Should You Sign a Non-Compete Clause In An Employment Contract?

It is a norm for employers to insert non-compete clauses (often referred to as restraint of trade clauses) in employment agreements. Such clauses limit the nature of employment or activities an employee may undertake within a specified period during or after termination of their employment.

What is a non-compete clause?

A non-compete clause is a provision in an employment agreement, which imposes certain restrictions on the (i)type of employment or trade an employee may undertake, (ii)the entity one may work for and (iii)the geographic location that one is prohibited to work in, within a specified period during or following the termination of their employment.

Further, the employee agrees not to work or engage in any activity that is directly in competition with that of the employer after termination of the employment agreement such as:

working for competitors of the employer;
conducting any business activity with clients of the employer;
soliciting work from any of the employer’s clients; and
soliciting colleagues working for the employer.

Elements of a non-compete clause

A non-compete clause will usually contain the following:

time period applicable to the restriction;
geographical area; and
scope of activities that the employer deems to be competitive.

What purpose does a non-compete clause serve?

The purpose of a non-compete clause is to protect among other things the trade secrets, innovative ideas and goodwill of the employer from unlawful exploitation. The essence of the clause is to prevent a resigned or terminated employee from benefitting or taking undue advantage of the acquired knowledge or confidential information from the previous employer in favour of the new competing employer or business to the detriment of the former employer.

Although a non-compete clause is meant to prevent unfair competition, it cannot be made in such a way that it prevents ordinary competition.

Are non-compete clauses lawful and enforceable?

The Employment Act [Cap 47:01] does not provide for non-compete clauses in employment agreements. However, non-compete clauses or restraint of trade clauses are lawful and enforceable unless proved to be unreasonable or contrary to public policy.

Our courts have held that for a non-compete clause to be lawful and enforceable, it must:

not be against public interest and public policy;
not prohibit an employee from having contact with clients of his ex-employer where they approached the employee on their own will;
not place unreasonable restriction on a person’s freedom to trade, that is, it must be reasonable in time and scope; and
be necessary to protect certain employer’s interests.

A non-compete clause is unenforceable where:

it geographically prohibits an employee from trading in the whole of Botswana;
it prohibits an employee from not only operating his/her own business in competition with the employer but also from taking up employment with businesses that compete with the employer;
it limits the employee from seeking a specific designation without specifying the industry; and
it prohibits an employee from rendering consulting services to customers of the employer who approach the employee of their own accord.

In determining the reasonableness of a non-compete clause, our courts have held that two factors must be considered; public interest which requires parties to comply with their contractual obligations and on the other hand, the parties should be allowed to practice their professions to earn a living.