The United Arab Emirates became an attractive destination for many foreigners to establish their companies due to the incentives provided to investors.
This has led to an increase in the number of employees and job opportunities and thus competition in the labor market.
In this article, we will set out the conditions and obligations for the application of the non-compete clause in light of the UAE Federal Decree-Law No. 33 of 2021 which protects employees from arbitrariness of the employer on one hand and protects the employer from disclosure of its business secrets and unlawful competition on the other hand.
Legislation and Articles Related to the Non-Compete Clause
Article 10 of Federal Decree-Law No. 33 of 2021 states that if the nature of the employee’s work gives them access to clients or business secrets, the employer may include a non-compete clause in the contract. The clause must be limited in terms of time (not exceeding two years), place, and type of work, and shall be invalid if the employer terminates the contract in violation of the law. Claims regarding breach of this clause must be filed within one year from discovering the breach.
Article 12 of the Executive Regulations outlines how to apply the clause, emphasizing the following:
• Geographical scope.
• Time frame (up to two years).
• Nature of work and potential harm to the employer’s interests.
It also allows exemption from the clause in specific cases such as:
• If the employee or new employer compensates the previous employer (up to 3 months' salary).
• If the contract ends during the probation period.
• For in-demand professions as determined by the Minister.
Scope of Application
The clause applies only to employees who had access to sensitive business information and intend to work in a similar field after leaving the company. It's a common misconception that it applies to all employees.
The law clarifies that the clause becomes relevant after the employment relationship ends, whether through resignation or otherwise, and legal action for a breach can only be taken from the date the employer becomes aware of the breach.
Conditions for Validity of Non-Compete Clause
1. Geographical Limitation: Should be limited to a maximum of three Emirates.
2. Time Period: Maximum of two years (shorter period can be agreed).
3. Substantial Harm: The employee must cause real harm to the previous employer by working with a competitor. The burden of proof lies with the employer and is assessed by the court.
Exceptions
The law outlines several exceptions:
• A mutual written agreement to waive the clause.
• Payment of compensation (with employer’s written consent).
• Termination during probation.
• Certain professions excluded by ministerial decision.
Breach and Legal Consequences
If the employee breaches the clause, the employer can file a case and claim compensation. However, they must prove:
• The date they discovered the breach.
• The substantial harm caused by the employee’s actions.
Conclusion
The UAE’s labor market is rapidly evolving with growing investment and competition. The non-compete clause is one of the tools used by the legislator to balance protection between employers and employees, and to maintain stability within the labor environment.
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