A contract in restraint of trade is an agreement which prohibits a person from carrying out a business or a trade whether partly or in whole. It refers to a contract where an employee agrees not to engage in a similar occupation or divulge trade secrets that could cause damage or compete against the trade of his employer. It can also be described as one in which an employee agrees with an employer to restrict his freedom in the future to carry on trade, business, profession or vocation with other persons not parties to the contract in such a manner as he chooses. One of the strongest rationale behind restraint of trade is the need to protect the employer’s intellectual property and trade secrets which is invariably one of the most invaluable assets in today’s world of business, considering the amount of time and resources expended in creating and protecting these rights. Restraint of trade which is a forerunner to modern competition law is a common law doctrine relating to enforceability of contractual restriction on freedom to conduct business.

The common law principle against restraint of trade was laid down in the locus classicus Nordenfelt v Maxim Nordenfelt (1894) A.C 535; where the Court held that all clauses in restraint of trade are contrary to public policy and as such, void ab initio except there are special circumstances that justifies them. However, with the enactment of the Federal Competition and Consumer Protection Act of 2019, there appears to be a paradigm shift in the underpinning legal principles governing restraint of trade in Nigeria, these principles are examined anon.

Generally speaking, such a restraint is unenforceable as being contrary to public policy which tilts towards the promotion of trade and business. Thus, unless the restraint of trade is reasonable to protect the interest of a purchaser of a business, otherwise it is void ab initio. The common law principle against restraint of trade was laid down in the locus classicus Nordenfelt v Maxim Nordenfelt (1894) A.C 535; where the Court held that all clauses in restraint of trade are contrary to public policy and as such, void ab initio except there are special circumstances that justifies them. However, with the enactment of the Federal Competition and Consumer Protection Act of 2019, there appears to be a paradigm shift in the underpinning legal principles governing restraint of trade in Nigeria, these principles are examined anon.