Right to work and restraint of trade agreements in Ghana

Introduction

In recent years, contracts of employment, especially for professional services executed between employers and employees in Ghana, contain some provisions on restraint of trade. Restraint of Trade Agreements or Clauses (RTAs) are provisions in contracts that restrict the activities of one party after the termination of a business relationship, typically an employment agreement or a business sale/transaction. RTAs may take the form of non-competition clauses, non-solicitation clauses, non-disclosure/confidentiality clauses, and non-interference clauses, among others.

These clauses aim to protect the legitimate interests of the party imposing the restriction, usually by preventing the other party from engaging in certain competitive activities within a specific period or geographic area. RTAs seek to protect the legitimate interest of employers by preventing employees from taking advantage of trade secrets, business information, and clientele, among others. RTAs are usually targeted at preventing employees from unfairly competing with their employers after the employment relationship has been severed.

The 1992 Constitution of Ghana and the Universal Declaration on Human Rights guarantee the right to work in Ghana. Thus, Article 24(1) of the 1992 Constitution provides that every person has the right to work under satisfactory, safe, and healthy conditions and shall receive equal pay for equal work without distinction of any kind. Additionally, Article 23(1) of the Universal Declaration on Human Rights states that everyone has the right to work, free choice of employment, just and favourable work conditions, and protection against unemployment.

The combined effect of these two provisions is that every person in Ghana generally has a right to work. Thus, a person cannot restrict another person’s right to work in Ghana unless otherwise agreed by the parties or the restriction is recognized under Ghanaian law.

Generally, RTAs are seen as restrictions on an employee’s right to work since they limit the scope of work the employee can engage in, usually for a specific period after the severance of the employment relationship. As indicated, most RTAs are intended to take effect after severing the employment relationship. As such, most employees ignore this critical term/provision in their contract of employment.

Employees are usually confronted with this “onerous” responsibility of complying with RTAs when they are about to exit or have exited an employment relationship. On the other hand, employers seek to protect their legitimate business interests using RTAs.

In an era where employee/professional poaching is on the rise in Ghana, it has become necessary for employers, on the one hand, to include RTAs in every contract of employment and for employees, on the other hand, to look out for RTAs before executing any contract of employment.

This piece thus seeks to answer three questions. The first question is whether RTAs are valid and enforceable in Ghana. The second question is to what extent will the courts in Ghana enforce RTAs? The third question is, what are the remedies available for the breach of RTAs in Ghana?

Whether RTAs are valid and enforceable under Ghanaian law?

Currently, no specific Ghanaian statutes or case laws deal directly with RTAs. Under Article 11 of the 1992 Constitution, the laws of Ghana comprise the common law. Also, Ghana, as a common law country, relies on decisions of Superior Courts of other common law countries as persuasive authority on a subject that needs to be better developed under its legal system. Consequently, this piece considers decisions of the Superior Courts of the United Kingdom (UK) as a guiding persuasive authority on RTAs in Ghana.

Under Ghanaian law, a person’s capacity to enter into a contract is governed by the system of law with which the contract was most closely connected, as was held in the case of Jadbranska Slobodna Plovidba, Split v Oysa Ltd. [1979] GLR 129. Any person of full age and a sound mind has the capacity under the laws of Ghana to enter into any contract on such terms as they deem fit, provided those terms are not illegal or contrary to the statute.

In the case of Addo v Ghana Co-operative Marketing Association Ltd [1962] 1 GLR 418, it was established that the court in Ghana will enforce a contract if it is in all respects regular and valid. Furthermore, under Sections 12 and 13 of the Labour Act, 2003 (Act 651), a contract of employment must express in clear terms the rights and obligations of the parties.

A contract of employment between an employer and the employee is governed by Ghanaian law when it was executed and carried out in Ghana or when the parties have chosen Ghanaian law as the applicable law. Employers and employees in Ghana can execute RTAs on such terms and conditions as they deem fit so far as it is legal and consistent with all the relevant laws of Ghana.

RTAs are usually part of the contract of employment executed between the employers and their employees, although they may be contained in a separate agreement.

The UK Supreme Court affirmed the above position of the law in its decision in the case of Tillman v Egon Zehnder Ltd 2019 UKSC 32 when it held that as a general principle, contracts of employment were permitted to impose a restraint on trade; especially where there is genuine business interest to protect, and the clauses are drafted reasonably, non-compete restrictions will be upheld. His Lordship Benin JA (as he then was) partially discussed aspects of RTAs in Ghana in the case of Accra Brewery Company Ltd v Guinness Ghana Ltd. (1999) JELR 66055.

He described RTAs and their effect in the following words “This is based on the common law notion of freedom to trade in a reasonable way without harming another’s interest. If there is a contract which fetters an existing freedom, it can be said to restrain trade, but it is not so if it opens a door by providing a party with a new economic opportunity.”

Considering the above discussion, RTAs are generally valid and can be enforced under Ghanaian law.

To what extent will the courts in Ghana enforce RTAs?

In order to determine the extent to which the courts in Ghana will enforce RTAs, two vital elements of RTAs must be discussed. These two elements are the duration of restraint and the scope of the restraint. The duration of restraint provided in RTAs may vary based on the employer's business interest.

The common restraint periods are three (3) months, six (6) months, one (1) year, two (2) years, three (3) years, and in some extreme cases, five (5) to ten (10) years after the severance of the employment relationship. The scope of restraint usually may cover specific products/services, clientele, strategy/procedure, and geographical location, among others. The combined effect of these two elements will determine whether an RTA is reasonable for enforcement in Ghana.

Whether the scope of restraint and period of restraint is reasonable?

As established above, the general principle of law is that parties can execute any contract on any terms or conditions as they deem fit. However, if it is unconscionable or unreasonable, the court will intervene and render certain contracts, though valid, unenforceable in whole or in part. The Supreme Court of Ghana, in the case of CFC Construction Co (WA) Ltd, Rita Read v Attisogbe (2005-2006) SCGLR 858, relied on the equitable doctrine of the unconscionable bargain to set aside a contract.

Generally, where an employee contracts with his employer that he will not compete with him upon leaving his employment, such restraint will be upheld only where it is reasonably necessary to protect a proprietary right of the employer, like trade connections or trade secrets. Thus, if the employer can show that his former employee has acquired knowledge of trade secrets such as a secret process or methods of manufacture, he will be entitled to impose such restraint on the employee as will afford him reasonable protection of that interest.

Furthermore, where the employment is such that the employee may acquire the trust of, or influence over, the customers, such that he may be able to take the employer’s business with him if he set up in competition. The employer would be entitled to impose the restraint.

In the case of Tillman v Egon Zehnder Ltd 2019 UKSC 32, the Supreme Court of the UK emphasized the need for the restraint to be reasonable by referring to the principles established in the case of Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd 1967] 1 All ER 699. In that case, it was held per Lord Hodson that "When one remembers that the basis of the doctrine of restraint of trade is the protection of the public interest, it is not difficult to see how the law developed in its conception of reasonableness as the test which must be passed in order to save a contract in restraint of trade from unenforceability.”

Lord Reid also said, ‘It has often been said that a person is not entitled to be protected against mere competition. I do not find that very helpful in a case like the present. I think it better to ascertain what were the legitimate interests of the appellants which they were entitled to protect and then to see whether these restraints were more than adequate for that purpose.’

It has already been stated that non-competition, non-solicitation, non-disclosure/confidentiality, and non-interference clauses are forms of RTAs. Once a party has established the existence of an RTA as part of a contract of employment, the next issue to consider is whether it is reasonable.

This means that the RTA must be reasonable between the parties and not contrary to the public interest. To be reasonable between the parties, it must protect the legitimate interests of the party seeking its protection and go no further than is reasonably necessary to protect those legitimate interests.

The UK Supreme Court was once more seized with the opportunity to discuss the enforceability of RTAs in the case of Harcus Sinclair LLP v Your Lawyers Ltd [2021] UKSC 32. Unlike most RTA cases which relate to the application of restraints to the seller of a business or employees, the case of Harcus Sinclair LLP has to do with exclusive dealing and exclusive services agreements.

However, the principles established in the case are equally crucial in applying the restraint of trade doctrine to employment relationships. Harcus Sinclair LLP v Your Lawyers Ltd is a novel case where the restraint of trade doctrine was applied.

The case involved a non-compete undertaking given by one law firm to another in relation to a group litigation claim, and the main issue in the case was whether the restraint of trade was unreasonable.

The writer emphasizes the following applicable principles, which can be deduced from the unanimous ruling of the Supreme Court of the UK in Harcus Sinclair LLP v Your Lawyers Ltd:

The first principle is that it is for the promisee (employer) to establish that the RTA is reasonable between the parties. To satisfy this burden, the employer must show, first, that the RTA protects the employer's legitimate interests and, secondly, that the RTA goes no further than is reasonably necessary to protect those interests.

The third element is that the employer needs to show that the restriction is commensurate with the benefits secured to the promisor (employee) under the contract. In determining the employer's legitimate interests, one can consider what the parties (objectively) intended or contemplated, consequent on the contract at the time the contract was made, as well as the contract terms.

The second principle is that if the employer succeeds in establishing that the RTA is reasonable between the parties, the burden shifts to the employee to show that the RTA is unreasonable as being contrary to the public interest. In this regard, an RTA will not be held to be an unreasonable restraint of trade where there is no public policy against such restraint.

There is a public interest in employment relationships knowing that the courts will enforce a reasonable RTA. This is because non-enforcement would undermine the legitimate business interest of the employer. RTAs should be aimed at preventing unfair competition from the employee. A limited restriction will, therefore, not damage the public interest.

In the case of Accra Brewery Company Ltd v Guinness Ghana Ltd (supra), his Lordship Benin JA (as he then was) held that where on the face of an agreement per se it does not infringe any known public policy, its reasonableness and fairness is to be presumed in the employer’s favour until the contrary is proved [emphasis mine].

Section 5(2) of the Protection Against Unfair Competition Act, 2002(Act 589) prohibits acquiring and using secret information without the owner's consent. Clause 2 of Section 5 provides that “Disclosure, acquisition or use of secret information by another person without the consent of the rightful owner may, in particular, result from industrial or commercial espionage (b) breach of contract;(c) breach of confidence;

(d) inducement to commit any of the acts referred to in paragraphs (a) to (c) and (e) acquisition of secret information by a third party who knew or was grossly negligent in failing to know, that an act referred to in paragraphs (a) to (d) was involved in the acquisition.;”.

The above-stated and any other act or practice in the course of industrial or commercial activities that result in the disclosure, acquisition, or use by another person of secret information without the consent of the rightful owner of that information and in a manner contrary to honest commercial practices constitute an act of unfair competition under Ghanaian law. The laws on unfair competition in Ghana thus recognise that an employer may enter into an RTA with its employee to protect its trade secrets/secret information.

What should an employee do when in doubt as to any of his obligations under the RTA regarding his dealings with a client/customer after termination of his employment or if he wishes to be released from the RTA?

He must make a written representation to his employer, providing detailed facts and information satisfying the employer why his employment with a competitor or dealings with a client/customer will not be prejudicial to the employer's proprietary interest and trade secret. These written requests/representations must be made before the termination date of his employment or commencement of his new engagement.

The employers may have the sole and unfettered discretion to waive the restraint of trade provision(s) in whole or in part. The employer may also demand a specific undertaking to protect its trade secrets should the employee be released from the RTA. The provisions in RTAs must therefore provide a reasonable safeguard for the employee's interest in his dealings after leaving his employment.

What remedies are available for a breach of an RTA?

The general principle is that for every breach of a contract, the non-breaching party is entitled to seek remedies for such breach. A breach of a contract of employment with its accompanied RTA entitles the employer to recover damages and seek an injunction to stop the employee from a further breach of the terms/undertakings contained in the RTA.

In the case of Asafu-Adjaye v Agyekum [1984-86] 1 GLR 382, an injunction was granted against a director who set up a rival company to compete with his employer. The Court of Appeal, in its ruling, held that “…Since the respondent was not a mere dormant or cosmetic director, but an executive director who had combined his skill and expert knowledge with those of the first appellant to promote the purposes of the business for which the seventh appellant company was formed, it was the apogee of breach of trust for the respondent to set up a rival company unknown to the seventh appellant company.”

Also, in the case of Tillman v Egon Zehnder Ltd (supra), the UK Supreme Court restored and affirmed the grant of an injunction by the High Court against the Respondent for breach of a restraint of trade clause in an agreement.

Section 8 (1) of the Protection Against Unfair Competition Act provides that “A person who is damaged or considers that that person is likely to be damaged by an act of unfair competition may bring an action for (a) an order of injunction to prevent the act or further acts of unfair competition, (b) a provisional order to prevent unlawful acts or to preserve relevant evidence, (c) the award of damages as compensation, or (d) any other remedy that the Court may consider fit to order.” These civil remedies are available to someone who claims or has reasons to believe another person has unlawfully acquired and used its secret information/trade secrets.

An employer may commence legal action against an employee for breach of any provision(s) in an RTA. The employer may get damages for breach of the said provision(s) as well as obtain an injunction against the employee to prevent him from any further breach of the said provision(s).

Another remedy that the employer may be entitled to is in the area of economic tort, which provides for remedies against a third party who induces an employee to leave the employment of his employer. In the case of Lumley v Gye [1853] EWHC QB J7, it was held that a person who wrongfully and maliciously, or, which is the same thing, with notice, interrupts the relation subsisting between master (employer) and servant (employee) by procuring the servant (employee) to depart from the master’s (employer) service, or by harbouring and keeping him as a servant (employee) after he has quitted it and during the time stipulated for as the period of service, whereby the master (employer) is injured, commits a wrongful act for which he is responsible at law [emphasis mine].

An employer can commence legal action under economic tort against a competitor if it is established that the employee resigned because of an offer that the competitor made for him to leave the employment of his previous employer to join them.

Conclusion

Employers must ensure that RTAs incorporated in the contract of employment with their employees are for the protection of their legitimate business interest, that they do not go further than is reasonably necessary to protect those interests, that the restriction(s) are commensurate with the benefits to the employer secured under the contract and finally, that they are not contrary to public policy.

Employees must also watch out for RTAs in their contracts of employment to ensure their right to work is not unfairly and unreasonably infringed upon by their employers. Before you sign, watch out for RTAs!