An important means for Employers to protect their business, confidential information and secrets from departing employees is the arrangement of so-called post termination restriction clauses.
Article 127 of the Labour Code of the UAE provides that an employer may agree on a post-contractual non-competition clause with an employee who, due to their employment with the employer, has knowledge of the clients of the employer or confidential information or business secrets, as long as the employee is at least 21 years of age. A valid non-competition clause must be limited in time and is restricted both geographically and to a specific business area. In addition, the severity of the non-compete clause must be necessary in order to protect the legitimate interests of the employee.
Alongside this – with fewer restrictions for the employee – the following post-contractual clauses can also be agreed upon:
- Non-Poaching Clause: Undertaking by the employee not to poach any other employees in the event of leaving the employer;
- Non-Solicitation Clause: Prohibition against soliciting customers of the employer to oneself or to a new employer, following departure from the company; or
- Non-Dealing Clause: Prohibition against maintaining professional contact with clients of the employer, independent of the question of who established the contact.
A violation of a Non-Competition Clause or of the other above-mentioned Post-Termination Restrictions may lead to claims for damages of the employer against the (former) employee. The burden of proof – for instance, of a violation of the Non-Competition Clause – and of the damages lies with the (former) employer. As a general rule, the violation of the Non-Competition Clause can be proven relatively easily. This is not the case with the damages or the amount of the damages, as the existence of damages is not sufficiently demonstrable in numerous cases, as a result of which the (former) employer would lose the case.
However, there is a possibility that in a contract, in addition to the Post Termination Restriction, a contractual penalty is agreed upon for the case in which the Post-Termination Restrictions have been violated by the employee. Insofar as a contractual penalty of this kind has been agreed upon, the burden of proof will be reversed. The employer now only has to prove the violation of the restriction clause and will demand the agreed contractual penalty from the (former) employee. The employee now has to demonstrate that these agreed damages have not arisen, or are disproportionate. As the Civil Code, with regard to contractual penalties, contains provisions whereby a judge may ‘open’ a contractual penalty clause, caution is advised in the formulation of a contractual penalty.
The claim for damages against a former Employee must be made at the competent Labour Court. In this case it is important that before the commencement of the lawsuit – as in all matters of employment law – the parties have to take the case to the ‘Labour Department’, which will attempt to bring about an amicable settlement. It is only when these ‘conciliatory proceedings’ have failed that cases can be taken to the Labour Court. It should be emphasized that the ‘Dubai Court of Cassation’ has decided that failed ‘conciliatory proceedings’ due to unpaid wages do not entitle the employer to make claims for damages due to the violation of a Post-Termination Restrictions by a (former) employee. Separate ‘conciliatory proceedings’ are to be carried out for this purpose.
New UAE Labor Regulations:
Higher Labor Standards
On September 27, 2015, the Ministry of Labour introduced three decrees, which come into effect at the start of 2016, to ensure more transparency and clarity of the Labor Contracts and termination related issues, greater protection for employees and to provide for a more balanced and flexible work environment. The three decrees are primarily dealing with Employment Contact and Offer Letters, Termination of Employment, and New Work Permit and related Labor Bans.
Employment Contract and Offer Letter
The new decrees require that an employee sign an employment offer letter, which will be binding as a legal contract on both the employee and employer, that ‘conforms with the Standard Employment Contract’ prior to issuing a work permit and a residency visa. This also applies in the event the employee, residing in the UAE, is switching employers/jobs. The Standard Employment Contract must match the terms of the offer and its terms cannot be changed by either employee or employer unless the terms are more beneficial to the employee. This will help reducing the risks of confusion and any wrong-doing as both the employee and employer are aware of the terms of the employment.
Termination of Employment
The new decrees also deal with termination of employment. Practically speaking, nothing has changed regarding the implications or means of terminating an unlimited contract other than that the notice period cannot be less than 1 month or more than 3 months.
However, in the case of a fixed-term contract, more impact is to be seen with the new decrees coming to effect. In addition to the expiration of a contract period, for a fixed-term contract (two years), or fundamental breaches of labor law by either party (Articles 120 and 121 of the UAE Labour Law), an early termination of a fixed-term contract is allowed by mutual consent or unilaterally (by either party), provided that (1) the terminating party notifies the other party of its intention to terminate (minimum 1 month and maximum 3 months prior to termination date), (2) honors the employment obligations during the notice period and (3) pays the agreed compensation. Both the employee and employer may agree on the amount of compensation for an early termination, to be included in the offer letter and the Standard Employment Contract, up to a maximum of 3 months’ salary.
This reduces the likelihood of lengthy and costly employment-related lawsuits, for the purposes of seeking compensations, since both the employee and employer are fully aware of their rights and obligations when terminating the employment.
Work Permits and Labor bans
The new decrees also set out new rules on work permits which warrant a more work environment mobility and flexibility. A new work permit will be issued in the following circumstances:
1. The contract term has expired and not renewed.
2. Both parties mutually agree to terminate the employment, provided the employee has completed
a period of at least 6 months (the 6 month period is waived if the employee has a high school diploma or higher).
3. Either party unilaterally terminates the employment after the expiry of the first fixed-term contract provided that: (1) the terminating party notifies the other party of its intention to terminate; (2) honors the employment obligations during the notice period; and (3) in case of a fixed-term contract, pays the agreed compensation, or in case of an unlimited contract, the employee has completed a period of at least 6 months (the 6 month period is waived if the employee has a high school diploma or higher).
4. The employer terminates the employment (without the employee’s fault) provided the employee has completed a period of at least 6 months (the 6 month period is waived if the employee has a high school diploma or higher).
5. The employer has failed to meet its contractual or legal obligations, including but not limited to failure to pay the employee’s wages for more than 2 months.
6. The employer is shutting down its business.
7. The labor court provides a final ruling in favor of the employee stating that the employee is
entitled to: (1) no less than two months of work; (2) arbitrary or early termination compensation; or (3) any other entitlements that the employee is denied for no lawful reason including granting of end-of-service gratuity.
For further details please see our brochure UAE Labour Law.
Labour Law of UAE – Reforms for 2016
Expatriates and business owners have warmly appreciated the recent reforms to the Labour Law of UAE.
Minister of Labour Saqr Ghobash in his press conference to the journalists told that these labour reforms aim to tighten oversight of employment agreements for temporary migrant workers. These reforms will come into effect from January 2016.
UAE Labour Law Reforms
Under the new reforms and policies, prospective foreign workers would be asked to sign a standard employment offer in their home countries. The contract would be filed with the Ministry of Labour before a work permit was issued. That agreement would then be registered as a legal contract once the worker arrives the country and no changes would be allowed unless they were additional benefits that the worker agreed to.
Ministry of Labour has issued three new labour rules which include:
- ministry-approved contracts,
- conditions for terminating employees and
- labour permits to work for new employers.
Either side (the employer or worker) can terminate the contracts under terms spelt out in the ministry decree. Once that is done workers are free to switch to a new employer.
The main goal of these reform is to ensure transparency and compliance in matters related to labour contracts, including terms of termination. The new laws would benefit both the employer and the employee. Mr Al Meqbali, who also sits on the board of the Abu Dhabi Chamber of Commerce and Industry, said the changes would provide more flexibility because with the reduced time for transferring employees and their contracts, companies will be able to quickly put workers in the right positions, while employees will have better ability to find the job they want.
Response from the Media, HR and Workers
Media analysts, HR experts and lawyers have also shared their points of view, for example:
- The labour reforms would curb abuse of foreign workers by employers. There are so many sad stories about contracts not honoured by abusive employers. Expat are left with no choice but follow the employers. (Cristina Magallon, chief editor ofUAE DNA Blogazine, a Dubai-based online publication).
- The new laws would help to prevent such situations where workers had to leave the country after a potential employer did not honour her contract. (Ms Magallon, a Filipina)
- I worked as a foreman but situations forced me to become a bus driver. I have to spend two years in this company, which is a burden on me. The new rules for recruitment, termination and changing jobs are good news for blue-collar workers. (Mohammed Momin Khan, a Pakistani)
- For five years I have worked with the same company and not a single penny was increased in my salary. (Cleaner Hassan Ali, a Bangladeshi)
For further details please see our brochure UAE Labour Law.