Non-compete clauses are used by employers, in employment contacts, to limit their employees from seeking work or being employed by their competitors after termination of employment.
The law on non-compete clauses.
The Contracts in Restraint of Trade Act, Cap 24 provides for non-compete clauses in Kenya. The Act provides that non-compete clauses are not void so long as they:
- Provide a time span in which they should be in force;
- Limit the scope of application; and
- Are limited to a specified geographical area.
The Act also provides that though these clauses are valid, the High Court has powers to declare them void if, having regard to the circumstances of the particular case:
- The clause is not reasonable in the interests of the parties, as it affords more than adequate protection to the party in whose favour it was imposed; and
- The clause is injurious to the interests of the public.
These provisions in the Act, therefore, bring out the requirements for a valid non-compete clause as:
- The clause must limit the time of application;
- The clause must limit the scope of application;
- The clause must be reasonable;
- The clause should not be injurious to public interests; and
- The clause must be limited to a particular geographical application.
Therefore, for a non-compete clause to be valid, it has to adhere to all requirements in the Act.
Enforcement of non-compete clauses.
Non-compete clauses can be enforced by the Employment and Labour Relations Court upon an application by the employer in question.
The test for enforcement of these clauses is the reasonableness test. For a non-compete clause to be held valid and subsequently enforced, it has to be:
- Reasonable in the interest of the public.
It should not be injurious to public interests.
- Reasonable in the interest of the parties to the contract.
It should not offer more than adequate protection to the employer.
What is termed ‘more than adequate protection has not been clearly defined by the courts. However, courts look at the competing interests of the employer and former employee while determining this question.
In the case of LG Electronics Africa Logistics FZE v Charles Kimari (2012) eKLR, the Applicant [LG Electronics] sought an injunction restraining the Respondent from working for Samsung Electronics East Arica Limited [a competitor of LG Electronics]. The clause which was contained in the employment contract signed between the Applicant and Respondent restricted employment by a competitor for a period of 12 months. (At the time of the application, 7months had lapsed)
The court declined to enforce the clause for the remainder period of 5months, citing that the Applicant had failed to show that the knowledge and skill of the Respondent had been acquired from the confidential information of the employer and not the Respondent’s own knowledge.
The court held that the clause did not meet the limitations imposed under the Contracts in Restraint of Trade Act, since it would be unreasonable to put the former employee out of employment for a period of five months without a guarantee of re-employment. It stated that since there was rampant unemployment in the country, it would be unreasonable, in the interest of the parties, to cause loss of employment of the Respondent by virtue of a non-compete clause. The court further stated that it would be against public policy to enforce the clause since courts are not supposed to encroach on a person’s right to earn a living.
In a similar case of Credit Reference Bureau Holdings Limited v Steven Kunyiha (2017) eKLR, the Plaintiff and Defendant had entered into a contract with express non-compete clause restricting the Defendant from being employed or engaging with competitors of the employer for a period of 12months after employment. The Plaintiff approached the ELRC seeking to enforce this clause in view of the Defendant’s engagement with Credit Info CRB Kenya Limited, a competitor of Plaintiff. At the time of the decision, only 3months had remained to the expiry of the clause.
The court held that it would be unfair to ‘encourage a practice where employers shackle employees from obtaining employment with its competitors’. It stated that only skills or knowledge unique to the employer’s secrets could be subject to a non-compete clause. That skills gained from working with one employer and skills that could be acquired by learning and experience could not be the subject of non-compete clauses. The court, in declining the enforcement of the clause stated that the Plaintiff had failed to show the nature of the secrets or information in the Defendant’s possession that would cause harm to its business.
From the above cases, aside from showing that the non-compete clause falls within the limits set by the Act, an employer has to prove:
- Reasonableness of the clause;
- The skills or knowledge subject to the clause are unique skills that could jeopardize the business of the employer; and
- The employer has not delayed in enforcing the clause – therefore, no substantive damage has occurred but it is impending if the employee works for their competitor.
Non-compete clauses in Kenya are valid and provided for in law. However, it is difficult to enforce them since courts prioritize the rights of employees to earn a living over the right of employers to protect their businesses. Our courts are pro-employees due to the wide range of unemployment in the country, making it a hard task to enforce these clauses.