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Non-Compete Clauses in UAE Employment Contracts

Posted on 3rd May 2010 by Camille Paldi,

 

Non-compete clauses are generally held to be valid in executed employment contracts as long they restrain employees from working in the same field of work, reasonably protect the employer’s interests, are for reasonable lengths of time, and in a reasonable geographic scope of the world.  You do not have to sign a contract with such a clause and can always ask for the clause to be removed from the employment agreement.  Signing a contract with such a clause in the UAE may have adverse consequences if you wish to change employers while residing in the UAE.  However, for example, if you are on a three year limited employment contract and you complete the contract, there is no need to obtain a non-objection letter in order to gain new employment.  The provisions of law regarding non-compete clauses can be found in Article 127 of the UAE Labor Law, Federal Law No. 8 of 1980  and Articles 909 and 910 of the UAE Civil Transactions Law Federal Law No. 5 of 1985.

Article 127 of the UAE Labor Law, Federal Law No. 8 of 1980 states:

“Where the work assigned to a worker allows him to become acquainted with the employer’s clients or to become familiar with the secrets of his business, the employer may require him to refrain, after the termination of his contract, from competing with him or participating in any enterprise competing with his own.  Such agreement shall be valid only on condition that the worker is at least 21 years of age at the time of its conclusion that the agreement is limited, as regards the time, the place and nature of the business, to the extent necessary to safeguard the employer’s lawful interests.”

Article 909 of the Civil Transactions Law, Federal Law No. 5 of 1985 states:

  1. “If a worker, in the course of his work, has access to the secrets of the work or gets acquainted with the customers of the firm, the two parties may agree that the worker may not compete with the employer or take part in a work competitive to his work after termination of the contract.
  2. Nevertheless, such an agreement shall not be valid unless it is restricted to time, place, and type of work, to the extent which is necessary for protection of the legitimate interests of the employer.
  3. The employer must not abide by such an agreement if the contract is terminated with nothing occurring on the part of the worker that justified termination, nor may he abide by the agreement if he acts in a manner that justifies the termination of the contract by the worker.”

 

Article 910 of the Civil Transactions Law, Federal Law No. 5 of 1985 states:

“If the two parties agree that the worker shall be liable for damages if he does not abstain from competition with such liability being unreasonably excessive in order to coerce him to stay with the employer, the condition shall not be valid.”

Omer Eltom states that Cassation Petition Number 6 of 1996 confirms this law. 

“The rules established by the statutory provisions and the precedent are as follows:

  1. An employee is bound by any restraint clause in his employment contract and may be held contractually liable for any breach thereof unless the same is caused or motivated by a wrongful act on the part of the employer.
  2. An employer should not benefit from such a clause if he directly or indirectly causes the employment termination without justification.
  3. Such a restraint should be restricted to the necessary limits.
  4. A restraint clause does not affect the validity of a new contract entered into with a competitor in breach of the said clause.
  5. The right of the previous employer in case of a breach is restricted to compensation for the damage sustained.
  6. An action may lie in tort against the new employer on grounds of unlawful competition provided he is aware of the restraint clause.” (Omer Eltom, The Emirates Law in Practice, p. 316)

Analysis of Recent Case Law:

http://www.hadefpartners.com/News/pageid/120-137/default.aspx?Mediaid=172


Posted on 3rd May 2010 by Camille Paldi


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