Though Giella v Cassman Brown & Co. Ltd [1973] E.A. 358 is widely cited for the principles applicable in the grant of injunctions, the underlying question in that case was a contract in restraint of trade. Giella was previously employed by Cassman Brown & Co. Ltd (Kampala) under a contract which contained an undertaking preventing Giella from working in a similar job, or company, within a radius of ten miles from the central post offices of various towns and cities in East Africa (including Kampala and Jinja) if his contract of employment came to an end. Giella’s contract of employment was later terminated by notice and he accepted a similar job in a company dealing in similar business to Cassman Brown. The later employer was also located on the very same street in Kampala as that of Cassman Brown.
Giella’s former employer sent him a warning letter claiming that he had breached his undertaking concerning non-solicitation of business, disclosure of confidential information, and enticement of employees of Cassman Brown. Giella ignored the warning letter, Cassman Brown approached the High Court of Uganda via chamber summons and sought a temporary injunction. The court granted the temporary injunction, Giella appealed to the Court of Appeal at Kampala – the temporary injunction was set aside.
It is obvious that a contract in restraint of trade may take many forms and may be named in different ways. It can be in the form of a written undertaking, a non-compete clause, or in many other names and styles. But how far can an employment contract restrict the employee from competing with their employer? Is there a “good” non-compete clause?
According to the court in Giella, the main principles in determining the validity of a contract in restraint of trade are: (1) contracts in restraint of trade are generally invalid as being contrary to public policy but a partial restraint may be valid if it is reasonable in the interests of both parties; because (2) an employer is not entitled to protection against competition.
Competition is an inevitable part of commerce. The person seeking to rely on the restraint of trade is the one who must prove the reasonableness of the contract in restraint of trade. When considering the enforceability of agreements not to compete, the court must balance competing principles –the public’s interest in free competition and trade, the parties’ freedom to contract, and the employee’s freedom to work (Hassler v. Circle C Resources, 2022 WY 28).
An employer is entitled to have his trade secrets protected and he is entitled not to have his old customers enticed away from him. The employer is only entitled to the level of protection that is necessary in their particular case, which is to say, it “must depends on the character of the business” (per Viscount Haldane, L.C. in Mason v Provident Clothing and Supply Co., [1913] A.C. 724). Then, if two parties sign a broad non-compete clause the court may declare the non-compete clause void for being too wide; the court cannot use the blue-pencil test to rewrite the contract for the parties. Instead of revising a bad non-compete agreement to make it good, the court will declare it void.
In sum, there is no prescribed “good” non-compete clause – each restraining clause or agreement is judged according to the surrounding context. In Giella, the non-compete clause was of broad geographical application; it would have prevented Giella from working for any competitor not only in Uganda, but also in Kenya and Tanzania. This wide scope of application formed part of the court’s reasoning when setting aside the temporary injunction. The broad scope is not limited to geography alone; a non-compete clause may be wide in other ways, for example, preventing a person from working for any competitor for a certain number of years which, by extension, would effectively limit the choice of the public in the marketplace. A good non-compete clause is as good as its limits.
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