By Elvis Evbaruovbokhanre Asia
Case: Halogen Security Company Limited V. Mr. Nnamdi Meli [1]
Judge: Justice Joyce A. O. Damachi
Date: 16/12/2024
Main Issues of Law
- Enforcement of Non-Compete Clauses
- Proof of Breach of Confidentiality/Non-Disclosure and Trade Secrets
Summary of Facts:
The Defendant was the Head of Corporate Strategy for the Claimant. Clause 3 of the employment contract imposed a duty of confidentiality and prohibited the Defendant for a period of 24 months from engaging in “any business in the industry which has the same objectives as that of the Halogen Group or with any other business or company that may in any way be deemed as a competitor of the Halogen Group.”
Subsequently, the Defendant left Halogen’s employment and became the Chief Executive Officer (CEO) of SETY Ltd. The Claimant alleged that the Defendant left during negotiations for collaboration with SETY on behalf of Halogen and that, by becoming the CEO of SETY, the Defendant had exposed Halogen’s valued trade secrets for SETY’s benefit. These trade secrets allegedly included strategic business plans, customer databases, market survey reports, pricing methods, operational modules, and other critical tools of competitive advantage in the security services industry.
The Defendant denied breaching Clause 3 of the employment contract. He argued that he was not the custodian of the business secrets, which were housed in the corporate archives, located in the CEO’s office, and maintained that SETY’s objectives differed from those of Halogen.
Court’s Decision:
The court held that the Claimant failed to identify specific trade secrets or confidential information that had been disclosed. There was no evidence presented to substantiate the alleged disclosure, nor any indication of how the Defendant’s actions had negatively impacted Halogen or benefited SETY. Additionally, there was no proof that the Defendant had access to or custody of the purported secrets.
Regarding the non-compete clause, the court found it to be overly broad and unreasonable. It lacked specificity regarding geographical coverage, the sectors it applied to (public or private), and the economic activities it sought to restrict. The court also observed that the Defendant’s livelihood was at stake and that the objectives of SETY differed from those of Halogen.
Legal Principles Relied Upon:
- Enforcement of Non-Compete Clauses
Covenants in restraint of trade are generally considered unenforceable unless proven to be reasonable. The burden of proving reasonableness rests on the party seeking enforcement. Whether a restraint is reasonable is a question of fact, determined by factors such as the interests of the parties, the public, geographical coverage, economic activity, and the duration of the restriction.
- Proof of Breach of Confidentiality/Non-Disclosure and Trade Secrets
Courts rely on evidence, not speculation or conjecture. To establish a breach of confidentiality or trade secrets, the claimant must:
- Identify the specific secrets or confidential information.
- Provide details of the alleged breach.
- Present evidence of disclosure, including the occasion, means, or mode of disclosure.
- Demonstrate at least one instance where the disclosure negatively impacted the claimant or benefited the third party.
Commentary:
This decision is significant in light of the increasing global scrutiny of non-compete clauses and the strategic use of confidentiality agreements to restrict competition.
Firstly, the ruling emphasizes the stringent burden of proof placed on employers seeking to enforce confidentiality and trade secret clauses. As the court noted, allegations of breach must be substantiated with concrete evidence, including specific disclosures, the circumstances surrounding such disclosures, and their negative impact on the employer or benefit to a third party. This reinforces that confidentiality and non-disclosure clauses should not be weaponized as punitive measures against employees pursuing better opportunities. To be enforceable, such clauses must safeguard a clearly defined proprietary interest that has been demonstrably harmed. In this case, there was no evidence to suggest that the Defendant disclosed any trade secrets or confidential information to SETY, despite the circumstances of his job transition.
Secondly, the judgment provides clarity on the reasonableness of restrictive covenants and non-compete clauses. While a two-year restriction is often considered reasonable, the court noted that an open-ended restriction depriving a former employee of their livelihood is inherently unreasonable.
Regarding the reasonableness of non-compete clauses, it appears that no judicial review has been conducted on the implications of Section 68(1)(e) of the Federal Competition and Consumer Protection Act, 2018. This provision permits non-compete clauses but caps their duration at two years. However, it is safe to conclude that this limitation does not alter the courts’ traditional approach to their enforcement. Employers and legal practitioners should avoid drafting overly broad non-compete clauses, as such clauses risk being deemed unenforceable, thereby undermining their intended purpose.
Elvis E. Asia is the Managing Partner of Law Future Partners and a PartneratBols Attorneys, Nigeria. He has an LLB, Ambrose Alli University; and LLM from the University of Lagos. He is a member of the Chartered Institute of Arbitrators, United Kingdom, Institute of Chartered Secretaries and Administrators of Nigeria and the Chartered Institute of Taxation of Nigeria. Elvis is the author of the book ‘Oil and Gas Insurance and Nigeria’s Local Content Policy’
[1] SUIT NO: NICN/LA/39/2024. Available online at https://nicnadr.gov.ng/nicnweb/display2.php?id=9459