United Arab Emirates: Non-Compete Clause - A Broader Look

Last Updated: 3 October 2018
Article by STA Law Firm
Most Read Contributor in United Arab Emirates, September 2018

Civil and Criminal Effects of Non-Competition Condition in UAE Labor Law

Introduction

The Federal Law Number 8 of 1980 regarding UAE Labor law (the Labor Law) contains a provision under Article 127 which allows the employer to require the worker not to compete or to participate in a competing project after the end of the contract, where the article includes several conditions and guarantees for the protection of the parties.

Although the labor law usually regulates the working relationship to protect the worker from the employer, in this text it protects the interests of the employer rather than the worker and restricts the freedom of the worker to move from his work to another work.

Perhaps the wisdom of this was contained in the text of the same article since the document had been provided for the protection of the employer from the worker, where the wording of Article 127 of the Labor Code states as follows

If work assigned to the employee allows to an acquaintance with the employer's clients or have access to the secrets of his work, the employer may oblige the employee that after termination of the contract he may not compete with him or take part in any business interest competitive to the employer's. Such agreement will be valid only if the employee has reached the age of 21 years at the time of its being executed and if the deal is limited concerning the place, time and nature of work to the extent as is necessary to safeguard the lawful interest of business.

It is also clear from the context of the text that this requirement is not compulsory but is due to the employer's desire to add it or not to the contract of employment, but the question here is when the employer may add this condition whether before the start of work and when signing the contract or at any time during work or after the end of the employment relationship. I think that the best time to sign this condition is when signing the work offer before signing the contract of work and then the worker is free to accept this condition or not.

In the case of signing this condition after that and during the employment relationship, the worker will be obliged to continue in the labor relationship, which makes the contract flawed by a defect of satisfaction.

Post Termination

After termination of the employment relationship, the worker's services may be terminated, and before the end of service, payments are paid. The employer is required to sign such a condition, and we believe that such a situation may not be approved because the purpose is terminated and the employment relationship is terminated, and labor benefits may not be used as a means of pressure on the worker to sign such a condition. In general, a worker may not compete with the company in which he works because the worker is committed not to compete with the employer during the validity of the contract. The source of this obligation is the law, in that he is engaged in performing the work for the employer, not for himself.

The agreement requires that the worker be twenty-one full calendar years at the time of signing the contract and that the deal is limited in terms of time, place and type of work to the extent necessary to protect legitimate business interests and that there is a serious interest for the employer in the requirement of non-competition on the worker after the expiry of the contract. This form the interest in the fact that the work entrusted to the worker allows him to know the business associates of the employer or to see the secrets of his work, and that the legislator relatively restricts the prevention of competition in time, place and type of work and to the extent that it achieves the employer's legitimate interest so that the prevention of absolute competition is a complete waste of the worker's freedom.

The validity of this condition shall require the worker to be compensated in case of breach of the non-competition clause provided for in the contract, and its responsibility in this regard is a contractual responsibility and is required to prove the breach of this obligation and damage and the causal relationship between them.

This is the civil responsibility that the courts have settled on their order, although it is hard to prove the pillars of that responsibility of error, damage and causal relationship, where many cases were rejected because of the invalidity of the requirement of non-competition, where the Court of Cassation Dubai in Appeal Number 2013/219 Labor Appeal and 2014/6 Labor Appeal stated that:

 "what is meant by the secrets that the worker is prohibited from disclosing to others in accordance with the provisions of Article 127 of the Labor Relations Regulation No. 8/1980, as amended by Law No. 12 of 1986 and what this court went to the work assigned to the worker shall allow him to know the customers of the employer or to view the secrets of the work in this case, the employer may require the worker not to perform the competition after the end of the contract competition or to participate in any competing project and requires the validity of this agreement. As well as reaching the worker twenty-one calendar years at the time of signing this agreement - the condition of non-competition shall be limited in terms of time, place and type of work to the extent necessary to protect the legitimate interests of the employer - as for other agreements between the worker and the employer as an agreement to settle their rights after the termination of the employment relationship, the worker's disclosure of this agreement to others - on the assumption that it occurs - is not a disclosure of the secrets as set out in article 127 of that law."

Penalty Provisions

The question further arises as to the penalty to be imposed on the worker who has resigned under the conditions of competition. Is he prevented from working with the competition companies or depriving him of working in the state for the duration of the situation or what? To answer this question, we distinguish between several cases as follows:

The first case: - Before joining the company and before the signing of the contract of work. In this case, the employer may submit a complaint or request to the Labor Department to prevent the issuing of a new work permit for the worker to the competing company. The decision shall be made here by the Ministry of Labor.

The second case: - After the employee joined the competition company. In this case, it is impossible to be exposed to a contract of employment with the competition company, and the penalty is limited to compensation only on its terms, and the arrangement of work cannot be subjected to the impossibility of implementing the competition clause.

 In this regard, the Court of Cassation in - Dubai on 04-06-2013 in appeal number 2013/37 Labor Appeal mentioned that:

"The worker's liability for breach of the non-competition clause is the contractual responsibility underlying the agreement in the contract of employment and this liability does not affect the second employment contract that may be concluded by the worker. After the end of the first employment contract _ with the new employer, the competitor, where this contract is valid and the first employer may not seek the decision to invalidate the second employment contract or to prevent the worker from working with the new employer as long as the employee's commitment to non-competition was impossible to implement in kind by the worker Have another employer"

It also raises the question of professionals such as doctors, engineers, consultants and others whether the condition of competition applies to all jobs, businesses, and professions or whether it is limited only to commercial and industrial.

The Court of Cassation in Abu Dhabi responded to this question by issuing its judgments. The Court of Cassation ruled that a preliminary ruling in favor of appeal should be rescinded, allowing a doctor to work in the Emirate of Abu Dhabi after his employment with the employer, despite his consent to the condition of not competing in the contract. Working in Abu Dhabi for two years, arguing that the competition clause contained in the Labor Law is limited to unfair competition in business or industry, not on professional work. The Court of Cassation established that it had been developed from the papers that the contestants had signed the undertaking referred to at the beginning of his employment and that the project was intended to safeguard interests of the appellant under the law, in article 127 of the Labor Relations Regulation Act.

This article did not limit the type of work in business or industry, but the text never includes all areas of work, as well as that undertaking has banned the practice of the challenged in a specific geographical area for a particular period of two years, which does not contradict the constitutional right to work in any The court has not intervened to amend it for alleged illegality or conflict with the text of the article on which the case was based. In the judgment contested by the rejection of the opposite claim, the reasons for the appealed decision were found to be defective in violation of the law Corruption in inference and limited in its causes, which requires revocation.

But whether there is a penal liability for the worker in case of breach of the non-competition clause?

The civil liability resulting from the signing of the non-competition clause and the penal liability is subject to the Penal Code and the particular laws such as the Internet Crimes Law if the employee discloses the secrets of the company in which he works. Article 279 of the Penal Code stipulates that: (A person shall be sentenced to detention for a term not exceeding six months and/or to a fine not in excess of five thousand Dirham, whoever was entrusted with the conservation of seals put pursuant to a judgment or court or administrative order and caused, through his negligence, the perpetration of any of the crimes provided for in the two preceding articles.)

The Court of Cassation has applied this provision to several conditions in Dubai on 22-09-2014 in appeal Number 2014/551 penalty ruled that:

"The crime of disclosing the secrets provided for in Article 379 requires the existence of four conditions. First, its material purpose is the disclosure and disclosure of the secret and if the perpetrator uses it for his benefit or the benefit of another person. Secondly, the secret must be disclosed secretly, by its nature or by the circumstances surrounding it, in secret, even if the victim did not request his secrecy, and it is sufficient that the offender knew this secret by virtue of his profession, profession, status or profession, and thirdly the status of the secretary of the secret that the secret was deposited by virtue of his profession or craft."

It is clear to us that the condition of non-competition is an exceptional condition and restricts the freedom of the worker and the freedom of movement in work, so the judiciary explains it narrowly and tightens the terms of its application. The Ministry of Labor was directed towards the bench and went to cancel the conditions of the employer's consent to transfer. This approval is considered from 2010.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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