Employment Contract in Nigeria: The Legality & Enforceability Of A Non-Compete Clause

The relationship between an Employer and an Employee is to a large extent governed by the terms and conditions voluntarily agreed between both parties. These terms and conditions, if reduced into writing are contained in the Employment Contract.

The Nigerian legal system recognizes the freedom of contract i.e., every adult citizen has the right to enter into any agreement of their choosing in as much as such an agreement does not contain clauses which violates the laws of the land. This principle finds expression in the maxim “pacta sunt servanda” – agreements must be kept.

Whilst the Employer and Employee relationship is largely governed by the Employment Contract, there are certain legislations that contain salient provision which must be adhered to in the Contract of Employment. These legislations include the Labour Act, 2004, Federal Competition and Consumer Protection Commission Act, 2018 (FCCPC Act) and principles established in decided cases.

In line with this freedom of contract, it is not out of place to find inserted in an Employment Contract a non-compete clause also known as a contract in restraint of trade or non-solicitation clause or restrictive covenant. A non-compete clause is a clause which prohibits an employee from engaging in similar business, whether on his own or in the employ of another that is in the same line of business as the employer.

It is a customary practice for employees to be disallowed/prevented from engaging in similar business as the employer during the employment except otherwise agreed between the parties, a non-compete clause is desirous to protect the confidential information and trade secrets of the employer upon the termination of the contract of employment.

It is safe to say that the Nigerian economy encourages and promotes a free, fair, and competitive market. Therefore, as a general principle, the Nigerian Courts are reluctant to enforce a non-compete clause on grounds of public policy.  The public policy consideration here is to prevent the stifling of the economy.

However, this position is not absolute because a non-compete clause may be enforceable in certain instances. The Courts in Nigeria particularly the National Industrial Court, which is the Court established specifically to adjudicate over labour disputes have laid down certain conditions that must be present before a non-compete clause would be held to be binding on an employee. This position of the law was highlighted in the cases of Suit No: NICN/ABJ/250/2021 between Hassan Al-Gobn v Unigaz Integrated Services Ltd. and Suit No. NICN/LA/144/2015 between Studio Press Plc. v. Kadoor & Anor.

In both cases, the National Industrial Court held that for a non-compete clause to be valid and enforceable, the agreement must be reasonable in scope, nature, and content, having regard to the interest of the parties and the general public (public policy) and above every other consideration, must be for a period not exceeding two years.

Therefore, the key conditions that must be fulfilled before a non-compete clause is enforceable are:

1. The contract must be reasonable in scope, nature, and content, with regards to the interest of the parties and the general public.
2. The employee is only restrained from working for a direct or indirect competitor of the employer for a period not exceeding two years after the termination of the employment contract.

The major considerations for the enforceability of a non-compete clause are reasonability, public consideration, and duration. What is reasonable is determined on a case-by-case basis and any non-compete clause which does not protect the business of the employer but is merely utilized as a tool to restrict the employee from seeking employment elsewhere may be held to be unreasonable.

In similar light, any non-compete clause that stifles competition may be held to be contrary to public policy. Finally, if the duration of the non-compete clause exceeds two years, it is unenforceable.

The issue of the duration of a non-compete clause appears to have received statutory backing in 68(e) of the Federal Competition and Consumer Protection Commission Act. By virtue of the provision of this law, it is unlawful for an employee to accept any restriction of work beyond a period of two years.

In conclusion, whilst a non-compete is generally unenforceable in Nigeria, where the non-compete is reasonable in scope, nature, and content, having regard to the general interest of the parties and general public, and above every other consideration does not exceed a period of two years, the clause will be enforced. What is reasonable depends on the facts and circumstances of each case.

If you would like to know more about a Non-Compete Clause, please contact info@berkeleylp.com

The information provided in this article is for general informational purposes only and does not constitute legal advice.