July 19, 2023 Navigating Non-Competition Clauses in UAE Employment Contracts: Know Your Rights Share As the UAE grows to be one of the most attractive international business hubs, business owners want to make sure that they’re safeguarded. One of the best ways to ensure security for the business is by inserting a non-compete clause, also called a non-competition clause, in the employment contract. By agreeing to a non-compete clause, an employee promises to protect trade secrets and not to assist or launch a business with the employer’s competitor. Nonetheless, there are conditions that must be met in order for the clause to be valid. Moreover, there are limits to such a clause. Legality of the non-compete clause: According to article 10 (1) of Federal Decree-Law No. (33) of 2021, “If the work assigned to the worker allows him to gain knowledge of the employer’s clients or have access to its work secrets, the employer may require that the worker under the employment contract shall not, after the expiry of the contract, compete with the employer or be engaged in any competing project in the same sector, provided that the requirement is specified, in terms of time, place and type of work, to the extent necessary to protect the legitimate business interests. The non-competition period shall not be more than two years from the expiry date of the contract.” To put it simply, article 10 (1) of Federal Decree-Law No. (33) of 2021 provides the legality of inserting a non-compete clause in an agreement. Article 10 (1) of Federal Decree-Law No. (33) of 2021 also lays down the conditions for the validity of the clause. The four conditions must be fulfilled in order for the clause to be valid. Conditions of the non-compete clause: There are 4 cumulative conditions that must be met in order for the clause to be considered valid. Firstly, the non-compete clause must be stipulated in the employment contract. The employee’s signature to the agreement which contains the non-compete clause is vital. The non-compete clause must be stipulated in the employment contract and not in any side or supplementary agreement. Secondly, the clause must set out the period of the restraint. The period of the restraint must be at least 3 months and not exceed 12 months. In exceptional circumstances, the UAE court may extend the period up to 24 months. Thirdly, the prohibited geographical area must be indicated in the clause. The geographical area must be limited to the area where the employee worked and cannot be extended to another emirate or country. Lastly, the prohibited business activity must also be stipulated in the clause. The business activity restriction can only limit the same type of business activity. It may not prohibit the employee from working in a different role in a similar business sector. The non-compete clause shall only protect the legitimate interests of the employer. Invalidity of the non-compete clause: If one of the four conditions mentioned above are not met, then the clause is deemed void and inapplicable. To add, as stated by Article 10 (2) of Federal Decree-Law No. (33) of 2021, if the employer terminates the contract, then the clause is also inapplicable against the employee. Exemption from a non-compete clause: As provided for by article 12 (5) of the Cabinet Resolution No.1 of 2022, an employee is exempted from the non-compete clause if one of the following conditions are met: If the employee or the new employer pays compensation not exceeding three (3) months of the employee’s wage agreed upon in the last contract to the former employer, and the former employer’s written consent thereto is required. If the contract is terminated during the probationary period. Any professional categories according to the needs of the employment market in the UAE, as determined by decision of the Ministry under the employment classification approved by the Cabinet. Exemption from the enforceability of a non-compete clause may also be sought if the employee resigns. However, the employer must grant written acceptance of the employee’s release from the non-compete clause. Breach of non-compete clause: In case of a breach of the non-compete clause by the employee, the employer may only sue for damages he/she has suffered as a result of the breach of the terms specified in the non-compete clause. The company may only claim for breach of the non-compete clause within a year starting from the date when the breach occurred. The burden of proving the damages is on the company. In practice, proving damages may be difficult as courts in the UAE are strict in proving damages. Not only must the employer prove a damage but, he/she must also establish a value of the damage incurred. In addition, the employer may not ask the court to prohibit the employee from working for the competitor.
