By Rachel Kikelomo Obende
ABSTRACT
Businesses thrive with distinct ideas and concepts, necessitating robust protection of proprietary information. Non-compete agreements (NCAs) are common legal tools used to prevent former employees from joining rivals and disclosing trade secrets. However, their enforceability raises challenges, as courts must balance employers’ legitimate interests against employees’ right to work and the public’s interest in competition. At common law, NCAs are presumed restraints of trade but enforceable if it’s reasonable in scope, duration, and geography, and if they protect a legitimate proprietary interest. This paper concludes that while NCAs are vital for protecting trade secrets, they remain enforceable in Nigeria only when narrowly tailored.
INTRODUCTION
Trade secrets (TS) are confidential business information that have competitive advantage. Unlike patents or trademarks, they do not require registration, making their protection vital to innovation and investment. Disputes often arise when employees resign and join competitors. To prevent this, companies adopt technological safeguards, Non-Disclosure Agreements (NDAs), and Non-Compete Agreements (NCAs), which restrict employees from working with rivals or setting up similar businesses within certain limits.
PURPOSE AND MECHANICS OF NCAs
NCAs secure loyalty, protect trade secrets, preserve investments in training, and safeguard customer goodwill. They restrict employees from joining competitors or establishing competing businesses within a specified period or geography. Violations usually attract damages. NCAs are most common in high-technology and service industries.
ENFORCEABILITY CHALLENGES
Though NCAs protect employers, critics argue they stifle career mobility, suppress wages, and demotivate staff. At common law, NCAs are prima facie unenforceable unless proven reasonable.
The courts balance three interests:
(1) employer’s need to protect trade,
(2) employee’s right to earn a living, and
(3) public interest in competition.
Restrictions must be no wider than necessary in scope, geography, and duration. Courts may apply the doctrine of severance to strike down overly broad provisions.
NIGERIAN LEGAL LANDSCAPE
Nigerian courts largely adopt the English position. In Koumoulis v. Leventis Motors Ltd is: (1973) 11 S.C. 100 or (1973) All NLR 789., the Supreme Court held that restraints must protect an exceptional proprietary interest and be reasonable to both parties and the public. Conversely, The restrictive covenant in this case was held valid and enforceable: it was not too wide, given all the evidence, and was reasonably necessary to protect Leventis’ business. The liquidated damages were valid, not a penalty.
The Court of Appeal in Aprofim Engineering Construction Nig. Ltd v Bigouret & Anor is: [2010] JELR 47764 (CA). voided a six-month NCA as unconstitutional, relying on Section 17 of the 1999 Constitution. This decision, however, has been criticized since Section 17 is non-justiciable and the restriction was internationally reasonable, the court emphasized the constitutional provisions without sufficiently analysing whether the particular clause was reasonable under the Koumoulis test (scope, duration, trade secrets, etc.). The Court of Appeal held that the clause in Aprofim was void to the extent that it violated constitutional guarantees; implying that many non-compete clauses (especially broadly drafted ones) may be unenforceable under this reasoning.
The NICN has reaffirmed the reasonableness test. In Infinity Tyres Limited v Mr. Sanjay Kumar & 3 Ors. (Unreported, Suit No: NICN/LA/170/2014) [2018] NICNLR 599, Mr. Kumar was accused of misconduct, admitted liable, and terminated his employment, Less than a year later, he took up employment with other companies said to be competing with Infinity. Infinity sued to enforce the non-compete (including seeking injunctions, etc.). The National Industrial Court held that covenants in restraint of trade are prima facie unenforceable; they will only be enforced if shown to be reasonable.
In Studio Press (Nigeria) Plc v. Garnesh Kadoor & Anor. (Unreported) Suit No: NICN/LA/144/2015, a two-year restriction was upheld because the employee had access to sensitive customer data. These cases underscore that NCAs must specifically protect legitimate trade secrets and be reasonable in duration and scope.
CONCLUSION
NCAs remain critical for protecting trade secrets and competitive advantage, but the Nigerian law subjects them to strict judicial scrutiny. For enforceability, they must be properly tailored, reasonable in scope and time, and tied to a legitimate proprietary interest. Clauses that are unnecessarily broad risk invalidation.Employers must be able to draft with precision, while courts continue to balance business protection, employees’ right to livelihood, and the public’s interest in fair competition.
REFERENCES
Koumoulis v. Leventis Motors Ltd is: (1973) 11 S.C. 100 or (1973) All NLR 789.
Aprofim Engineering Construction Nig. Ltd v Bigouret & Anor is: [2010] JELR 47764 (CA).
Infinity Tyres Limited v Mr. Sanjay Kumar & 3 Ors. (Unreported, Suit No: NICN/LA/170/2014) [2018] NICNLR 599
Studio Press (Nigeria) Plc v. Garnesh Kadoor & Anor. (Unreported) Suit No: NICN/LA/144/2015.
Nigeria Constitution 1999
J L Pol’y & Globalization, ‘Non-Compete Clauses in Contracts of Employment in Nigeria: A Critical Evaluation of the Decision in Aprofim Engineering Ltd v Bigouret (2015)’ (2016)
Ross I, ‘Non-compete Clauses in Employment Contracts: The Case for Regulatory Response’ (2024) 35 Economic and Labour Relations Review 806 https://doi.org/10.1017/elr.2024.40
Oluwafunmilayo Adesina-Babalogbon and Akinyemi Abibu, ‘Preservation of Trade Secrets and Non-Compete Agreements: The Element of Reasonableness and Consequent Enforceability’ (2020)