Non-competition clauses in employment contracts: How valid?

The Supreme Court recently gave an insight into the conditions for a non-competition clause to be valid in employment agreements. Such clauses generally restrict employees of companies from taking up employment with rival companies after they terminate their employment.

In the case of Medical Computer Communication Caraibe Limited (the Applicant) v Nayar Yacoob Inder (the Respondent) & Superdist Ltd (as Co-Respondent) 2015 SCJ 298, an interim order in the nature of an injunction was made interlocutory up to 28 November 2015.

By way of background, the Respondent was employed/trained by the Applicant and given access to confidential information and had information on the clients of the Applicant. The Respondent resigned from the job on 28 November 2014 and notified the Applicant that he wanted to work with the Co-Respondent, a rival company of the Applicant.

The Respondent was bound by a non-compete clause in his employment contract and notwithstanding same, he maintained his decision to work for the Co-Respondent. He contended that the non-competititon clause was not legal inasmuch as it is not restrictive in space and the compensation provided in consideration of that restriction is disproportionate and insufficient.

In this judgment, Judge I. Maghoa provided that the test to determine whether a restrictive covenant is valid as per case of E.E. Sew Kwan Kan & Anor v Happy World Centre [2008 SCJ 301], it had to be (a) restricted in time and space, (b) not too wide in scope as to prevent the employee from earning a living, and its maintenance must be fundamental to protect the legitimate interest of the business of the employer.

In the present matter, the relevant clause (a) was applicable for only one year from the time the respondent has resigned from his job, (b) was restricted to the territory of Mauritius and (c) restricted the Respondent to work with companies which were directly or indirectly in competition with the Applicant.

His Lordship essentially ruled that (a) the period of one year was not so unreasonable, (b) the restriction to the Mauritius territory meant that the clause was limited in space and (c) it was not so wide so as to prevent an employee from earning a living to the extent that the clause merely prohibited the Respondent from taking up employment in the same field as the Applicant.

He further highlighted that in the case of Corporate and Chancery Group Ltd v R. Tegally & Ors [2007] SCJ 78, reference was made to a fourth condition which was added in French cases whereby the employer must give a financial consideration to the employee. It is to be noted that as regards employment matters, our courts tend to refer to French jurisprudence for guidance and this said, they do sometimes derogate from French decisions to reach their own positions.

The issue of financial consideration was not a critical feature in the present matter to the extent that the Applicant had already to pay an amount of Rs 4,000 to the Respondent in consideration that the Respondent will not work for a competitor.

Therefore, it is critical that one must, prior to the execution of an employment agreement, understand the restrictions contained in a non-competition clause and negotiate (if need be) the scope of such restrictions so that it may not impede on the liberty of the person to seek similar employment.

  • Published in print edition on 28 August 2015

Add a Comment

Your email address will not be published.