Non-compete clauses play a significant role in protecting an employer’s legitimate business interests, such as trade secrets, client relationships, and proprietary knowledge. However, their enforceability depends on their reasonableness in terms of duration, geographical scope, and restricted activities. The Hope Law seeks views of some legal practitioners on the topic. Excerpts:

By Ayodele Popoola

Charles o Adamu Esq.

The bedrock of any organization is founded on the ability to ensure that confidential information and trade secrets are kept safe. Due to the need for manpower that is essential in all forms of enterprises and corporate bodies, it might be quite tasking to protect this sensitive information as employees, of a necessity, are privy to business strategies, formulas, financial strategies, marketing modules, and all such information that are necessary and incidental to the effective dispensation of their duty.

Non-compete clauses, often referred to as  Non-competition agreements are essential tools for companies looking to protect their business interests and confidential information. In Nigeria, the legal landscape surrounding non-competition agreements is defined by various factors, including labour laws, judicial precedents, and recent legislative developments.

Under Nigerian labour laws, companies have the authority to include non-competition clauses in their employment contracts. However, the enforceability of these clauses depends on their reasonableness in terms of scope, duration, and geographical area. Nigerian courts recognize the need for employers to protect their trade secrets and business interests through non-compete agreements. However, they are equally concerned about ensuring that these agreements do not unfairly restrict employees’ ability to pursue livelihoods after leaving the company.

In the case of 7th Heaven Bistro Limited v Mr. Amit Desphande (Unreported), it was ruled that a non-compete agreement restricting an employee from pursuing employment in Nigeria for three years after leaving the employer was considered inhuman and stifling. It is important to note that the Federal Competition and Consumer Protection Act of 2019 (FCCPA) has provisions that impact non-compete agreements. Section 59 of the FCCPA explicitly prohibits agreements that obstruct competition, deeming them unlawful and void if they hinder competition within any market. However, Section 68(e) of the FCCPA provides an exception, allowing service contracts to include provisions limiting work activities for up to two years following contract termination.

Based on these legal considerations, it is clear that non-competition agreements are permissible in Nigeria, as long as they are drafted fairly and reasonably to protect the company’s interests and are in accordance with the FCCPA.

Non-compete clauses in employment contracts are provisions that restrict employees from engaging in similar professions or starting competing businesses for a specified period and within a defined geographical area after leaving their current employment. These clauses are designed to protect employers’ legitimate business interests, such as trade secrets, confidential information, and customer relationships. However, their legality and enforceability vary across jurisdictions, often depending on the reasonableness of their scope, duration, and geographical limitations.

Legal Basis and Justification for Non-Compete Clauses 

Non-compete clauses are primarily justified under contract law and employment law principles. Employers argue that such restrictions are necessary to safeguard proprietary information and maintain competitive advantage. According to A. Smith in Employment Contracts and Restrictive Covenants, non-compete agreements are enforceable if they are reasonable in protecting the employer’s interests without unduly restricting the employee’s right to work. Courts often assess whether the clause is broader than necessary, as seen in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co [1894] AC 535, where the House of Lords held that restraints must be reasonable in the interest of both parties and the public. 

Factors Determining Enforceability 

For a non-compete clause to be enforceable, it must meet certain criteria: reasonableness in duration, geographical scope, and the nature of the restriction. In Tillman v Egon Zehnder Ltd [2019] UKSC 32, the UK Supreme Court emphasized that overly broad restrictions would be unenforceable. Similarly, in the US, states like California generally prohibit non-compete agreements under Business and Professions Code Section 16600, except in limited circumstances involving the sale of a business. Meanwhile, in Nigeria, the enforceability of non-compete clauses is guided by common law principles, requiring that such restrictions must not be against public policy, as discussed in O. Adeleke’s Nigerian Employment Law. 

Challenges and Criticisms 

Critics argue that non-compete clauses stifle innovation and limit employees’ career mobility. A study by E. Starr in The Journal of Law and Economics (Journal, 2019, p. 67) found that non-compete agreements reduce wages and job mobility, particularly in the tech industry. Additionally, some jurisdictions, such as the European Union, impose strict scrutiny on such clauses to ensure they do not violate competition laws. The European Court of Justice in Bonnier Audio AB v Perfect Communication Sweden AB (Case C-461/10) ruled that excessive restrictions could contravene EU competition rules. 

Recent Developments and Legislative Trends 

In recent years, there has been a push to limit the use of non-compete clauses, especially for low-wage workers. The US Federal Trade Commission (FTC) proposed a rule in 2023 to ban non-compete agreements nationwide, arguing that they suppress wages and hinder entrepreneurship Similarly, the UK government has considered reforms to limit the duration of non-compete clauses to three months.

The enforceability of non-compete clauses depends on their reasonableness and the legal framework of the jurisdiction. While they serve legitimate business purposes, excessive restrictions can be struck down by courts. Employers must draft these clauses carefully, ensuring they are narrowly tailored to protect only essential business interests. As legal trends shift towards greater employee mobility, legislative reforms may further restrict the use of non-compete agreements in the future.

Employers ranging from multinational corporations to local businesses, often use non-compete clauses to protect trade secrets, client relationships, and proprietary knowledge in competitive sectors like oil and gas, telecommunications, or agriculture. These clauses typically restrict employees from joining competitors or starting rival ventures post-employment, with terms varying by industry and company size.

Enforcing non-compete clauses in employment contracts involves a complex interplay of legal principles that vary by jurisdiction, balancing an employer’s interest in protecting business assets against an employee’s right to work and earn a living. Generally, for a non-compete clause to be enforceable in practice, it must be reasonable. Courts often scrutinize these clauses to ensure they are not overly restrictive, with enforceability depending heavily on local laws and specific circumstances.

In the United States, the legal landscape has shifted recently. In 2024, the Federal Trade Commission (FTC) issued a rule banning most new non-compete agreements nationwide and rendering existing ones unenforceable for most workers, except for senior executives with pre-existing agreements. The FTC argued that non-competes suppress wages, hinder innovation, and limit worker mobility, affecting around 30 million U.S. workers. However, this rule faced immediate legal challenges. In the same year, a federal court in Texas held in Ryan LLC v. FTC, struck down the rule, finding the FTC exceeded its authority, halting its enforcement nationwide. The FTC has appealed, but as of today, non-competes remain enforceable under state laws, which vary widely.

A notable recent incident highlighting these issues involves former Google DeepMind employees in the UK, where non-compete clauses are still legal. In early 2025, posts on X revealed frustration among ex-employees bound by contracts preventing them from working for competitors or sharing ideas for 6 to 12 months post-employment. Unlike the U.S., the UK has no blanket ban, though a proposed 2023 government plan to cap non-competes at three months remains unimplemented. This case underscores the practical impact of non-competes, restricting skilled workers’ career moves and sparking debate over their fairness.

Globally, enforcement trends are shifting. Some jurisdictions, like Belgium and Portugal, allow non-competes with compensation requirements, while others void them unless deemed reasonable. The legal aspect in practice thus hinges on balancing economic freedom with business protection, meaning both employee pushback and judicial limits on overly broad restrictions.

While trade organizations within countries like chambers of commerce or industry-specific groups may advocate for employer interests, pushing for enforceable restrictions to safeguard business investments, they must align with national laws.

Legal frameworks differ across countries. In a Nigeria case, Koumoulis v. Leventis Motors Ltd., it was held that the clause follow common law principles for enforceability and only if reasonable in scope, duration, and geographic area, balancing employer protection with employee rights. The reasonableness test ensures restrictions must not unduly limit the livelihood of the employee.

Enforceable non-competes can reduce labor mobility, potentially stifling innovation and wage growth, as skilled workers are locked out of competitive opportunities. Conversely, they may encourage employer investment in training, knowing expertise won’t immediately benefit rivals.

Non-compete clauses risk infringing on constitutional rights to work prompting courts to favor employees when restrictions seem unreasonable, as seen in recent Nigerian cases like Interswitch Ltd v. Christopher Esumeh (2024).

While protecting legitimate interests such as trade secrets, excessive use of non-competes could hinder market competition, a concern for trade organizations aiming to foster economic growth under free movement protocols.

In practice, a 2025 incident in Ghana involving a telecom engineer barred from joining a competitor for two years after resignation highlighted these tensions. The clause was struck down by a court for its unreasonable duration and scope, reflecting West African judicial trends prioritizing employee mobility over restrictive employer controls. This underscores the delicate balance between business interests and individual freedoms in the region’s evolving legal landscape.

Godwin Bernard Esq.

Employees and contractors cannot be precluded from terminating their contract of/for service, as any such attempt would be a contravention of several laws. To protect the confidential information that is transferred within an organization, non-compete clauses are included in employment contracts and become increasingly pertinent when employees leave an organization.

The need for the inclusion of this clause or the agreement in itself is further highlighted by the need for terms and conditions in an employment contract to reflect the intentions and agreement between the parties regarding the rules governing their relationship. This is traceable to the principle of sanctity of contract as courts do not have the authority to alter the agreements made by the parties, making individuals typically bound by the terms they willingly agree to.

NON-COMPETE CLAUSES

A non-compete clause alternatively referred to as a non-competition clause or covenant not to compete is a clause included in an employment contract or a separate agreement between an employer and an employee. This means that a non-compete agreement can be included as a clause in an employment contract or as a separate agreement in itself.

The concept of a non-compete clause in the context of employment contracts simply means that in the event of an employee of a firm leaving, he/she is precluded from disclosing to competing firms, trade secrets and confidential information. This principle is founded on the need to ensure the confidentiality of trade secrets, information that is confidential to the firm or organisation, and business strategies among other issues. Consequent upon this, it is trite that during the employment or in instances where the employment has been terminated, a non-compete clause which would have been signed by the party upon taking up the employment role is stopped from revealing competitive information and engagement of competitive activity so that the competitive edge is not lost.

While it is settled law that where non-compete clauses in employment contracts are enforceable and legal, the nature of the contract is brought into question and some metrics are used in analysing the extent of the reasonableness of such clauses. This was a settled position in the case of Koumolis v. Leventis Motors Ltd (1973) NSCC 557 where the Court posited that where a non-compete clause is reasonable, it shall be enforceable. Further, the clause has enjoyed the statutory flavour as the Federal Competition and Consumer Protection Act applicable in Nigeria is against agreements or clauses that hinder competition in the Nigerian market. The FCCPA in Section 68 is to the effect that in an employment contract, non-compete clauses are enforceable as long as the restriction period does not exceed 2 years. What the courts will determine in ascertaining the reasonableness of such clauses will be based on factors such as the nature of the business, the geographical area covered by the restraint and the duration of the restriction. As such, in the case of Vee Gee Nigeria Ltd. v Contact Overseas Ltd (1992)9 NWLR (Pt. 266) 503, the court enforced a non-compete clause as it found it reasonable and it was not wider than necessary to protect the employer’s interest. On the flip side, in the case of Iroko TV Ltd. v Michael Ugwu (2020), the court held that a 2-year non-compete clause was unreasonable, illegal and invalid. As such, for a non-compete clause to enjoy enforceability, it must meet the criterion of reasonableness, duration (maximum of 2 years, but the court may favour short periods in light of constitutional rights), the geographical area and the validity of such employment contracts. Conclusively, there is the need for employers to ensure that non-compete clauses are properly couched to entail these elements and should protect legitimate business; and employees should seek legal advice before signing such clauses to understand their nature and enforceability; and impact on future employment opportunities.

As the name implies, this clause or agreement is to restrict an employee from engaging in certain competitive activities during and/or after the pendency of the employment. The primary purpose of a non-compete clause is to ensure that the employer’s competitive edge is not lost as a result of a transfer of skills or information that is termed confidential.

It should be noted that the nature of a non-compete clause or agreement is dependent on the terms stipulated in the clause or the agreement. What this means is that an agreement might preclude the employee from working for a competitor within a time frame set or prohibit the transfer of certain information.

The general common law position was that it is averse to any clause that is perceived as restrictive, as such, is viewed as contrary to public policy, void ab initio, and unconstitutional.

In the case of Koumolis v Leventis Motors Ltd, the Supreme Court held that where a non-compete clause is reasonable, it is enforceable. This was supported by the trite principle that parties are bound to their agreement unless a vitiating element can be proven as ad idem of parties is treated as sanctimonious.

THE LEGALITY OF NON-COMPETE CLAUSES

There is a long-standing debate on the enforceability or otherwise of non-compete agreements as there are a plethora of authorities for and against the notion.

Restrictive covenants are generally not embraced as the law is set in motion to protect the employee as the more vulnerable party, more often than not. The Supreme Court provided a subjective test that weighs the reasonability of the non-compete clause or agreement to ascertain its enforceability or otherwise. The court provides that the nature of the business should first be considered. Another major factor to test the reasonableness of the agreement is the geographical span of the restriction and the period of the restriction. These should all be considered and tested on the subjective scale of reasonability.

Where it can be concluded that such a time frame or territorial scope is such that it frustrates the right of the employee to seek employment, the court would be inclined to rule that such a clause or agreement be deemed unenforceable. While the court respects the sanctity of the contract and gives life to the intention of parties, an exception is where such agreement is contrary to public interest or policy and this can be tagged under this umbrella.

Similarly, the Federal Competition and Consumer Protection Act (FCCPA) 2018, expressly prohibits agreements that hinder, competition within the Nigerian market. The inclusion of a non-compete clause can be viewed as a limit to competition, and this Act might as well have outrightly forbidden non-compete clauses as the Act seeks to prohibit any form of market dominance abuse and monopolies[5]. Conversely, the Constitution guarantees that citizens should not face discrimination in terms of employment opportunities and compensation based on any criteria that can be extended to include any agreement.

However, it can be argued that certain non-compete clauses are not discriminatory as the duration is a reasonable period and it can be further argued that such an agreement does not necessarily eliminate or limit competition. In summary, each agreement shall be regarded as enforceable or otherwise, depending on the circumstance of each case and the terms in the non-compete clause.

The first test of validity for a non-compete clause or agreement is enforceability. Enforceability is dependent on the reasonability of the restriction of the terms of the clause or agreement as the clause cannot be used to prevent healthy competition.

The implication of the inclusion of a non-compete clause or non-compete agreement is that where the agreement is validly enforceable, any breach of the terms of the agreement affords the employer a right of action in court.

The terms of the clause might be of such a manner that prevents the employee from being engaged by a competitor for a specific period dependent on the nature of the industry and the geographical location of the employer or prevents the employee from using certain skills for a specific period.

REMEDIES FOR BREACH

Where an employee or former employee breaches any term stipulated in the non-compete agreement within the time frame agreed upon, the employee is liable for breach of contract and the employer is entitled to certain remedies such as:

 Injunction: this is the most common form of relief sought as it dispenses with the need to prove damages. All that the employer needs to prove is that there is a valid agreement that the employee is in breach of it. The employee should then be restrained from continuing in such breach, which more often than not translates to the employee quitting the new employment that constitutes such breach.

Damages: under this remedy, the employer is expected to prove that damage has been suffered, or that loss occurred by the breach of the agreement, and punitive or compensatory damage is awarded against the employee to mitigate such loss or damage.

Henry Orisameyiti Esq

Non-compete clauses play a significant role in protecting an employer’s legitimate business interests, such as trade secrets, client relationships, and proprietary knowledge. However, their enforceability depends on their reasonableness in terms of duration, geographical scope, and restricted activities.

In Nigeria, while statutory provisions under the FCCPA 2018 allow for non-compete agreements, they must not exceed two years and must be justifiable to avoid being struck down as oppressive or contrary to public policy. Judicial precedents emphasize that non-compete clauses should not unreasonably restrict an individual’s right to work, as seen in cases where courts have ruled against overly broad or lengthy restrictions.

To ensure enforceability, employers must carefully draft non-compete agreements to balance their business interests with employees’ rights. Ultimately, a well-structured, fair, and reasonable non-compete clause is more likely to withstand legal scrutiny and achieve its intended purpose without infringing on employees’ rights.