THE ENFORECEABILITY OF TRAINING BONDS, NON-COMPETE AND SOLICITATION CLAUSES IN EMPLOYMENT CONTRACTS

Introduction

Restrictive
clauses are usual clauses in contracts of employment. And with the
increase in the level of awareness and sophistication of the Nigerian labour
market leaping to catch up with international best practices, more than ever, issues of the enforcement of these clauses are litigated. The doctrine of restraint of trade presents itself as a double-edged
sword that can swing both sides. While it seeks on one hand, to prevent abuse regarding
certain trade practices, it also tends to present on the other, one may say,
the skewed opportunity for violation of  individuals’ rights to certain trade freedoms.
This article explores the species of restrictive clauses and its enforceability
in Nigeria.

What is a contract
in restraint of trade?

A contract in
restraint of trade is one in which a party covenants to restrict his future
liberty to exercise his trade, business, or profession in such a manner and
with such persons as he chooses. The restraint requires that the employee
should not disclose trade secrets, solicit other employees or customers, or enter
competition with the employer upon termination of the employment relationship.[1] The
restrictions in most cases are in two phases. One subsists during the pendency
of the employment, the second takes effect immediately the contract of
employment is determined.[2]

With the desire
to protect against the disclosure of information considered to be confidential
by employee in his future conduct, employers have always insisted on the
inclusion of restrictive covenants in contracts of employment.[3] By
this, the employee has  an obligation not to disclose
or use for his benefit information[4],
which is special and peculiar to the employer. It is a settled principle of law
that parties are bound to the terms of a contract they freely entered. They are
not allowed to disown their obligation and liabilities[5] as
the court will give full effect to the terms as contained in the contract
agreement.[6]
What then is so distinguishing about contracts in restraint of trade that is
always frowned at and, prima facie void, except if a special circumstance
is established to justify their validity and bindingness?

In many
jurisdictions, non-compete or restraint in trade clauses are encouraged to
protect trade secrets and business innovations and ideas. It is common place to
find a post-termination clause in contracts of employments particularly for
some specific and sensitive cadres in an organization. International best
practices recognize reasonable restraint in trade clauses[7].
What is reasonable is subject to factors which vary from country to country.
Before signing up to a contract of employment that contains a restrictive
clause or when the courts are called upon to decide the validity of a post
termination clauses in employment contracts, the employee or the courts as the
case may be, will consider certain issues such as, the reasonability of the
clause; the legitimate business interest sought to be protected; reasonability
in duration; attached consideration; is it just a deterrent factor; are there
remedies available to the aggrieved party; the laws in force; and the
surrounding circumstances of each case.

Are restrictive
agreements and practices statutorily regulated in Nigeria?

Restrictive
agreements and practices are regulated in Nigeria. The Federal Competition and
Consumer Protection Act, 2018 (“FCCPA”) prohibits restrictive or unfair
business practices which prevent, restrict, or distort competition or
constitute an abuse of a dominant position or market power in Nigeria. The
prohibited “acts[8] include:

·      
Directly or indirectly fixing
the purchase or selling price of goods.

·      
Dividing markets by allocating
customers, suppliers, territories or specific types of goods or services.

·      
Limiting or controlling the
production or distribution of any goods, or services, markets, technical
development or investments.

·      
Collusive tendering.

·      
Making the conclusion of an
agreement subject to acceptance by the other parties of supplementary
obligations which by their nature or according to commercial usage have no
connection with the subject of the agreement.

The list of
prohibited acts is not exhaustive and the Federal Competition and Consumer
Protection Commission (FCCPC) which is the relevant regulatory authority
charged by the FCCPA to regulate mergers, consumer protection and competition,
can also declare an agreement or practice to be restrictive, depending on the
individual circumstances.

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For further information on the foregoing (none of which should be construed to be an actual legal advice) please contact:

Chinedu Anaje
Managing Partner
chinedu.anaje@ao2law.com  

Oluwasijibomi Alafe
Senior Associate
oluwasijibomi.alafe@ao2law.com

Imekan Essien
Associate
imekan.essien@ao2law.com 

Olufunso Adebowale
Associate
olufunso.adebowale@ao2law.com

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