Comparative perspectives on Enforceability of Restrictive Covenants in Nigeria: How has the NIC fared in contemporary Times? -By Gbenga Bello

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  1. Introduction

 

There have been limited opportunities for appellate supervision for judgements emanating from the National Industrial Court (the “NIC” or the “Court”)[1]. As such little consistency is provided for the legal reasoning behind the decisions of most of the emerging labour/employment issues decided by the Court. The imprecision created by judgements of the Court on matters leave labour practitioners to speculate advice to clients who yearn for consistency required for directional policy in their respective organisations.

 

One of the areas of employment law where this uncertainty has been prevalent is enforceability of covenants in restraint of trade (otherwise referred to as restrictive covenants). It must be stated that restrictive covenants by their very nature are heavily dependent on varied factual circumstances making it difficult to find a one-size-fits-all type decisions that give a full viewpoint in terms of enforceability. As such like most causes of action, each decision must reflect the vagaries presented by the factual circumstance(s) in each situation.

However factually dependent this interesting area of employment law may be, it is expected that appellate decisions would be followed for purpose of consistency and predictability.

 

This article will attempt to:

  1. Briefly examine the concept of restrictive covenants and the justification for its enforceability.
  2. Review the Nigerian judicial trajectory from the Supreme Court case ofAndreas Koumolis v A.G. Leventis[2] and attempt a comparison with some recent decisions of the NIC, particularly in the most recent decision in Iroko TV v Michael Ugwu[3].
  3. Attempt to critically analyse the issues arising from the review of the cases,highlighting the inconsistencies in the reasoning leading to the decisions.
  4. Project into a new era of consistency of reasoning.
  5. Considerrecent approaches from other jurisdictions.

 

  1. Restrictive Covenant in general context

 

The definition of a covenant in restraint of trade has overtime presented a peculiar conceptual difficulty and several jurists have testified to this difficulty[4]. What appears to be a working definition was offered by Diplock L.J. (as he then was) in the English Court of Appeal case of Petrofina (Great Britain) Ltd v Martin[5].

 

In simple terms, a covenantor in restrictive covenants commits not to do either one or more of the following:

  1. Disclose and/or use information considered as a trade secret[6] or considered a proprietary property[7] of the employer, which use and/or disclosure would be considered as injurious to the employer and to the advantage of the [former] employer’s rivals.

 

  1. Set up his own business in competition with his [former] employer or accepting a position with one of the [former] employer’s competitors[8].

 

  1. Engage in solicitation of [former] employer’s customers[9].

 

  1. Poach employees of [former] employers.

In view of the fact that the jurisprudential basis for the enforceability has been a constant battle between on the one hand, a public policy view that a former employee should have a right to to eke out a livelihood and enjoy the practice of his trade, and on the other hand, the need to protect information considered to be trade secrets of the employer, the courts have developed a reasonableness test. This test imposes a burden on the employer to prove that any restrictions imposed is reasonable and failure to prove such reasonableness makes the restriction void[10].

Theparameters for measuring whether a restriction is reasonable usually are:

(a) the length of time the restriction is to last;

(b) the geographical limits of the restriction; and

(c) the nature of the information available to the employee.

Recently, other considerations have emerged in the global landscape including the proximity of the employee to such information considered a trade secret and therefore, the position occupied by the employee therefore plays a major role in deciding the justification for upholding restriction.

 

  1. Review of the Nigerian judicial trajectory from Andreas Koumolis v A.G. Leventisand comparison with some recent decisions of the NIC, particularly in the most recent decision in Iroko TV v Michael Ugwu.

Although the NIC is empowered to apply international best practices[11], the doctrine of judicial precedent which dictates that lower courts are bound by appellate decisions of superior is applicable to the NIC per force[12]. This view will be discussed later in this article. Each of the cases is now examined.

 

  1. Andreas Koumolis v AG Leventis (1973)

In Andreas Koumolis v AG Leventis, the Appellant (Koumolis) was recruited from Cyprus as a spare parts sales’ manager. Heoversaw sales and operation and dealt with all international clients and organisations which the Respondent was a member. He was also in charge of all management and running of the West African chain of the Respondent. In 1969, the Appellant resigned and joined another company called Nigerian Technical Company, which was just about 400 yards from the Respondent’s former employers in the Apapa area of Lagos. The text of the restrictive covenant reads:

“Upon the determination of his employment for any cause or by any means whatsoever the Employee shall not for a period of one year next thereafter undertake to carry on either alone or in partnership nor be employed or interested directly or indirectly in any capacity whatever in the business of Merchants Engineers or any other business carried on by the Company within a radius of fifty miles from any Trading Station in West Africa which is now or shall at any time during his employment or owned or managed by the Company and will not during the like period and within the same area either personally or by his agent or by letters, circulars, or advertisements whether on his own behalf or any other person, firm or company compete or seek to complete with the Company in any such business as aforesaid nor in any way interfere with any of the Company’s business or affairs or customers of the Company which may have been acquired by him in the course of or as an incident to his employment hereunder for his own benefit or to the detriment of the Company or intended probable detriment.”

In a suit before the High Court, Lambo J. awarded £1000 as the agreed damages against the Appellant for breach of clause 6 of the employment agreement, which forbids the Appellant from serving in any technical station of a competitor within West Africa. The Appellant appealed to the Supreme Court that the restraint was unenforceable being too wide and even if it was enforceable, the £1000 was a penalty and therefore did not flow from the damages suffered by the Respondent Company. Udo Udoma JSC of blessed memory reading the leading judgement of the apex court after reviewing all the authorities and arguments held, agreeing with the High Court and enforcing the covenant as follows:

“On the evidence it is not disputed that the appellant was employed as Spare Parts Specialist Manager to work in this country where the respondents operate. It is also common ground that when employed by the Nigerian Technical Company Limited, the appellant was dealing with spare parts and it was in the capacity of someone dealing in spare parts that he addressed Exhibits F and G to the respondents.”

 

He continued and held that:

On the facts of the case in hand, we are satisfied and hold that the learned trial judge came to a right conclusion and was justified, on the evidence, when he held that the covenant, the subject matter of complaint in this appeal was reasonably necessary for the protection of the business interest of the respondents and therefore valid and enforceable in law.”

 

  1. Hygeia HMO Limited v Mrs. Adesimbo Ukhiri & Anor (2015)

In Hygeia HMO Limited v Mrs. Adesimbo Ukhiri & Anor[13], The Claimant sought among others, specific performance of the restrictive covenant between the Claimant and the 1st Defendant who was employed by the 2nd Defendant (an HMO organisation). The 1st Defendant was employed as the Head Marketing and Business Development of the 1st Defendant, with duties including conducting marketing and business strategies, clientele retention and operations of the Claimant. By her employment contract, the 1st Defendant covenanted as follows:

“It is required that you will not take up employment with a competing Healthcare services company or any organisation involved in Health Insurance, Healthcare delivery or closely related within twelve months of leaving the employment of the Company”

Evidence before the court show that the 1st Defendant also executed a contract which contained a garden leave where the Claimant agreed to pay the salaries of the 1st Defendant upon termination from the Claimant’s employment while the restriction lasts. Upon her disengagement by resignation[14], the 1st Defendant joined the employment of the 2nd Defendant as Managing Director and during her employment with the 2nd Defendant, the 1st Defendant had poached staff of the Claimant to the 2nd Defendant[15].

 

While considering the enforceability of the restrictive covenant, the learned trial judge held that:

  1. The contract of employment of the 1st Defendant was constructively dismissed[16]
  2. That the contract of employment which contained the restrictive covenant had no company seal of the Claimant and the designation of the person who signed was not indicated[17].
  3. The use of the word “any” before the word “organisation involved in Health Insurance” made the covenant too wide in scope.
  4. The court relied on Aprofim Engineering Nigeria Limited v Jouques Boigouret & Anor[18] and Section 17 (3) (a) and (e) of the 1999 Constitution that the restrictive covenant was void and unenforceable.

 

Importantly, it must be noted that:

  1. No effort was made to distinguish the covenant from that which was enforced in Andreas Koumolis the Court did not consider the effect of the garden leave on the restrictive covenant;
  2. the learned trial judge made no reference to the evidence of poaching and the fact that the Claimant was in a position proximate to trade secrets of the Claimant; and
  3. the Court did not consider the restrictive covenant and situate same within the known parameters of evaluating its reasonableness.

 

  • Studio Press v Garnesh Kadoor (2018)

In Studio Press v Garnesh Kadoor[19], the Claimant sought to enforce a restrictive covenant which prevented the 1st Defendant from taking up employment with a competitor after 2 (two) years of disengagement from the Claimant. The 1st Defendant was employed as a chief digital network creator by the Claimant after having been granted a work permit to work in Nigeria being an Indian. The 1st Defendant after leaving Nigeria to India was found to have taken employment with the 2nd Defendant as quality assurance manager. The Claimant sued the 2nd Defendant for inducing the breach of the contract of employment between the Claimant and 1st Defendant.

 

In his judgement, Oyejoju. J. enforcing the restrictive covenant held as follows:

  1. The argument of the 1st Defendant that he was not paid his salary was completely rejected by the Court as a justification for breaching the restrictive covenant as the Court held that there are procedures for enforcing a breach of non-payment of salaries.
  2. The Court rejected the 1stDefendant’s argument that he did not perform the same job functions in both companies by mere reference to the different titles and stated that in so far as the 1st Defendant had trade secrets of the Claimant which he is using in his job role with the 2nd Defendant, the restrictive covenant must be upheld.
  3. The Court relied on Andreas Koumolis v AG Leventis and Nissan Nig. Limited v Yoganathan & Anor[20] and held that the restrictive covenant was reasonable even though it was for two years in view of the nature of the trade secrets in custody of the 1st Defendant and the nature of the role he performed in the 2nd
  4. The learned trial judge upheld the claims for inducement of breach against the 2nd Defendant

 

  1. Lacasera Company v Prahlad Kottappurath Gangadharam (2018)

 

In Lacasera Company v Gangadharam[21]the Claimant employed the defendant as Chief Operating Officer of the drinks/beverage company with a restrictive covenant not to take up employment in a competitor company in Nigeria for a period of 5 (five) years after termination of his contract. The Claimant later took up a job as New Business Development Manager with the Nigeria Bottling Company (NBC). The Claimant brought this claim to enforce the restrictive covenant on the basis that by virtue of his position, the Defendant had trade secrets of the Claimant’s business which he would use to the detriment of the Claimant. The learned trial judge refused to enforce the restrictive covenant on the grounds that:

  1. There was no evidence before him which showed the job description of the defendant in both companies to enable him to conclude whether the duties were related. Suffice to point out that the issue of whether the defendant was in a position proximate to trade secrets was not considered.
  2. That the 5-year period in the covenant was almost in perpetuity.
  3. That the job role in the new employer (NBC) required the Defendant to use his skills to market products of the new employer and it was contrary to public policy to prevent him (being a foreigner) from exercising that skill.

 

  1. Iroko TV.com Limited v Michael Ugwu (2020)

In Iroko TV.com Limited v Michael Ugwu[22]the Defendant was employed by the Claimant and after relocation to Nigeria, the Defendant signed an Employee Non-Disclosure Agreement (ENDA) not to among others set up a competing business against the business of the Claimant which would lead to misuse of confidential information. Upon disengagement, the defendant set up a business known as Africagent limited to conduct the business of digital music in competition with the Claimant. In deciding whether the ENDA which prevents the Defendant from setting up such business for a period of 2 two years, the learned trial judge citing Andreas Koumolis v AG Leventis among other cases held as follows:

  1. The execution of the ENDA (the restrictive covenant) two months after relocation to Nigeria foisted a fait accompli on the Defendant who had no choice and was subject to the dictates of the Claimant.
  2. That the ENDA signed after the employment Agreement was a change in the terms of employment and that the Defendant was not in the same bargaining position to refuse execution of the ENDA.
  3. The ENDA was not supported by consideration.
  4. There was no evidence of any trade secrets capable of being used by the Defendant detrimental or injurious to the business interest of the Claimant.

 

  1. Analysis of the issues arising from the reviews particularly the inconsistencies in the reasoning leading to the decisions

 

  1. Andreas Koumolis enforced Restrictive Covenant

It becomes important to critically consider the divergentbases upon which the NIC comes to its decisions on restrictive covenants as there does not appear to be a consistent consideration of the basis for application of the locus classicus in Koumolis v AG. Leventis.

The first thing that runs through the cases is the veiled reference to Andreas Koumolis only as a general rule that a restrictive covenant is unenforceable and generally void and against public policy. None of the cases referred to above (except for Studio Press v Garnesh Kadoor case) considered the exception (which provides balance to the doctrine) that a restrictive covenant is enforceable when reasonable and protects a trade secret. Apart from the Studio Press case, none of the cases cited Andreas Koumolis as having enforced the restrictive covenant. As such, the feeling any perceptive reader of the judgements of the NIC gets is that the learned judges of the NIC have not considered the bases for the enforceability of restrictive covenants. One then wonders whether Andreas Koumolis only exists for the negativity that has been ascribed to restrictive covenants rather than the balance it brings to protecting the use of trade secrets vis-á-vis the right of the employee to work.

The learned trial judge in Studio Press v Garnesh Kadoor case not only considered Andreas Koumolis case based on that balance but went further to consider the parameters for enforcement of a restrictive covenant in terms of reasonableness.

 

  1. Constitutionality of Restrictive Covenant

In Hygeia’s case, one of the inexplicable bases for refusal to enforce the restrictive covenant was that such clause violates 17 (3) (a) and (e) of the 1999 Constitution (as amended).Apart from the fact that the learned trial judge did not invite parties to address the question of constitutionality or otherwise of restrictive covenants[23], Andreas Koumolis never referenced such remote consideration. In any event, the Court did not consider that section  17 (3) (a) and (e) of the 1999 Constitution (as amended) forms part ofCHAPTER II of the Constitution (consisting of sections 13 to 24) and it deals with “Fundamental Objectives and Directive Principles of State Policy”. This part of the Constitution is not justiciable and are only declaratory and no more[24].

 

  • Non-payment of salaries or breach of employment contract as justification not to enforce restrictive covenants

One of the considerations outside of the reasonableness of the restrictive covenant which the NIC used to justify non-enforceability of restrictive covenants is any perceived breach of the employment contract by the employer in whose favour the restrictive covenant was made. This trend was apparent in Hygeia, Lacasera Company and Iroko TV Cases.

This writer respectfully submits that this approach is not only misconceived but shows nothing but a pretentious derision of the principles of law enshrined in the foundational basis of the doctrine of restrictive covenants. In the 3 (three) cases mentioned above, the NIC had left the focus (which is the reasonableness of the restrictive covenant) and used the non-payment of salaries to invalidate the covenant. However, the correct approach was lucidly applied in the case of Studio Press, when the learned trial judge stated  while considering the non-payment of salaries as a basis for breaching the restrictive covenant, that the argument of the employee (1st defendant) that he had not been paid his salary is not an excuse for breach of the restrictive covenant. One common denominator in this line of cases is that the employee never sues for payment of salaries, but they choose to either join a competitor or set up a rival business. The all-important question is; are actions outside of the parameters for determining reasonableness i.e. geographical, length of time and proximity to trade secrets now a basis to invalidate a restrictive covenant? It is the view of this writer that this approach is not only unfair but puts an unwieldy stretch on the consideration as to the reasonableness of the doctrine of restrictive covenants.

Also, one finds that the NIC introduces the narrative of “unequal bargaining power” in consideration of the reasonableness question. This was applied in the Iroko TV.com case. Apart from the fact that this consideration is totally outside of the known conceptual considerations, no employer wouldfind a fair consideration before the NIC because no employee (except perhaps in very rare cases) has an equal bargaining power with the employer. However, there is always the question of choice to proceed when presented with the option of taking employment. Every employee who executes a contract of employment waives his unequal bargaining position to the dominance of his employer save for such vitiating elements such as fraud, misrepresentation, duress and mistake. Beyond these vitiating elements, it becomes an anomaly to use an unruly “bargaining power” argument to push the unreasonableness position.  Again, the learned trial judge in Studio Press correctly brings this to bear when he applied Ariori v Elemo[25] applying the waiver rule to the issue of breach and bargaining power.

 

  1. Absence of evidence of Job description to determine existence of Trade Secrets

Another unusual burden placed on employers now is to provide evidenceto show that the same job description is what the employee performs in the new competitor. In Andreas Koumolis, no such burden was placed on the Respondent (employer). It was enough that the employee has been employed by a competitor and whether he performs the same job function is irrelevant. The Supreme Court considered the strict approach that the fact that the employee by his proximity to the trade secret of the former employer and by reason of his position in the employer was enough to restrict him from employment by a competitor. It would have been a different case if the employee did not possess trade secrets and was not proximate to same. It is important to note that the Appellant counsel in Andreas Koumoulis case argued (like has been argued in the NIC recently) that there was no evidence and there was no finding of the trial court that the appellant (employee) possessed any trade secrets and as such the covenant was too wide. Udo Udoma JSC however stated in his judgement as follows:

“The short answer to this is that there was uncontradictory evidence that the appellant as a Spare Parts Sales Manager dealt directly on behalf of the respondents and as their agent with customers of the respondents both Overseas and in this country. He was in possession of the respondents trade secrets and soon after his resignation and departure from this country the respondents lost Overseas Agencies for which they were negotiating to their rivals, the Nigerian Technical Company Limited and thereafter they were advised in letters signed by the appellant to deal with their competitor based about 400 yards away, by whom the appellant was then employed. That evidence was accepted by the learned trial judge. Surely, the inference that the appellant had something to do with the sudden change as regards the respondents’ dealers or suppliers is irresistible.”

The learned jurist further held as follows:

“In Commercial Plastics Limited v. Vincent (supra) it was held that even though it was difficult to classify any particular item of information in the (then) plaintiff’s possession as being confidential (other than information contained in document which can be protected by other appropriate legal remedies), the fact that the (then) defendant could probably remember in general in relation to any matter concerning in that case, adhesive tape, what was the problem and what was the solution, what experiments were made and whether the results were positive or negative, meant that the plaintiffs had confidential information capable of being protected by a suitably drafted condition or covenant in restraint of trade.”

The above quoted portions of the judgement in Andreas Koumolis (which numerous counsel and the NIC have not averted their minds to) is to the effect that there is no need to impose a burden on the employer to tender evidence of the new role undertaken in the new employer. As long as it can be shown that the employee was able to remember any aspects of his job functions which is vital to the employers business to give it an edge against its competitors, then the possession of trade secrets should not be a difficult fact to prove.

 

  1. Payment of Consideration to validate Restrictive Covenants

Another consideration that has found its way into the considerations for reasonableness as the basis for enforceability of restrictive covenants is the payment of consideration as a basis for enforceability. This was apparent from the decision of the NIC in Iroko TV.com’s case where the learned trial judge held that because the restrictive covenant (ENDA) was signed two months after the resumption of the employee, the restrictive covenant ought to be supported by consideration.

Unfortunately, and yet again, this is another misconception of the law of contracts. Firstly, the concept ofconsideration is usually erroneously viewed as exchange of money for a service. However, the law of contract is settled that “a peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn”[26]. Contracts are backed up by exchange of promises and the exchange of those promises constitute good consideration. In the case of employment contracts, the employment of the employee together with payment of salary is enough consideration for the employee to deliver services and keep trade secrets of the employer. It is a misconceptionof the concept of restrictive covenant to demand consideration for obligations such as non-compete, which run with the employment.  A restrictive covenant is not an obligation outside the employment contract as the covenant itself is an intrinsic part of employment by virtue of the position held by the employee and which the parties have agreed to form part of obligations of the employee. As such the contract is still the same contract and the obligation to honour the restrictive covenant runs with employment and not distinct, outside and separate from employment.

What is more is that to demand consideration in order to enforce a restrictive covenant is to create a collateral contract[27] to employment.  By this, the NIC assumes that a restrictive covenant is a separate and independent contract to the contract of employment with a life of its own, i.e. bearing its own offer, acceptance, consideration, intention to enter legal relations etc. Therefore, if this was the case, the NIC would consider enforceability based on existence ofall the elements of a valid contract to enforce the restrictive covenant, including offer, acceptance, intention to enter legal relations in addition to consideration. This cannot be the law. Nothing of such consideration was considered in the case of Andreas Koumolis case and this turns the law on its head with the doctrine of precedent applicable in Nigeria. It is this writer’s considered view therefore that to demand consideration is to extend the principles of enforceability of restrictive covenants beyond reasonable limits. It is noted that few writers[28] have suggested that consideration becomes one of the conditions for enforcement of restrictive covenants and a few jurisdictions have considered such in the enforceability of restrictive covenants. However, these views have not averted their mindsto the collateral contract argument and intrinsic nature of restrictive covenant to employment argument. In any event, the Nigerian locus classicus makes no such condition necessary.

 

  1. Will there be a new era of consistency of reasoning? Does Precedent still have a place in the NIC?

The issues highlighted in this write-up brings to the fore the inconsistencies inherent in the decisions of the NIC as regards the enforceability of restrictive covenants. While it is recognised that the NIC has shown that it is necessary as a specialised  court to provide a “human face” to employment by affording protection to employees, the NIC needs to balance the protection in the face of a competitive business environment where innovation becomes one of the most priced assets of businesses and therefore translates to enjoyment of market share. It however becomes a distortion of the equilibrium if the NIC pushes a line that does not find value in preserving this equilibrium by tilting the balance in most situations to the protection of the employee causing a distorted employment landscape. What is even more worrisome is the lack of consistency in the legal reasoning that informs these decisions. The introduction of nebulous considerations such as unconstitutionality, non-payment of salaries, evidence of job description and payment of consideration further imposes additional burden in genuine cases where a restrictive covenant is necessary to protect trade secrets that an employer has built overtime.

Another disconcerting feature is the almost total jettisoning of the doctrine of precedent which has been firmly rooted in our hierarchical adjudicatory structure. Stare decisis becomes necessary for the certainty, predictability and consistency it brings to justice[29]. A deviation from precedent may bring chaos into judicial search for justice. Therefore, one finds that presently, the ratio decidendi for similar cases on similar facts is dependent on nebulous considerations as it concerns enforcement of restrictive covenant in the NIC. Andreas Kumoulis is often cited in the NIC without considerations of the binding ratio it establishes.   In Hygiea, Lacasera and Iroko cases, the learned trial judges cited the general rule without any veiled attempt to consider the intricate exceptions which gives balance, symmetry and a sense of broad justice to a complex doctrine. Only in Studio Press was the authority of Andreas Koumolis applied to its full amplitude. This portends a dangerous outlook for the certainty and predictability earnestly sought forin the labour/employment landscape.

While this writer recognises the power of the court to apply international best practices in Section 254C (1) (h) of the Constitution, it is however submitted that such power cannot override the doctrine of precedent. The NIC has shown a predilection to draw from other countries such as India, such decisions without the consideration of the fact that India has legislated for most of these emerging issues in its municipal laws as a basis for application of what is imported into our well-developed jurisprudence. As such, concepts like restrictive covenants, unfair labour practices and constructive dismissal are well codified. In any event, we need to be reminded that decisions of foreign courts have no more than persuasive authority in Nigeria and cannot supplant decisions of superior courts on the subject matter[30]. It is also important to note that what is considered “international best practice” is a question of fact as it relates to any situation for a judge to assume for the parties. As such, it must be incumbent on a judge who seeks to apply any foreign decision to allow/afford the parties to present evidence and address the court on whether a foreign decision constitutes international best practice at that point in time and whether same does not contravene any existing judgment of the Court of Appeal or Supreme Court which the NIC is bound to follow.

One would therefore hope that the NIC would look inward into the robust decisions of superior courts with the hope of maintaining consistency in the labour habitat of Nigeria.

 

  1. Recent approaches from other jurisdictions

It is worthy to note that as much as the NIC is empowered to apply international best practice, it remains blurry whether this power is optimised to its fullest with the array of examples to pick from. One would expect the NIC to consider learnings that reflect contemporary thinking on the subject. In this regard if the learned trial judge considered the case of PepsiCo, Inc. v. Redmond[31], the case of Lacasera Company v Gangadharam may have been decided differently. In Lacasera case, the learned trial judge required evidence of job description to decide whether a Chief Operations Officer could be in possession of trade secrets. In PepsiCo’s case Redmond was General Manager in PepsiCo and was offered the position of Vice President on Premises Sales for Gatorade. The US court of Appeal applied the same doctrine in Andreas Koumolis and decided that PepsiCo has proved a claim of trade secret misappropriation by demonstrating that Redmond’s new employment would inevitably lead him to rely on PepsiCo’s trade secrets. As far as the court was concerned, in so far as Redmond (employee) who had from year-to-year seen the business plans, forecast.Etc., as contained in yearly brochures circulated among top tier staff, there is an inevitability that such secrets would be disclosed.

The inevitability principle was also applied in the case of Corporate Technologies Inc. v Brian Harnett[32]. In this case, the defendant, a successful IT salesman for the Claimant resigned and joined OnX, a competitor. The defendant had signed a non-solicitation/non-compete clause which prevents solicitation of customers of the Plaintiff. Upon his resumption at OnX, OnX sent an e-mail to about 100 potential customers informing them of the resumption of the defendant in its company. The court held that the email constituted solicitation as such e-mails would reach customers of the Claimant. The court also held that because of the position he held in the Claimant company, the defendant cannot simply forget the series of information he has in marketing the customers of the Claimant and it was inevitable that such information would be used to the detriment of the Claimant.

In Tillman v Egon Zehnder Ltd[33]theAppellant (Tillman) was recruited at consultant level and had in 8 years risen to Co-Global head of the financial service group of the Respondent company. Upon her termination, she took up employment with a competitor. She had executed a restrictive covenant which prevented her within 6 (six) months from termination of her employment with the Respondent from directly or indirectly be interested in any business carried on in competition with the business of Egon Zehnder.  There was also a separate clause preventing her from holding 5% shareholding in a competitor. The Supreme Court upholding the restrictive covenant agreed with the company that the natural meaning of non-compete restriction prevented Mrs. Tillman from holding shares in a competitor. In overruling the Court of Appeal, the Supreme Court applied the blue pencil rule and severed the words “interested in” as being too wide but left the non-compete part of the clause intact.  While this writer respectfully thinks that the learned trial judge in Hygeia case wrongfully held that the use of the word “any” in the clause only qualified “health organisation”, assuming that was too wide, the court could have applied the blue pencil rule in such circumstances where it so deserving.

 

  1. Garden Leave

Garden Leave describes a period an employee under a restrictive covenant stays away from work for an agreed period while still receiving salaries during the absence from work. This is to allow the employer to change its strategies should the affected employee take employment with a competitor. Employers use this practice to prevent the employee from taking up-to-date confidential information to a competitor. The presence of garden leave makes it easier for an employer to prove the reasonableness of a restrictive covenant since the employee is still in its employment during the garden leave. The NIC had a chance to consider the effect of this innovative practice for the first time in Nigeria in the Hygeia Case, however, the NIC missed that golden opportunity. The opportunity to deepen the Nigerian jurisprudence was sacrificed on the altar of inapplicable [un]constitutional convenience. Hence, we remain where we are.

 

  1. Conclusion

It is hoped that the NIC will, respectfully, reconsider its stance and considerratiosfrom other jurisdictions where the reasonableness test has been deepened to balance the tilt,while applying Andreas Koumolis where the facts are similar. It is noteworthy that as far back as 1973, the Supreme Court already identified the central place of proximity to confidential information and the inevitability of the temptation to use that information where the opportunity presents itself.  The NIC while pushing the “human face” narrative for employees must also seek a balance that is seen to bring symmetry into the labour space by consistency and predictability in reasoning.

 

 

 

*Gbenga Bello is a Legal Practitioner and practices in Lagos

[1]This may not be  unconnected with the wording of Section 243(2)&(3) of Constitution of the Federal Republic of Nigeria, (Third Alteration) Act, 2010which suggests that appeals shall lie only as of right on matters relating to Chapter IV and that other appeals lie as prescribed by an act of the National Assembly which does not exist. Although the Supreme Court in the case of SKYE BANK v IWU [2017] 16 NWLR pg 24. 1, appears to have cleared the uncertainty generated by the law setting up the NIC. Specificallythat in so far as the NIC is a court of co-ordinate jurisdiction with the Federal High Court, High Courts of States, etc, a purposive interpretation of the Constitution makes it clear that decisions of the NIC are appealable just like its co-ordinates; nonetheless, reported appealsfrom the NIC are not as prevalent at the Court of Appeal.

[2](1973) 11 SC 100

[3] SUIT NO: NICN/LA/169/2015 delivered on 12th November 2020

[4]See Lord Reid and Lord Wilberforce’s dicta in Esso Petroleum v Harper’s garage (Stouport) Ltd (1968) A.C. 269; Lord Reid stated at page 298 that he “would not attempt to define the dividing line between contracts which are not in restraint of trade” while Lord Wilberforce at page 332 stated that “no exhaustive test can be stated- probably no precise non-exhaustive test”. He goes on to say that this is not to be regretted because “the common law has often (if sometimes unconsciously) thrived on ambiguity and it would be mistaken , even if it were possible, to try to crystallize the rules of this or any aspect of public policy into neat propositions. The doctrine of restraint of trade is one to be applied to factual situations with a broad and flexible rule of reason.

[5] (1966) Ch. 146 where the term was defined thus

“A contract in restraint of trade is one in which a party (the covenantor) agrees with any other party (the covenantee) to restrict his liberty in the future to carry on a trade with other persons not parties to the contract in such a manner as he chooses.”

[6]Lansing Linde Ltd v Kerr (1991) 1 WLR 251

[7]Printers & Finishers Limited v Holloway (1964) 3 All ER @ 735 and 736

[8] Commercial Plastics Ltd v Vincent (1965) 1 QB. 625

[9] S.W. Strange V Mann (1965) 1 W.L.R.  629.

[10]Mitchel v Reynolds (1711) 1 P. Wms.; Nordenfeldt v Maxim Nordenfeldt Guns and Ammunition Company (1894) AC 535, 565

[11]See Section 254C(f) Constitution of the Federal Republic of Nigeria 1999 as amended

[12]Nigeria Arab Bank Ltd. V. Barri Engineering Nig. Ltd. (1995) LPELR-2007(SC)

[13] Unreported –NICN/LA/454/2013, judgement delivered by Amadi J. on March 20, 2015

[14]Although the 1st Defendant claimed she was forced to resign

[15]It must be stated that the facts of the presence of Garden Leave in the contract and the fact of poaching of the Claimant’s staff were not reflected in the judgement of the Court.

[16]That the 1st defendant did not resign voluntarily

[17]This issue was never raised by the Defendants and the learned trial judge picked it and decided it suo motu without affording parties the opportunity to address it

[18] (2015) 52 NLLR (Pt 173) 1

[19] Unreported – NICN/LA/144/2015 judgement delivered by Hon. Justice Oyewunmi Oyebiola Oyejoju

[20](2010) 4 NWLR (pt. 1183) 135

[21] Unreported –NICN/LA/533/2013 judgement delivered by Hon. Justice J.D. Peters

[22]Unreported –NICN/LA/169/2015 judgement delivered by Hon. Justice J.D. Peters

[23]The issue was raised suo motu in the judgement

[24]Archbishop Anthony Okogie v. AG Lagos State (1981) 2 NCLR 337 at 350; AG Ondo V .AG Federation (2002) 9 NWLR (part 772) p.22.

[25](1983) 1 SCNLR 1

[26]Chappell & Co Ltd v Nestle Co Ltd ([1960] AC 87). What this means is that courts will not generally inquire into the adequacy or relative value of the consideration provided by each party. So, if a contract calls for one party to give up something of great value, while the other party gives up something of much lesser value, then it will generally still be considered a valid contract, even though the exchange of value greatly favours one side

[27]Collateral contracts are independent oral or written contracts that are made between two parties to a separate agreement or between one of the original parties and a third party. This type of contract is usually made before or simultaneously with the original contract.The features of collateral contracts are:

  • Be consistent with the main contract
  • Be promissory
  • Follow the promise with a statement
  • Contain all elements of a contract

[28]https://allanjanes.com/-Consideration-For-Restrictive-Covenants – consideration for restrictive covenants – Allan James Solicitors. See also https://www.ashfords.co.uk/news-and-media/general/consideration-must-be-paid-to-be-able-to-enforce-restrictive-covenants-inserted-as-part-of-a-contract-variation

[29]Hon. Justice A. Aboki JCA “The Doctrine of Stare Decisis: The need for certainty of Judicial Decisions”, referred to by Hon. Justice Idahosa, C.J. of Edo State at the conference of all Judges of the lower courts between 21st 025 November 2016

[30]Araka V. Egbue (2003) 3 WRN 20; Carribbean Trading & Fidelity Corporation V. NNPC (1992) 7 NWLR pt 252

[31]54 F.3d 1262 (7th Cir. 1995)

[32]No 12 – 12385-DPW (D-Mass May 3, 2013)

[33][2019] UKSC 32


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