The Colombo Civil Appellate Court issued an order preventing an exemployee of one of Sri Lanka’s leading computer hardware distributors eSys Technologies Lanka (Pvt.) Ltd from serving or joining a competitor.
Filing an action eSys Technologies Lanka (Pvt.) Ltd argued, the defendant, H.L.M. Nasser, a top executive of eSys Technologies, was privy to the highly confidential business strategies and customer profiles of the company and Nasser had agreed by his contract of employment to refrain from competing with eSys Technologies for a period of one year following his resignation or termination.
However, having resigned from eSys Technologies he joined a start-up IT company as Country Manager and proceeded to directly compete with eSys Technologies, in violation of his contract.
An application for an interim injunction restraining him from breaching his contractual obligations was refused by the Colombo District Court inter alia on the grounds that contracts in restraint of trade are prima facie void.
eSys Technologies appealed against the order to the High Court of Civil Appeal. Counsels for the appellant company (eSys Technologies) M.U.M Ali Sabry PC and Shamir Zavahir, Attor ney-at-Law submitted that despite contracts restraining employment being prima facie void in law in Sri Lanka, where an employer can show such clause to be reasonable, the employer should be given an order requiring the employee to honour his contractual obligation.
It was further submitted that the period of his restraint and the limitation to the IT industry was reasonable given the circumstances and that refusal to enforce such clauses in contracts would cause much damage not only to the appellant but would also set a bad precedent affecting the corporate sector as whole in Sri Lanka.
The counsels submitted that protection of business secrets and practices were vital for the development of the commercial and corporate sector in Sri Lanka, as companies would be reluctant to invest if their investment could not be protected against exploitative employees.
Having heard both parties, the bench comprising of Justice H.C.J. Madawala and Justice L.T.B. Dehideniya granted leave for the action and issued the interim injunction.
Issuing the order the court also observed that the defendant ex-employee had agreed to the restriction clause when accepting the appointment. “The restriction is limited for one year from the date of leaving the plaintiff company and it is restricted only for the computer-related trade. According to the CV of the defendant, he is a talented person in many fields. When his qualifications and experiences are considered, restricting him from employing in a computer-related field does not look unreasonable.
Considering the position that he held in the plaintiff’s company the defendant had the opportunity of gathering the knowledge of the plaintiff ’s trade secrets,” the order stated.
M.U.M. Ali Sabry PC with Shamir Zavahir instructed by Paul Rathnayake Associates appeared for the petitioner company.