Appeal Court Bars Unreasonable Restrictive Covenants, Upholds Ex-Employee’s Right to Earn a Living
The Court of Appeal, Lagos Division, has delivered a landmark ruling reinforcing that employers cannot wield unreasonable post-employment restrictive covenants to impede former employees from earning a livelihood. This decision saw the appellate court dismiss an appeal by MTN Nigeria Communications Limited, upholding a N5.1 million compensation award to its former Procurement Manager, Mr. Theodore Nwabueze Ikpa.
In a unanimous judgment delivered by Justice Danlami Zama Senchi, the court affirmed the National Industrial Court’s June 13, 2018 ruling, which found the four-year restraint clause imposed on Ikpa to be unreasonable and an unlawful impediment to his securing alternative employment. The case originated from the termination of Ikpa’s employment in December 2008.
Ikpa had challenged his dismissal, arguing that MTN failed to provide the mandatory one month’s notice or salary in lieu. Crucially, he contended that the restrictive covenant in his contract effectively barred him from obtaining new employment until his retirement age. His legal team sought declarations that his termination was unlawful, payment of salaries up to retirement, retirement benefits, or alternatively, N10 million in damages for restraint of trade. While the trial court dismissed most claims, it recognised the unreasonableness of the four-year covenant and awarded Ikpa N5,101,674 in compensation, plus N100,000 in costs.
MTN appealed, asserting the National Industrial Court lacked jurisdiction over Ikpa’s alternative claim and that the restraint clause was reasonable and enforceable, designed to protect legitimate business interests like confidential information and trade secrets. The telecommunications giant argued Ikpa voluntarily accepted the covenant, failed to prove actual loss, and that the compensation was excessive. MTN also claimed no evidence showed they prevented Ikpa from securing other employment.
However, Ikpa countered that the four-year restriction effectively removed him from the labour market. He presented evidence that MTN had previously litigated against former employees for similar breaches, fostering a climate of fear among potential employers and making it practically impossible for him to find work.
Justice Senchi, resolving all four issues against MTN, confirmed the National Industrial Court’s jurisdiction and its sound evaluation of evidence. The appellate court found Ikpa’s direct testimony, stating prospective employers refused to hire him due to the restrictive covenant, to be credible and unchallenged. The court emphasised that uncontroverted, credible evidence must be accepted. MTN failed to produce evidence of Ikpa securing employment or neglecting available opportunities. The court dismissed MTN’s demand for rejection letters, affirming that sworn testimony, tested under cross-examination, constitutes sufficient evidence. Exhibit T18, showing MTN’s past legal actions over similar covenants, corroborated Ikpa’s claim of employer reluctance.
Consequently, the Court of Appeal upheld the National Industrial Court’s conclusion that Ikpa suffered hardship from the unlawful restraint and was entitled to compensation. The appellate court found the damages award firmly supported by uncontroverted evidence. Reaffirming the principle that appellate courts are reluctant to interfere with damages awards unless manifestly excessive, inadequate, or based on wrong legal principles, the court dismissed MTN’s appeal entirely. The judgment of the National Industrial Court was affirmed, with an additional N500,000 in costs awarded against MTN in favour of Ikpa. Justices Boloukuromo Moses Ugo and Paul Hamed Bassi concurred with the lead judgment.
