Prepared by: LEGIS VISTA LEGAL CONSULTANTS

Protecting proprietary information and client relationships is essential yet challenging for businesses. In today’s competitive landscape, non-competition clauses serve to prevent employees from joining or starting rival businesses within the same geographical area after leaving their current jobs. This protection is vital for safeguarding the employer’s business interests.

Incorporating non-competition clauses in employment contracts is a key strategy for shielding businesses from potential threats posed by employees who have critical access to confidential information and client databases.

Non-Competition Clause under Federal Decree-Law No. (33) of 2021

The UAE Employment Law recognizes the importance of non-competition clauses in employment contracts under Article 10 of the Federal Decree-Law No. (33) of 2021. This provision aims to protect the legitimate interests of the employer by restricting employees from directly competing after their employment ends.

Article 10 states:

1. If a worker’s role provides them access to the employer’s clients or trade secrets, the employer may require that the worker not compete with the employer after their contract ends. This requirement must specify the time, place, and type of work necessary to protect the employer’s legitimate business interests. The non-competition period cannot exceed two years post-contract expiration.
2. This requirement is nullified if the employer terminates the employment contract unlawfully.
3. Claims by the employer regarding the employee’s violation of this article cannot be considered if more than one year has passed since the violation was discovered.
4. The Implementing Regulation outlines conditions that may exempt certain skill levels or occupations from this provision.

Exceptions to the Non-Competition Clause

While the provision protects employers from competition by employees with access to sensitive information, certain exceptions limit its applicability under Article 10:

1. If the employer unlawfully terminates the employment contract.
2. Claims cannot be initiated if filed more than one year after discovering the violation.
3. The provision may not apply to employees whose roles are exempt based on the Implementing Regulation.

Non-Competition Clause under Cabinet Resolution No. (1) of 2022

Article 12 of the Cabinet Resolution No. (1) of 2022, implementing Federal Decree-Law No. (33) of 2021, states:

1. The application of the non-competition clause depends on the geographical scope, duration (not exceeding two years post-contract), and the employee’s role that may significantly harm the employer’s interests.
2. The clause does not apply if the employment contract is terminated for reasons attributable to the employer.
3. Disputes over the non-competition clause not resolved amicably will be referred to the courts, where the employer must prove damages caused by the employee’s violation.
4. After termination, both parties can mutually agree to waive the non-competition clause in writing.
5. An employee may be exempt from Article 10 if:
   • They or their new employer compensate the previous employer up to three months’ wages, with the previous employer’s written consent.
   • They belong to in-demand professional categories identified by the Minister per Cabinet resolution.
   • The contract is terminated during the probation period.

Conclusion

In summary, non-competition clauses are vital for protecting employers post-contract. However, their effectiveness hinges on factors such as the statutory limitation period and the employer’s burden to prove damages with documentary evidence. Businesses must carefully craft internal agreements to protect their rights while complying with legal standards.