A Complete Guide
Introduction
Prepared by:
LEGIS VISTA LEGAL CONSULTANTS
Safeguarding propriety information and client relation is vital yet challenging for businesses. In today’s highly competitive business environment, the non-competition clauses aim to prevent an employee from joining or starting a competing business within the same geographical area after leaving the current employment. This is imperative to protect the business interests of the employer.
The inclusion of non-competition clauses in the employment contracts are one of the ways to protect the business from future threats from the employees, specifically who are playing a key role in the company and have access to all the business secrets and client data base.
Non-Competition Clause under Federal Decree-Law No. (33) of 2021
The UAE Employment Law recognizes the importance of non-competition clause in the employment contract under Article 10 of the Federal Decree-Law No. (33) of 2021. The provision aims at protecting the legitimate interests of the business of the employer by restricting the employees from directly competing with the employer after the termination of the employment agreement.
Article 10 of the Federal Decree-Law No. (33) of 2021 reads as: “1. 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. 2. This requirement shall be nullified if the employer terminates the employment contract in violation of the provisions hereof. 3. The claim filed by the employer for the worker’s violation of the provisions of this Article shall not be heard if one year has passed from the date of discovering the violation. 4. The Implementing Regulation hereof defines the provisions regulating this Article, skill levels or occupations that may be excluded from the provision of Clause (1) of this Article, in accordance with the conditions and rules specified by the Regulation.
Exceptions to Non-Competition Clause
The provision ensures protectionto the employer from facingcompetition from the employee who had access to its work secrets and clients for a period not exceeding two years post termination/ expiry of the employment contract. However, the provision is subject to the following exceptions where the employer cannot initiate legal action against the employee under Article 10.
1- Firstly, cases where the employment contract was terminated by the employer by violating the provisions of the Federal Decree-Law No. (33) of 2021.
2- Secondly, the provision further mandates a limitation period for entertaining non- competition claims as per which, the employer cannot initiate legal proceedings if such claim was filed after one year of discovering the violation.
3- Thirdly, the provision shall not be applicable to
the employees whose skill levels or occupations
may be excluded from the provision of Clause (1) of this Article, in accordance with the conditions and rules specified by the Regulation.
Non-Competition Clause under Cabinet Resolution No. (1) Of 2022
Article 12 of the Cabinet Resolution No. (1) Of 2022 on the Implementation of Federal Decree-Law No (33) of 2021 regarding the Regulation of Employment Relations, provides that;
1. The application of the non-competition clause shall be depending on the geographical scope, the term (shall not exceed two years from the expiry of the employment contract) and the nature of work of the employee shall be capable of causing significant harm to the legitimate expectations of the employer.
2. The non-competition clause shall not be applicable if the employment contract was terminated for a reason attributable to the employer.
3. In case of a dispute over the non-competition clause which is not settled amicably between the employer and employee, the matter shall be referred to the Courts and, in such cases, the burden of proof lies on the employer. In simple words, the employer is bound to substantiate the damage caused to him due to the violation of the non-competition clause by the employee.
4. After the termination of the employment contract, the employer and the employee can mutually agree not to be bound by the non-competition clause. Such an agreement shall be in writing.
5. An employee will be exempt from the scope of Article 10 in the following circumstances.
C. If he or the new employer pays to the previous employer a compensation not exceeding three months of wage as agreed in the previous employment contract, subject to the consent of the previous employer, in writing.
B. Any professional categories that are in demand in the national Employment market and determined by resolution of the Minister in accordance with the workers’ classification approved by the Cabinet.
C. If the contract is terminated during the probation period.
Conclusion
To summarize, post contractual non-competition clauses have been incorporated in the Employment law in order to protect the employer. However, the effectiveness of the same depends on various crucial factors including the statutory limitation period, the requirement of burden of proof on the
employer to produce the documentary evidence for the damage sustained. These factors collectively contribute to the challenges associated with such clauses difficult.
For the above-mentioned reasons, the companies must ensure in their internal agreement that their rights are protected while complying with the legal requirements.
