According to the legislation of the United Arab Emirates (UAE), an employer may include a non-compete clause in the employment contract to prevent an employee from working in a competing business after the termination or expiration of the contract.
The applicable regulations are Federal Decree-Law No. 33 of 2021 on the Regulation of Labor Relations (hereinafter referred to as the 'Labor Law') and Cabinet Resolution No. 1 of 2022 on the implementation of this law.
Pursuant to Article 10(1) of the Labor Law, if an employee has access to the employer's clients or trade secrets, the employer has the right to stipulate in the contract that the employee will not compete or engage in a competing business in the same field after the contract ends. Such a clause must clearly specify the place, time, and type of work necessary to protect legitimate business interests, and the non-compete period must not exceed two years after the contract is terminated.
Article 10(1) of the Labor Law and Article 12 of Cabinet Resolution No. 1 of 2022 establish several requirements for such conditions. Firstly, the restriction must not exceed two years from the date of termination or expiration of the employment contract; this two-year period is the maximum set by law, but its applicability depends on the proportionality of the restriction to legitimate interests.
Secondly, the employment contract must define the geographical area to which the restriction applies. An excessively broad territory without justification based on the employer's legitimate interests may be challenged. Thirdly, the clause must identify the nature of the prohibited work related to activities that could cause serious damage to the employer's legitimate business interests; a general ban on any work in the industry, regardless of the employee's actual duties, may be deemed invalid.
Furthermore, the restriction must aim to protect the employer's legitimate interests, especially if the employee had access to confidential information or clients. It should not merely serve as a general limitation on the employee's ability to earn a living. Article 12(2) of Cabinet Resolution No. 1 of 2022 states that if a dispute over the non-compete clause is not resolved amicably and is submitted to court, the burden of proving damages lies with the employer.
An employee has the right to challenge the applicability of the non-compete clause if, for example, it does not sufficiently define the duration, geographical scope, or nature of the prohibited activity, or if it goes beyond what is necessary to protect the employer's legitimate interests. Article 10(2) of the Labor Law explicitly states that the non-compete clause will be voided if the employer terminates the employment contract in violation of the Law's provisions.
Moreover, Article 12(3) of Cabinet Resolution No. 1 of 2022 stipulates that the non-compete clause does not apply if the employment contract is terminated at the employer's initiative or due to the employer's breach of its legal or contractual obligations. Article 12(5) of Cabinet Resolution No. 1 of 2022 also provides for exceptions, including termination during the probationary period, employment in certain professional categories exempted by ministerial regulations, and a compensation agreement where the employee or new employer pays the former employer an amount not exceeding three months' salary, subject to the written approval of the former employer.
Before signing an employment contract containing a non-compete clause, employees are advised to ensure that the restriction clearly defines its duration, geographical area, and the nature of the prohibited work. It is also important to assess how reasonably this restriction relates to their actual duties, client relationships, and access to confidential information.
Employees should determine whether this clause would make it impossible to work in their profession in general, or if it only restricts specific competing activities. If an overly broad restriction is found, they should request clarification or attempt to negotiate. It is also worth considering obtaining a written waiver of the non-compete clause upon termination, if agreed upon with the employer.
It is necessary to carefully review any separate confidentiality, non-solicitation of clients, or intellectual property restrictions that may operate independently of the non-compete clause. In conclusion, the entire employment contract should be read thoroughly to fully understand its terms and avoid ambiguity in the wording.