Introduction to non-compete clauses
Non-compete clauses in the UAE, impacting exit from employment - image showing the word ‘exit’ cast with darkness
Image credit - Unsplash
Non-compete clauses revolve around the topic of restrictions on employees, going beyond the current employment. In other words, the current employer decides where their employees can or cannot work after they leave the current employment.
Is this legal in the UAE - yes, as long as it complies with the rules and restrictions under the law.
Why is it done - because the employer might need to protect their data and trade secrets.
Then why does it have rules around it - because it directly affects individuals’ right to livelihood and hence cannot be unreasonable.
Rules for non-compete clauses in the UAE
In the UAE, non-compete clause is allowed and enforceable, as long as it meets the legal framework for being specific and limited in terms of:
(1) Time - for example, 6 years will be accepted for sure, 1 year is likely to be accepted, and in any case should not be beyond 2 years.
In practice, even 1 year can be quite long if it affects the person’s job search. Which is why the third point which is on the scope of it is so important.
(2) Territory/Place - for example, an Emirate is likely to be accepted, the entire country becomes slightly tricky.
In practice, having Dubai as a restriction becomes quite tough, since most of the jobs in the UAE are generated in Dubai. Which is why the next point which is on the scope of it is so important.
(3) Scope - for example, direct competitors is likely to be accepted, and in any case the sectors/industries must be defined. Some clauses say any suppliers or clients of the employer, which for well-established companies especially multi-industry conglomerates can result in covering a substantial portion of the market, which in turn affects its enforceability. If the employee cannot join almost half the market, that’s not reasonable.
It has to be within this three-pronged framework, since not having such guardrails will make it unenforceable.
Also, this applies when the employee would have access to confidential information or trade secrets, since the purpose of this restriction is to prevent employer’s loss due to disclosure of such information/data. Having said that, practically speaking, employers can claim this in most white-collar situations in today’s world, since most professionals have access to emails and some company data.
There are a few situations where non-compete restriction does not apply, for example, if the employer terminates the contract, or if the contract is ended by either party during the probation period.
Further, the employer needs to initiate the claim within 1 year, otherwise they lose the right.
Non-compete in practice
How UAE non-compete clauses work in practice - image showing a sign of ‘stop’
Image credit - Unsplash
Many companies use non-compete for its deterrent value, that is, to scare employees or make them think twice before going ahead with a new place. But they should remember that if it goes beyond these boundaries, they risk for the clause to be unenforceable, in case it goes to the court. And the employer has to prove damages as well, just a breach of the restriction is usually not enough.
In today’s world of information, it’s likely that employees have that knowledge too.
Many times, the clause exists in the offer letter, but not in the labour contract. Sometimes the employers include it in the labour contract as a special clause to align with the offer letter. Yet other situations can show that the clause in the offer letter is different from that in the labour contract. For example, I have seen a clause which had different Emirates in the offer letter and labour contract - one posed the restriction over Dubai, another over Abu Dhabi. The scope was also slightly different. In such cases, it becomes quite difficult to interpret it and imagine how it will play out.
The challenge for employees is not so much that the clause will be enforced if it goes to the court. For individuals, the very possibility of getting embroiled in a legal dispute for a few months/years instead of continuing with their professional life is sufficient to discourage them from pursuing roles where there might be a risk. Imagine an employee joins a new company and then their employer receives a notice that this new employee has breached a non-compete clause.
Employers today go a step further to prevent this or protect themselves on this aspect vis-à-vis new employees - in their application documentation, they usually ask if the employee has any restrictions in their current employment which will impact their joining. If not done at that early a stage, they have a clause in their offer letter which requires such employee to promise and sign that there are no restrictive clauses in their earlier employment. This makes the situation quite difficult for employees, because if they do receive a non-compete claim later, or the new employer does, the new employer can always refer back to that documentation and question them.
In any case, the risk mentioned above, that is, the disruption of the employee’s life if they take the path of going ahead does exist.
It is always possible to obtain permission from the previous employer, but the risk with this approach is that if they chose to say no, then the employee’s situation becomes more precarious. Unfortunately, the power is not quite balanced in this case.
Confusion with non-solicit
Often these terms are used loosely or interchangeably - non-solicit and non-compete. While the intention behind them is kind of similar, the mechanics are actually quite different.
Simply put - non-compete relates to employment restriction. What does that mean - it means that the person is not permitted to work in certain industries or roles, for a certain period of time, for a certain geography, as explained above.
Non-solicit relates to not attracting clients, colleagues etc. of the previous organization, this can be in the person’s next role as an employee, entrepreneur, or any other. Non-solicit clauses can be quite elaborate - with provisions focusing on different categories like clients, colleagues, suppliers, etc.
It’s industry practice for people to call their ex-colleagues to work with them or assume that they call their old clients and continue working with them, hence this is a tricky one to take care of. Usually there is a timer ticking on this as well, so it’s not like it’s forever. It can be as low as 6 months, but can go higher also.
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