“Joel, they don’t know what is going to hit them” said Ayo (a pseudonym). He continued, “When ORide is done with them, Gokada will delve into another kind of business”. Ayo made these statements late June while we were having a conversation on “this new ORide guys”. I was sure he was not mincing words because a very close relative of his worked as an executive at Paycom Nigeria Limited (popularly known as ORide or OPay). Ayo informed me that this person had let him in on the strategy of ORide.
In an article, “Is ORide behind Gokada’s shutdown of operations?” Nairametrics, a business news site, observed that about four senior management staff of ORide had worked for Gokada. Nairametrics found that ORide did not only poach Gokada’s staff but, “…That riders of Gokada left the bike-hailing pioneer for ORide after the latter offered them better payment package.” This better payment package involved offering new riders between N35,000 and N36,000 to join ORide. The incentive is reported to have triggered a migration of riders from Gokada to ORide, aiding the company to meet demand during its promotional run in June and July 2019.
This move by ORide appears to have identified a loophole in the employment contract of Gokada (especially its management staff) – the absence of non-compete clauses. The episode considered entirely may also raise issues around confidentiality and non-circumvention, but this article will focus on non-compete clauses.
According to Investopedia, non-compete clauses are provisions in an employment agreement which proscribe an employee from entering competition of any kind with an employer after the employment period is over. The clause can also prohibit the employee from revealing proprietary information or secrets to any other parties during or after the employment term (confidentiality clause). The clause specifies a period of time during which the employee is barred from working with a competitor after he or she ends employment with the employer.
Non-compete clauses are specie of restrictive covenants which are used across several business transactions. Non-compete clauses can also be included in contracts with contractors, and consultants.
Essentially, a non-compete clause helps a business to retain its business secrets and gives it an edge over competitors. For first movers or companies that are pioneers like Gokada, non-compete clauses are very important and increase the likelihood of their continued dominance and monopoly.
Unfortunately, this first mover advantage may also have been Gokada’s flaw as they may have omitted or felt there was no need to include a non-compete clause in their contracts.
The troubles of Gokada and Max.ng (even Jumia Food is not left out according to Nairametrics) in dealing with the aggressive actions of OPay is instructive for lawyers advising startups/businesses (especially pioneers). The advice is simple: bind their employees, especially mid-level and senior level employees who may have unfettered access to business secrets and information using non-compete clauses.
Another point to note is that startups/businesses may have investors who have the financial muscle to replicate and execute the organisation’s business. To deal with this, shareholders/investors can also be bound by non-compete clauses in the. Kelly Santini, a Canadian law firm, observes that, “Most shareholders of a business will have detailed knowledge of the company’s intellectual property and trade secrets, business plans as well as relationships with key stakeholders and access to customer lists.”
They advise that non-compete clauses in shareholders’ agreements protect and benefit all the shareholders by preventing any of them from using insider information to start a rival business or contribute to a direct competitor. They also advise that, “…A majority shareholder looking to grow the business by bringing in new partners should use a non-compete clause to protect the value they have built in the business and its long-term prospects. Likewise, anyone buying out a majority shareholder will want to ensure the former owner cannot set up a competing shop upon their exit.”
Finally, what should be the consequence of breaching a non-compete clause? Generally, in cases of breach of contract, a claim can be made for damages in a court. More importantly, Oluwafemi Ojosu, a lawyer, suggests that the penalty for the breach of a non-compete clause should be prohibitive.
He advises that in providing for penalties resulting from breach, the respective agreement should provide that the breaching employee or shareholder pay a compensation (to be determined by an independent expert within the relevant industry) to the wronged business which will include all of the wronged business’ investments and reasonably projected profit for the duration the non-compete clause was supposed to subsist as a full and final settlement of all liabilities arising as a result of the breach.
Meanwhile, while inserting non-compete clauses in agreements, businesses must be careful not to insert clauses that may be considered punitive and overly prohibitive by the court. The court frowns at restrictive covenants that stretch over a very long period and which impose overly punitive penalties for breach.
Meanwhile, I like Gokada’s strategy of stepping back to put their act together and come back stronger (which we expect). If the other part of what Ayo told me is true (which is that the main aim of Paycom/ORide is the adoption of their wallet for everyday financial transactions – a more broad-based end rather than Gokada’s bike-hailing-focused business model, then I believe Gokada can ride out the current wave with perseverance and their planned improvements. I wish them well.
JOEL JOSHUA
Joshua is the Managing Partner of the law firm Primus Law Partnership. He can be reached via [email protected]
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