UAE Labour Law: Can Employers Prevent Workers From Joining Competitors After Resigning?

Question: Under UAE labour law, can an employer prevent an employee from joining a competitor or starting a rival business after resigning? What conditions must a non-compete clause meet to be legally enforceable, particularly regarding its duration, geographical scope and the nature of the work? Can employees challenge such restrictions if they are too broad, and what should they check before signing an employment contract?

Answer: Pursuant to your queries, it is assumed that you are currently employed by a mainland employer in Dubai.

Therefore, the provisions of Federal Decree Law No. 33 of 2021 on the Regulation of Employment Relations (the“Employment Law”) and Cabinet Resolution No. 1 of 2022 on the implementation of Federal Decree-Law No. 33 of 2021 regarding the Regulation of Employment Relations (the“Cabinet resolution No. 1 of 2022”) are applicable.

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In the UAE, an employer may include a non-competition clause in an employment contract of an employee to prevent an employee on engaging with a business competitor upon the termination or expiry of an employment contract.

Such a non-competition condition may not exceed for more than two years. This is in accordance with Article 10 (1) of the Employment Law, which states,

“Where the employee performs a work which gives him access to employer's customers or business secrets, the employer may make a provision in the employment contract that the employee shall not compete with, or be engaged in any business which competes with it in the same sector after the expiry of the contract. Such clause shall specify the place, time and type of work to the extent necessary to protect the legitimate business interests, and the non-competition period shall not exceed two years after the expiration of the contract."

What conditions must a non-compete clause satisfy?

Article 10(1) of the Employment Law and Article 12 of Cabinet Resolution No. 1 of 2022 establish the following requirements on non-compete:

Duration: The restriction must not exceed two years from the date of termination or expiry of an employment contract. Two years is the statutory maximum and does not mean that every non-compete clause lasting two years will necessarily be enforceable. Its duration must remain proportionate to the legitimate business interests requiring protection.

Geographical scope: an employment contract must specify the geographical area in which the restriction applies. A restriction covering an excessively broad territory, without justification based on the employer's legitimate business interests, may be challenged.

Nature of work: an employment contract clause must identify the nature of the work restricted and related to the activities that could cause serious harm to an employer's legitimate business interests. A blanket prohibition against undertaking any employment in the same industry, regardless of the employee's actual responsibilities, may therefore be challenge.

Legitimate business interests: A restriction could be necessary to protect an employer's legitimate interests, particularly where an employee has access to clients or confidential business information of its employer. It should not operate merely as a general restraint on the employee's ability to earn a livelihood.

Article 12(2) of Cabinet Resolution No. 1 of 2022 further provides that, where a dispute concerning a non-compete clause cannot be settled amicably and is referred to the courts, the onus is on an employer to prove damages suffered along with the quantum of damages suffered.

“If a dispute arises over the non-competition clause and it is not settled amicably, the matter shall be referred to the judiciary and the burden of proving the alleged damage shall lie with the employer.”

Can an employee challenge an excessively broad or unenforceable restriction?

An employee may dispute the enforceability of a non-compete clause where, for example, the restriction does not adequately define the duration, geographical area or nature of the prohibited work or extends beyond what is necessary to protect the employer's legitimate business interests.

Article 10(2) of the Employment Law expressly provides that the non-compete condition shall be null if an employer terminates an employment contract in violation of the provisions of the Law.

Further, Article 12(3) of Cabinet Resolution No. 1 of 2022 provides that the non-compete clause shall not apply where an employment contract is terminated at an employer's will or because of an employer's breach of its legal or contractual obligations.

Article 12(5) of the Cabinet Resolution No. 1 of 2022 also recognises certain exemptions to the non-competition rules.

These include (i) termination during the probation period, (ii) employment of the employee under specified professional categories exempted under the applicable ministerial provisions, and (iii) an agreed compensation arrangement whereby an the employee or the new employer of the employee agrees to compensate the previous employer a sum not exceeding three months' wages of the employee under the last contract, provided that the former employer gives its written approval for the same.

What should employees check before signing an employment contract?

Before signing an employment contract containing a non-compete clause, employees should:

Check whether the restriction clearly specifies its duration, geographical area and the nature of the prohibited work.

Assess whether the restriction is reasonably connected to their actual duties, client relationships and access to confidential business information.

Identify whether it would prevent them from working in their profession generally or only from undertaking specified competing activities.

Seek clarification or negotiate where the restriction appears excessively broad.

Consider requesting a written provision excluding the non-compete restriction upon termination if agreed with an employer.

Review any separate confidentiality, non-solicitation or intellectual property obligations, which may continue to apply independently of the non-compete clause.

Read carefully to fully understand the terms of an employment contract and ensure there is no ambiguity in the language of an employment contract.

Applicable laws:

Federal Decree Law No. 33 of 2021 on the Regulation of Employment Relations

Cabinet Resolution No. 1 of 2022 on the implementation of Federal Decree-Law No. 33 of 2021 regarding the Regulation of Employment Relations

Ashish Mehta is the founder and Managing Partner of Ashish Mehta & Associates. He is qualified to practise law in Dubai, the United Kingdom and India. Full details of his firm on: Readers may e-mail their questions to:... or send them to Legal View, Khaleej Times, PO Box 11243, Dubai.

Disclaimer: The information provided above is intended for general guidance and does not constitute legal advice. It is recommended to seek formal legal counsel.

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