Have you been told that too? That after pouring your heart, your soul, your time and your money into your business, the employee you taught everything they know: the confidential information and trade secrets; the how-to-win-clients; the employee you grew to trust; the one you projected to clients and prospects as the face of your business; have you been told that they can just put all that expertise, goodwill and information in a car and drive off to work for your competitor or set up as your competition? Have you been advised that you couldn’t have stopped this [insert your favourite frustration word here] mess by restraining your disloyal ex-employee through contract? That’s so not true. The question isn’t whether you can put a restraint in the employment contract – it’s how you do the trick.
If you’re an employee (or indeed an employer) you may be asking: what happened to free markets and fair competition? Fair question. Generally, public policy (don’t ask me what it means) thrashes limiting a person’s freedom to trade with and work for who they please. However, a sensibly drafted, reasonable restraint clause will in the right circumstances be upheld by a court to protect the business interests of an employer against two kinds of people – a quitting employee and a direct competitor who raids the employer to poach one employee or, worse, lift several of them or even entire teams.
Restraint-of-trade clauses come in different shapes. Here is a typical example. “The Employee agrees that for a period of [insert period] following the termination of their employment for whatever reason, they shall not, whether personally, or as an employee, consultant or agent for any other entity or employer, carry on business in competition with the Employer within a radius of [insert figure] kilometres from the Employer’s premises.”
Two Tests for Validity
Now there are two tests a restraint-of-trade clause must pass for a court to uphold it. A contract must pass both tests, otherwise the restraint of trade would be void. First, the restraint must protect a legitimate business interest of the employer. Second, the restraint must extend no further than is reasonably necessary to protect the identified business interest. In other words, the restraint must be proportionate to the level of protection the business interest needs.
Legitimate Business Interest
What amounts to a legitimate business interest is not a closed group. But the interests which typically need protection include: trade secrets and confidential information; relationships or connections with clients, prospective clients and suppliers; the need for an established and stable workforce.
Once you identify your legitimate business interest as an employer, you must make the restraint proportionate in duration and scope to the interest. First, the length of the restricted period must not be too short to make it meaningless for the employer or too long to make it punitive for the employee. It would be unreasonable, don’t you think, to suggest that an advertising executive (Ms Minerva Rebble) who leaves an advertising company in Accra cannot work for a similar company in Accra for five years – even two years – because she has knowledge which she can use unfairly for the competitor. A court will find the restraint period too long.
Second, the restriction must have a reasonable scope. What’s the purpose of restraining Minnie Rebblel from leaving the company in Accra and moving to another in Tamale (about 615 kms by road and 432 kms as the crow flies)? Is it really to protect a legitimate business interest of her ex-employer?
Third, the role that the restricted employee plays within the organisation is very important. It is usually people in senior, sensitive or sophisticated/technical roles who can reasonably be made subject to a restraint. An advertising strategist or producer at a radio station, to my mind, can be restrained; possibly too a presenter who is also involved in the strategy of the station. That’s just one of a million possible examples.
Other Factors Courts Consider
In our example above, a restraint which prevents Minnie Rebble from working not only in advertising but also in public relations and entertainment would likely be unreasonable. Although the advertising industry is closely linked to public relations and even the entertainment industry, is the nature of the business of the advertising company such that the executive would threaten the old employee’s business from her new post at an entertainment events management company?
Also, the courts will more readily uphold restraints in certain (I daresay technical) fields than other fields of endeavour. The current trend seems to favour restraints on engineering and finance professionals over certain other kinds.
Often a court will consider if the employer paid the employee specific money for agreeing to the restraint. If money changed hands, the court would be happier to uphold the restraint, the two tests having been passed.
Also, whenever two parties are involved in a contract where it seems one party may have an advantage over the other because of its knowledge, influence, resources, etc., it’s always in the interest of the stronger party to suggest to the weaker party to obtain independent legal advice. Indeed, beyond recommendation, you should put a clause in the contract stating that the employee has been given the opportunity to seek such independent advice. A court is more likely to see a bargain as reasonable and fair if both parties were advised by relevant professionals before they put their name on the dotted line.
Ghanaian Case Law
Unfortunately, I haven’t found old Ghanaian cases in the books regarding restraint clauses. But there are a few unreported cases I have come across in the High Court, which recognise that the Ghanaian law on restraint-of-trade provisions (or restrictive covenants) follows English law. Thus, there is a presumption that restraints are void and unenforceable, but the party seeking to rely on a restraint may succeed if it can convince the court that the restraint is reasonable to protect a legitimate business interest. One such case was decided as recently as 20 November 2014, by the Commercial Court, Accra (His Lordship Richard Adjei-Frimpong J presiding). The case is Service Construct Ghana Ltd v Ghana Commercial Bank & 2 Others (Suit No. BFS 227/2011).
So, there you have it. My view on whether and how employers can influence the next job of employees in sensitive roles. It’s a fine balance between what’s unenforceable and what’s reasonable. Protecting a legitimate business interest is the goal, not to corral an employee or prevent fair competition in the marketplace. You may also consider devices like payment for the consent to the restraint and garden leave to sweeten the deal for the employee and soften the gavel of the court.