The evolution of written contracts in employment, coupled with designs by lawyers to protect and defend the interests of the employers, has attracted more cumbersome terms imposed upon the employees. In an economy like ours, plagued by high unemployment, fewer than 2 percent of workers entering such contracts are in a position to negotiate the rigid, take-it-or-leave-it terms dictated by employers.
Business gatekeepers have used this imbalance to their advantage, designing clauses that favor employers under the guise of protecting business interests. Through non-compete and non-disclosure agreements, company executives safeguard their operations at a micro level. A typical non-compete clause restricts an employee from taking up a similar role with a rival company during the contract period and for several years after it ends.
In effect, an enforceable non-compete clause eliminates the familiar “divorce Peter to marry Paul” approach, where an employee leaves one company to join another nearby, making career mobility within the same industry nearly impossible.
The requirement for a non-compete clause comprises protecting against copying of business models, sharing business secrets, and application of a marketing strategy to a rival entity.
Although such clauses are used, our economic setup has not yet fully adopted written contracts for employees, let alone non-compete rules. This is partly because of the informal structures in business operations, the fear of the effects of formalization of employment relationships, which includes the desire to dodge certain taxes and to default on the commitment to workers’ rights. It is thus not uncommon to see medical officers already employed in hospitals operating private clinics in areas of reasonable proximity. Neither is it rare to see teachers starting private schools when they are still employed in other schools.
There are arguments for and against the inclusion of non-compete rules when designing employment contracts and service level contracts. In the broader economic environment, it can be argued that non-compete clauses stifle innovation, market optimization, labor optimization, and cripple the economic growth rate. Tying one’s career to a post-contractual obligation weakens their productivity. Progressive economists would also classify that under the fear of creative destruction – you fear your employee may grow to outcompete you if he is allowed to run the same business. The monopolization of certain industries through market forces begins with barring knowledge transfer.
I would argue that the economy cannot grow if the individual companies are not able to grow and expand without the fear of being unfairly outcompeted.
It is not fair that one will absorb a fresh employee, train them on the job, put all confidential matters within their reach, and then the employee can just job hop to another company, carrying all the experience, knowledge, and business secrets. In the circumstances, there is a need to protect the interests of the business to keep it afloat.
However, the enactment of the Competition Act will also likely dissuade the use of non-compete rules, as they may be considered anti-competitive agreements in the long run. Contract draftsmen must therefore carry out a comprehensive assessment of what is barred by law.
Since non-compete rules present economic challenges, business owners have to use them to safeguard their business interests. I will not sign out without underscoring the need for businesses to formalize employment contracts, supplier agreements, and adhere to regulatory frameworks. If our companies need to compete on the global stage, they must bear the cost of formalization; hire gatekeeping talents and embrace the use of non-compete clauses as a necessity evil.
Prosper Ahabwe Julian is an economic analyst and a lawyer at Nansubuga, Awelo & Co. Advocates.
ahabwejprosper21@gmail.com
