Enforcement of non-compete and non-disclosure clauses in a contract of employment: a review of the nicn’s decision in irokotv.com limited v. michael ugwu (unreported) suit no: nicn/la/169/2015 delivered on 12 november 2020
A covenant in restraint of trade clause is a clause which seeks to restrict the manner and extent to which an employee may seek employment elsewhere or practice a trade upon leaving the services of his/her employer. In other words, the clause is an agreed provision that is designed to restrain an indiYidXalȇs career. This type of clause is also known as a non-compete clause in certain circumstances.
Generally, the Courts have always viewed a restraint of trade clause/non-compete clause to be prima facie illegal, unconstitutional and therefore void. Notwithstanding this fact, the Court would, in some limited situations, uphold the clause where it is reasonable in a particular situation. The Supreme Court endorsed this position in the case of Koumous v. Leventis Motors Limited (1973) N.S.C.C. Vol. 8 557 at 561 Paragraph 35.
The National Industrial Court of Nigeria (NICN) has upheld a covenant in restraint of trade clause in some cases, whilst it has also refused to enforce the clause in some other cases.
In Studio Press (Nig.) Plc. v. Garnesh Kadoor & Anor (Unreported) NICN/LA/144/2015 where the judgment was delivered by the NICN on 18 March 2016, the NICN held both a former employee and his new employer liable to the previous employer for a breach of the restraint of trade clause contained in the former emplo\eeȇs contract of employment since he secured another job in defiance of the restraint of trade clause. The Claimant was able to succeed in this case because it established that the former employee was a custodian of all its customers’ profile, artwork, design and other confidential information and trade secrets, which constitute the life wire of the ClaimanWȇs business. The Claimant also established that the former employee had deleted vital information from one of his official computers and changed the password in his official computer to prevent the Claimant from gaining access to the sensitive information required for manufacturing on the second official computer.
The NICN, however, refused to uphold a covenant in restraint of trade clause in the recent case of iROKOtv.com Limited V. Michael Ugwu (UNREPORTED) Suit No: NICN/LA/169/2015, delivered by Hon. J.D. Peters of the NICN on 12 November 2020.
SUMMARY OF THE FACTS OF iROKOtv.com LIMITED V. MICHAEL UGWU
The Claimant employed the Defendant in the United Kingdom through a Contract of Employment dated 10 October 2011, but with the mandate to work in its Nigerian office. The Defendant subsequently relocated from the United Kingdom to Nigeria with his family, and he resumed with the Claimant on 1 October 2011.
After the Claimant had paid the Defendant his salary for October and November 2011, the Claimant told the Defendant to execute an Employee Non-Disclosure Agreement (ENDA) dated 1 December 2011 and the Defendant executed the ENDA without any complaint. Instructively, the ENDA had two clauses containing a covenant in restraint of trade, which provides that the Defendant would not set-up competing businesses while still in the ClaimanWȇs employment, and he would not work with ClaimanWȇs clients for one year from the termination of his employment.
The Claimant terminated the DefendanWȇs employment sometime in October 2013 on the ground that the Defendant had breached the terms of the ENDA, which forms part of his contract of employment. The Claimant commenced a lawsuit against the Defendant at the NICN for soliciting its clients whom he got to know by his employment with the Claimant and for breaching the provisions of the ENDA.
The Defendant, however, argued that the execution of the ENDA was an unfair labour practice, as he executed the ENDA under duress since he was in an unequal bargaining position with the Claimant. He also counterclaimed for his unpaid salary for October 2013 and the wrongful termination of his employment.
The NICN held that the conduct of the Claimant in attempting to change the terms of the DefendanWȇs employment by introducing the ENDA two months after he had resumed with the Claimant amounts to an unfair labour practice and that the ENDA was contrary to public policy. The Court further held that the Claimant was unable to establish that it had any legitimate interest, which was capable of being protected by the ENDA, as it failed to show how the Defendant made use of its trade secret or solicit its clients.
The Court, therefore, dismissed the ClaimanWȇs case and granted the DefendanWȇs Counterclaim.
TAKE AWAY FROM THE NICN¶S DECISION IN iROKOtv.com LIMITED V. MICHAEL UGWU
The decision, in this case, provides more clarity on the steps, which an employer who intends to enforce a covenant in restraint of trade must establish before the Court would grant an order enforcing the covenant. These steps are as follows:
- The employer must ensure that the contract containing the covenant in restraint of trade is executed by the employee before the commencement of employment and not after the employee has resumed.
- The employer must prove that it has an interest, which is capable of being protected by the covenant in restraint of trade.
- The employer must establish that the covenant in restraint of trade is reasonable.
- The employer must establish that the covenant in restraint of trade is not contrary to public policy and public interest.
- The employer must adduce concrete evidence showing how the former employee had breached the covenant in restraint of trade by using the employer’s trade secrets and confidential information to his benefit or the benefit of his new employer.
- The employer must ensure that the restraint is not stricter than is necessary for protecting the legitimate interest of its business and that it is not injurious to the interest of the employee.
“In sum, the decision in iROKO TVȇs case shows that an employer must critically review the circumstances of the departure of any of its employees before deciding to commence a lawsuit for the enforcement of a covenant in restraint of trade, as the NICN would not ordinarily uphold the covenant in restraint of trade simply because the former employee had executed a contract containing the covenant..”