What New Court Ruling Means for Employees Who Start Businesses Competing Their Employer

The Employment and Labour Relations Court in Nairobi has delivered a ruling that clarifies the boundaries employees must observe when planning business ventures that could compete with their employers, even before those ventures become operational.

The ruling issued by Justice Stella Ruto on September 19, 2025, centered around David Okuku, Maintenance Supervisor, who was dismissed in September 2022 by Lavington Hotel Limited after it was discovered he was actively involved in establishing a competing restaurant business. 

The employee challenged his termination, seeking Ksh3,184,000 in compensation, arguing his dismissal was unlawful and procedurally unfair. The court dismissed his claim entirely, finding both substantive and procedural grounds for the termination were met.

Planning Stage Constitutes Conflict of Interest

The dismissed employee argued that Lanu Mint Blue Limited, the company he co-founded with three colleagues, was merely a 'paper company' with no capacity to compete. However, evidence showed substantial progress toward launching the business.

The group had secured a lease in Lavington (the same area where the employer operates), assembled a proposed staff of 25-30 people, established a Ksh1 million monthly budget, developed a food strategy, and created 10-year revenue projections. 

The court ruled that this level of planning exceeded mere speculation.

“The foregoing discounts the Claimant’ assertions that Lanu Mint Blue Limited was a paper company that only had ideas of setting up in the future and was not capable of competing with the Respondent. From all indications, the business sought to be established by the Claimant and some of his colleagues was a potential competitor to the Respondent’s business,” read the ruling in part.

Loyalty of Employees to Employers 

A key argument advanced by the Okuku was that his employment contract contained no explicit non-compete or confidentiality clause prohibiting him from being a director or shareholder in other companies. The court rejected this reasoning.

"Regardless of whether the claimant's contract of employment had a non-compete clause, there was an implied obligation on his part to be loyal, honest, and act in the best interests of his employer," the judge ruled.

Implications for Employees 

Planning a competing business, even in preliminary stages, can constitute grounds for dismissal if it creates a conflict of interest with current employment duties. The absence of explicit non-compete clauses does not eliminate the implied duty of loyalty.