Understanding Non-Compete Clauses in the UAE Employment Contracts

A non-compete clause is a contractual provision which intends to protect?legitimate interests of?an employer’s business by limiting the activities of its employees after the?end?of the employment contract. The main purpose of such a clause is to refrain the company’s ex-employees from competing or working with the competitors of the company.?This provision?doesnot?allow the employer to unnecessarily curtail the freedom of work of an employee.?The restrictions?are not placed?to simply?prevent?competition in the market.

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The legal framework governing non-compete clauses highlights the scope of these clauses, in addition to their validity?and?enforceability, and?the rights?and obligations of the employers.?The complexities associated with non-compete agreements?are explored in various laws,?mainly?theUAE Regulation of Employment Relationships and the?UAE?Civil Transactions Law.?The?UAE Labor Law,?Federal Decree Law No. 33 of 2021, states that?when employees become aware of the business clients and trade secrets, the employer?may stipulate in the employment contract that the employee shall not engage in competition or participate in any competing project within the same sector after the contract’s?end.?Similarly,?the UAE Civil Transactions Law?sheds the light on the validity of the non-compete agreements, and their limitation as to time,?place,?and kind of work, as well as?the prohibition for application of such clauses when the contract is terminated without any cause attributable to the employee.?

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In the UAE, the?geographical location must be restricted to a maximum of three?(3)?emirates within the country.?The non-compete clause must not exceed two (2) years from the date of?the end of the?contract and the claim filed by the employer shall not be considered if one (1) year has?passed?since the date of?knowledge of the employee’s breach, which?the employer must prove too.?For the violation to apply, the employee shall?also be?working?with a competing employer,causing?serious harm to the previous employer.?Such damage shall only be assessed by the courts.?In the event of a dispute arising from the non-compete clause, which is not settled amicably, the matter shall be referred to the judiciary and the burden of proving the alleged damage shall rest with the employer.?The employers also have an alternative remedy in the form of filing a police complaint against the ex-employee.?The?UAE Penal code?sets?criminal liability on a person who misuses or discloses?the trade secrets or commercially sensitive information of the company and jeopardizes its interest. It entails an imprisonment up to?one (1)?year or a fine of 20,000 AED, or both.?However, in recent times, it has been witnessed that the?parties,?while drafting a non-compete agreement,?include?a liquidated damages?clause therein. With this clause, the parties pre-estimate the potential loss if the employee breaches the agreement.

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Taking into consideration the?above, the application of the non-compete condition stipulatedrequires that the following be specified:

??Geographical Scope: The non-compete clause must define its geographical application.

??Duration: The clause cannot extend beyond two?(2)?years from the contract’s end.

??Nature of Work: The prohibited activities must significantly harm the employer’s legitimate interests.

??Regulations: The executive regulations specify the skill levels or job professions that may be exempt from the non-compete clause under set conditions.

??Legal Limits:?The enforcement of the clause must adhere to legal standards protecting the employer’s legitimate interests. Any condition contrary to these standards will be deemed void.

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Conversely, the?employee?shall be exempted from the non-compete clause if the employee, or the new employer, renumerates the previous employer an amount not exceeding three?(3)?months of the worker’s wage as agreed upon in the?previous?contract,?or?if the contract is terminated during the probationary period.?Also, if the non-compete clause is overly broad or restricts?the employees’?ability to work in?their?chosen field,?they?may want to negotiate with their employerthe terms?of the contract.?Moreover, the clause does not apply if the contract termination results from the employers’?breach of their legal or contractual obligations. It may?also?be agreed?in writing not to implement the non-competition clause after the expiration of the employment contract.

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In conclusion, ensuring a fair equilibrium between protecting business interests and upholding employees’?rights is crucial for the validity and effectiveness of non-compete clauses.