THE MEANING OF A NON-COMPETE AGREEMENT
The simple understanding of the non-compete agreement is to agree prohibits the employee from working for a competitor. It is a contractual restriction imposed on an employee as part of a job contract to prevent the employee from working for competitors after terminating the employment relationship with the previous employer.
In fact, the non-compete concept contains 3 main elements:
- Working for the previous employer's competitors.
- Conducting any business with the former employer's clientele.
- Soliciting current and former employees at the former company.
CONDITIONS MUST MEET THE NON-COMPETITION AGREEMENT TO BE CONSIDERED LEGALLY VALID
Federal Decree-Law No. 33 of 2021 on the Regulation of Labor Relations stipulated clear conditions to consider the non-compete clause legally valid, as follows:
- The non-competition clause must be stipulated in the employment contract. According to article 10 of the federal Decree-Law No. 33 of 2021 on the Regulation of Labor Relations, the non-compete clause must be placed in the employment contract, NOT in any supplementary agreement or side agreement or any document of any other form, not even the offer letter.
- The duration of the non-competition is not to exceed 2 years from the end date of the employment contract.
- The geography of the non-compete must be specified clearly.
- The non-competition must be related specifically to the same sector of the employer's work.
CONDITIONS THAT LEAD TO CONSIDERING THE NON-COMPETITION CLAUSE UNENFORCEABLE OR INVALID
The non-competition clause will be void in the following events:
- In case of terminating the contract during the probation period.
- In case the employer terminates the contract in a way contrary to the law (for example, has not granted the employee the notice period or terminated the employee because of a complaint filed by the employee against the employer "Arbitrarily dismissal").
- In case the parties, in writing, agreed that the non-competition provision would not apply after the employment contract has been terminated.
- If the employer filed, the non-compete case after one year from the date the violation was discovered or acknowledged by the previous employer.
- If the worker or the new employer pays to the previous employer compensation not exceeding three months of the worker's wage as agreed upon in the last contract, subject to the previous employer's written consent thereto.
- Any professional categories in demand in the national labor market are determined by the Minister's resolution in accordance with the employee's classification approved by Cabinet Resolution No. (1) of 2022 (Executive Regulation) of the labor law.
PROVING THE DAMAGE BY THE EMPLOYER IS A MUST TO APPLY THE NON-COMPETITION CLAUSE AND CLAIM FOR COMPENSATION BEFORE THE COURT.
An important condition stated in Cabinet Resolution No. (1) of 2022 (Executive Regulation) of the labor law, if a dispute arises over the non-competition clause, The burden of proving the damage before the court is on the company. Meaning there must be damage and must be proved by the employer, which is very difficult in practice
Even if the court found the non-compete clause applicable and met with all conditions and nothing prevented the application of the clause against the employee. There will remain a very important and difficult point to claim compensation by the employer against the employee. The employer must prove the damage and the value of the damage.
It is important to understand that the courts in UAE are very strict in proving damages. For example, if an employee lifts a company and works with a direct competitor in the market, in such case, the previous employer will not be able to claim compensation based on showing the decrease of the net profit or the revenue, as this might be for any other reason.
In another case, if an employee resigned and then convinced another employee to resign and work for another competitor, still the employer must prove what damage happened to the entity because of such a situation as the employees who lift might be replaced or might leave for any reason with no direct effect to the previous employer, noting that courts in the United Arab Emirates consider only the direct damages but not the indirect damages.
Employers should understand that the market in UAE is open and flexible, and the law will never prevent employees from leaving the companies and joining other competitors once they find a better work environment or better offers. Hence, it is the employer's internal responsibility to keep their employees with them for a long time.
The courts in the United Arab Emirates might not issue judgments against employees who resign and join another competitor because the concept is that it is a human right to move in their career. But it is expected that courts will start issuing judgments against employees in the cases of employee breaches by conducting business with the former employer's clientele or/and soliciting current and former employees at the former company. Subject to proving the damages by the former employer.
It is advisable to state the compensation value in the non-compete clause in the case of a breach. Such compensation should be reasonable. For example, it might be reasonable and applied by the court stating in the employment contract that ( the employee shall compensate the employer with an amount equal to 3 months' total last employee salary if the employee conducts business with the former employer's clientele or/and soliciting current and former employees at the former company during 1 years from the last working day), in such case the employer will be required only to prove the breach but will not be required to prove the damage value because it was agreed and confirmed between the parties, nothing that the value must be reasonable as the court has the right to amend such agreement of the compensation value.
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.
