Non-Compete Clauses: The Future Under Kenyan Law and Global Influences

In the ever-evolving landscape of employment law, non-compete clauses have long been a contentious  issue, not only in Kenya but globally. Often a contractual agreement between an employer and an  employee, a non-compete clause ensures the employee does not engage in other business activities  that would be considered competitive with the employer’s business — particularly after their period  of employment. 

Recent developments in the United States, saw the Federal Trade Commission (FTC) move to ban non compete agreements; perhaps this may signal a transformative shift that could influence Kenyan  legislation and business practices. 

The Kenyan Context 

In Kenya, non-compete clauses are commonly included in employment contracts to protect businesses  from employees who might leave and join competitors, taking valuable knowledge and skills with  them. These clauses are regulated by the Contracts in Restraint of Trade Act, Cap 24 of the Laws of  Kenya. 1 

The enforceability of these clauses in Kenya hinges on their reasonableness in scope, duration, and  geographical reach. The laws have historically taken a balanced approach by giving the courts of Kenya  power to render these contracts void in specific circumstances, ensuring that such agreements do not  unduly restrict an individual’s ability to earn a livelihood while protecting legitimate business interests. 

However, the rigid enforcement of non-compete clauses has been criticized for stifling innovation and  mobility in the workforce. This tension mirrors concerns raised globally, particularly in the United  States. 

The U.S. Ban and Its Implications 

The FTC’s recent rule to ban non-compete clauses in the U.S. represents a significant policy shift.  Announced in response to an executive order by President Joe Biden, the FTC’s decision underscores  a broader effort to enhance economic competition and worker mobility. According to FTC Chair Lina  Khan, non-compete clauses suppress wages, stifle innovation, and limit new business creation. The  

1 http://kenyalaw.org:8181/exist/kenyalex/actview.xql?actid=CAP.%2024

ban is expected to result in higher wages and increased entrepreneurial activity, benefiting the overall  economy. 

The FTC’s rule reflects a growing recognition of the negative impacts of non-compete agreements.  Business groups, such as the U.S. Chamber of Commerce, have opposed the ban, arguing that non compete clauses protect trade secrets and justify investments in employee training. However, the FTC  maintains that these agreements are fundamentally exploitative, particularly for lower-wage workers  who face significant barriers when trying to switch jobs or start their businesses. 

Potential Influence on Kenyan Law 

Kenya, like many other countries, often looks to global best practices and legal trends when reforming  its own laws. The U.S. move to ban non-compete clauses might inspire similar considerations in Kenya,  especially if the expected economic benefits materialize. We therefore share several ways in which the  FTC’s rule could influence Kenyan legislation: – 

• Increased Scrutiny of Non-Competes: Kenyan lawmakers and courts may begin to scrutinize  non-compete clauses more closely, ensuring they are not overly restrictive and align with  public policy interests. This could lead to a refinement of the legal standards governing these  agreements, making them fairer and more balanced. 
• Promoting Competition: Echoing the FTC’s rationale, Kenya might adopt measures to enhance  competition and worker mobility. This could involve limiting the enforceability of non-compete  clauses to certain high-level executives or specific industries where trade secrets are a genuine  concern. 
• Economic Growth and Innovation: By potentially relaxing non-compete restrictions, Kenya  could foster a more dynamic and innovative business environment. This shift could encourage  more startups and entrepreneurial ventures, driving economic growth and job creation. 
• Worker Rights and Wage Growth: Aligning with the FTC’s findings, Kenya could see  improvements in worker rights and wage growth by limiting the use of non-compete clauses.  This change could enhance employee bargaining power and mobility, contributing to a more  robust labour market. 

Balancing Interests 

While the potential benefits of reforming non-compete clauses are significant, it is crucial to balance  the interests of employers and employees. Employers legitimately need to protect their investments  in employee training and safeguard confidential business information. Therefore, any legal reforms in  Kenya should consider creating clear guidelines that protect business interests without unduly  restricting employee freedom. 

For instance, Kenya could look into alternatives such as non-disclosure agreements (NDAs) and non solicitation clauses, which can protect businesses without preventing employees from seeking better  opportunities. These alternatives can offer a compromise, ensuring that proprietary information  remains secure while employees retain the freedom to advance their careers. 

Conclusion 

The FTC’s move to ban non-compete clauses in the United States marks a significant shift that could  ripple through global employment law, including Kenya. As the debate over the balance between  protecting business interests and promoting worker mobility continues, Kenyan lawmakers and courts  may find inspiration in the U.S. example. By carefully considering the benefits and drawbacks, Kenya 

can craft policies that foster a competitive, innovative, and fair labour market, benefiting both  employers and employees. 

As Kenyan employers and employees navigate this evolving legal landscape, staying informed about  global trends and potential legislative changes will be crucial. By embracing a balanced approach,  Kenya can create a more dynamic and equitable business environment for all. 

Article by Elizabeth Museo, Communication & Strategy, AMMLAW