What restraint of trade means
A restraint of trade clause restricts somebody's freedom to work or trade after a contract ends.
The starting position of the law is hostile to it. Restraints are presumed void as contrary to public policy, because people should be free to earn a living and the economy benefits from competition.
That presumption can be displaced, but only where the person imposing the restraint shows two things. First, that they have a legitimate proprietary interest to protect, meaning trade secrets, confidential information or customer connection, rather than simply a wish to avoid competition. Second, that the restraint goes no further than necessary to protect that interest, in duration, in geography and in the activities restricted.
So the enforceability of a clause is decided by how narrow it is. A sweeping restraint is not stronger than a modest one. It is weaker, because a court is far more likely to strike it down entirely.
How it is used
Restraints appear in four common forms, and they are not equally difficult to enforce.
Non compete, preventing the person working for a competitor or setting up in competition. The hardest to enforce, because it directly stops somebody earning.
Non solicitation of clients, preventing them approaching customers they dealt with. Much easier, because it protects customer connection without stopping them working.
Non solicitation of staff, preventing them recruiting former colleagues. Generally the easiest of the four to defend.
Confidentiality, protecting information rather than restricting activity. Strictly a different thing, and enforceable indefinitely for genuine trade secrets.
They also appear on the sale of a business, where a buyer who paid for goodwill restrains the seller from competing. That is treated more generously than an employment restraint, because the seller was paid for the very thing being protected.
Key features
- Presumed void unless shown to be reasonable
- Must protect a legitimate interest, not merely exclude competition
- Must be reasonable in duration, geographical area and scope of activity
- Employment restraints are scrutinised more strictly than sale of business restraints
- Non solicitation is easier to enforce than a full non compete
- The burden of justifying the restraint sits on the party relying on it
How this works in Nigeria
Nigerian courts apply the common law approach and will not rewrite an unreasonable clause into a reasonable one. Where the restraint is too wide, it usually falls entirely, and the employer is left with nothing.
The practical effect is that a twelve month restriction limited to Lagos and to the specific line of business the employee worked in stands a real chance. A three year restriction across Nigeria covering any activity connected with the employer's sector does not, and by overreaching the employer loses the protection a narrower clause would have given.
The National Industrial Court, which has jurisdiction over employment matters, weighs the employee's right to earn a living heavily. An employer seeking to enforce should expect to explain what specific interest is being protected and why nothing less would do.
Garden leave is sometimes used instead. The employee remains employed and paid during the notice period but is kept away from clients and information, which achieves much of the same effect without a restraint that may be unenforceable.
Non compete vs non solicitation vs confidentiality
Three clauses that sit together in contracts and are very different in strength.
A non compete stops the person working in the field at all, within defined limits. It is the strongest protection and the hardest to enforce, because it directly restricts somebody's ability to earn.
A non solicitation stops them approaching specified clients or staff, but leaves them free to work. Courts are far more comfortable with this, because it protects the employer's connection without depriving the employee of a livelihood.
Confidentiality stops them using or disclosing confidential information. It restricts information rather than activity, it can last indefinitely for genuine trade secrets, and it is generally enforceable.
An employer who wants protection that will actually hold should start with confidentiality, add non solicitation, and use a non compete only where there is a real interest that nothing narrower can protect.
Limits and risks
The main limitation is that overreaching destroys the clause. Courts do not trim an excessive restraint down to a reasonable one, so an employer with an ambitious clause is often worse off than one with a modest one.
Restraints also do nothing against an employee who leaves and simply works elsewhere without touching clients or information. That is competition, and competition is not a protectable interest.
Enforcement is slow and public. Obtaining an injunction takes time, and by the time it is granted the damage may be done.
And where the employer breached the contract first, for example by dismissing unlawfully, they will generally not be able to enforce a restraint against the person they wronged.
Worth knowing
Set a duration you can justify, name the geography, and describe the restricted activity precisely. Employers copying a clause from a foreign template with a two year nationwide restriction usually end up with no protection at all, because the whole clause fails rather than being reduced.
Questions people ask
Are non compete clauses enforceable in Nigeria?
They can be, but only where the employer shows a legitimate interest to protect and that the restraint is reasonable in duration, geography and scope. Restraints that go further than necessary are generally struck down entirely.
What makes a restraint of trade reasonable?
A genuine interest being protected, such as trade secrets, confidential information or customer connection, and a restriction that is no wider than needed. A short period, a defined area and a narrow description of the restricted activity all help.
What is the difference between a non compete and a non solicitation?
A non compete stops the person working in the field. A non solicitation only stops them approaching specified clients or former colleagues, leaving them free to work. Non solicitation is considerably easier to enforce.
Will a court reduce an unreasonable restraint to a reasonable one?
Generally no. Nigerian courts follow the common law approach and will not rewrite the clause. An overly wide restraint usually fails completely, leaving the employer with no protection.
Can a restraint be enforced against someone who sold their business?
Yes, and more readily than against an employee. The buyer paid for goodwill, which is exactly what the restraint protects, so courts allow wider restrictions, though they must still be reasonable.
What is garden leave?
Keeping an employee employed and paid during their notice period while removing their access to clients and information. It achieves much of the effect of a restraint without depending on a clause that may be unenforceable.