Dec 22, 2018

A closer look: Non-competition provisions in the UAE

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In the UAE post-termination restrictions are a common practice and imposed by the employer to prevent that the employee joins a competitor after terminating the employment. Such covenants are lawful, but only to the extent which is necessary for protection of the legitimate interests of the employer.

In order to be considered valid by the UAE courts, the post-termination restriction must be limited in terms of duration, place, and with regard to the business field.

Requirements

Regarding the limit to the length of time, 6 months are generally accepted as being reasonable. However, a restriction of up to 12 months might be acceptable by the courts if there are unique reasons in relation to the employee and his position that require a wider restriction. Secondly, regarding the geographical restriction, the restriction to the Emirate in which the employee has been working is generally accepted as being reasonable (for instance Dubai), unless there are specific reasons that might justify a wider restriction. Lastly, the employee’s business field and position has to be determined, whereby the activity sought to be restricted should be well defined and specific.

As a general observation, the degree of probability that non-competition clauses are considered valid rises the higher the employee’s position has been, considering that senior employees are more likely to have access to business secrets.

In case of an invalid non-competition provision, the courts strike them out in their entirety if considered unreasonable in time, place and/or business sought to be restricted, rather to “blue pencil” such agreements.

Enforceability

In case the non-compete clause is ignored by the employee, the employer may not stop the employee or physically prevent the employee via court order from joining a competitor, since injunctions to stop working with a competitor are not available through the UAE courts (different in the jurisdictions of DIFC and ADGM where interim reliefs are available).

However, in the event of breach of a non-compete clause, the employer may commence a civil claim for damages. The statute of limitations for labour cases is one year from the date of alleged breach of a non-compete clause. The employer would have to prove any damages and substantiate the actual amount of loss incurred as a result of the employee’s breach of non-compete clause.

In case a liquidated damage clause has been included in the agreement the employer who is seeking compensation under the liquidated damage clause would need to prove the fact that loss was incurred, without substantiating the actual amount of loss. It would be up to the employee to challenge the amount agreed upon in the clause. The court then may vary the parties’ agreement and accordingly set aside entirely the liquidated damages in case of the employer suffering no loss or award lesser damages reflecting the actual loss.