides that nothing in the Act prohibits “a contract of service or a contract for the provision of services in so far as it contains provisions by which a person, not being a body corporate, agrees to accept restrictions as to the work … in which that person may engage during or after the termination of the contract”, provided that the restriction does not exceed a period of two years.

The introduction of section 68(1)(e) has been the subject of some debate among practitioners as to its precise effect. One view treats the provision as creating a statutory safe harbour: a restrictive covenant not exceeding two years is, without more, immune from challenge under the FCCPA’s general prohibition on anti-competitive agreements. A more cautious and, in the writer’s respectful view, more defensible position, consistent with the approach taken by the NICN, is that section 68(1)(e) merely exempts qualifying covenants from the specific prohibition in section 59 of the FCCPA; it does not displace the pre-existing common law reasonableness test. 

On this reading, a two-year (or shorter) restraint clause that satisfies section 68(1)(e) may nonetheless fail if it cannot also be justified as reasonable in the interests of the parties and the public, having regard to the nature of the employer’s business, the seniority and role of the employee, and the geographical scope of the restriction. The statutory maximum should accordingly be understood as a ceiling, not a safe harbour: it forecloses restraints longer than two years but does not, by itself, validate shorter restraints that are otherwise unreasonable or unsupported by a demonstrable legitimate interest.

The Test for Enforceability

A restraint of trade clause in a Nigerian employment contract is likely to be enforced only where the employer can satisfy the following cumulative requirements:

1. Legitimate protectable interest: The employer must identify a genuine proprietary interest that requires protection, such as trade secrets, confidential business or technical information, or trade connections (client or customer relationships) to which the employee had access or influence. A generalised desire to prevent competition, or to prevent the employee from exploiting skill and experience lawfully acquired during employment, is not a legitimate interest and will not sustain a restraint.
2. Reasonableness between the parties: The restraint must go no further than reasonably necessary to protect the identified interest, the nature of the employer’s business, and the extent of the employee’s actual exposure to sensitive information.
3. Reasonableness as to duration: The restraint must not exceed two years, in compliance with section 68(1)(e) of the FCCPA, and even within that ceiling must be no longer than is proportionate to the shelf-life of the information or relationships being protected. Restraints of indefinite or perpetual duration are void, as confirmed in La Casera.
4. Reasonableness as to geographical and subject-matter scope: The restraint should be confined to the specific market, industry segment or territory in which the employer genuinely competes, rather than drafted in expansive, catch-all terms.
5. Consistency with public policy: The restraint must not, in its practical effect, deprive the employee of the ability to earn a livelihood or offend the right to work as recognised under the ICESCR and applied by the NICN and the appellate courts.
6. Severability: Where a restraint clause contains both valid and invalid segments, a Nigerian court will, following the La Casera approach, sever and strike out the offending portion while preserving the remainder, provided this can be done without rewriting the substance of the parties’ bargain.

Conclusion

The enforceability of restraint of trade clauses under Nigerian law remains a fact-sensitive inquiry, shaped by an evolving interplay of common law doctrine, statutory ceiling, and constitutional and international human rights considerations. While the Federal Competition and Consumer Protection Act 2018 has introduced welcome statutory clarity by setting an outer limit of two years, it has not displaced the underlying common-law requirement that a restraint be justified by a legitimate business interest and be no more than reasonably necessary to protect that interest. 

The Court of Appeal’s 2025 decision in La Casera signals that Nigerian courts are prepared to uphold carefully drafted, evidence-backed restraints even as they continue to safeguard employees against oppressive or indefinite restrictions on their right to work. For employers, the clearest path to an enforceable restraint lies not in maximal drafting, but in precision: a narrowly tailored covenant, proportionate in time and scope to a genuine and evidenced business interest, remains far more likely to survive judicial scrutiny than an expansive one drafted to the outer edge of what the statute permits.

Reference

1. Per UDO UDOMA, JSC (Pp 11 – 13 Paras C – B). 
2. (2020) (Unreported, Suit No: NICN/LA/169/2015).