Enforceability of the non-compete clause: Kenyan Context
Non- compete clauses are governed under the Restraint of Trade Act. The Act under Section 2 defines contracts in restraint of trade as.
Non- compete clauses are governed under the Restraint of Trade Act. The Act under Section 2 defines contracts in restraint of trade as:
“Any agreement or contract that contains a provision or covenant whereby a party thereto is restrained from exercising any lawful profession, trade, business or occupation shall not be void only on the ground that the provision or covenant is therein contained”.
Reasonable Test applied by courts in deciding whether or not to give effect to a Restrictive clause.
1. Restraint should be reasonable. The Employment and labour relations court in considering enforcement of a non -compete clause opined that:
“Business competition is the essence of free markets. Whereas it would not be right to allow practices that unfairly and unduly open up one’s business secrets and market edge to its rivals,it would on the other hand not be right to encourage a practice where in order to survive the competition such business shackles its employees from obtaining employment with its competitors”
The Employment and Labour Relations court opined that for a Non-Compete Clause in a contract to be enforceable, the employer has to prove that the employer only seeks to restrain the use of that which is uniquely that employer’s secret and that the employer does not seek to restrain the knowledge and skill that the employee has that can be acquired by learning, experience or development in technology.
2. Geographical limitation-: The general rule is, the broader the geographical area,the less likely the non-compete clause is likely to be enforceable.
3. Time limitation-: The non-compete clause should indicate a reasonable limitation on the duration of the Non compete time. The courts have ordinarily considered 6months to 1 year as a reasonable time.
4. Interests of the parties and interest of the public :- the provision of the clause should not be injuries to public interest.
In the matter of Credit Reference Bureau Holdings Limited V Steven Kunyiha Eklr: Hon. Justice Abuodha observed that
“Unlike ordinary contracts where the court has observe the sanctity of the contract, Sec 2 of the Restraint of Trade Act (Cap 24) empowers the court to declare provisions of such contract void where the court is satisfied that the covenant is not reasonable either in the interest of the parties or against the public interest.”
By Ivy Ndirangu