In today’s competitive business environment, a company’s commercial sensitive information and its trade secrets must be protected from its competitors. So, some employers, in order to safeguard their business interest, prevent their employees from joining their competitive firm immediately, after leaving the company. Such restrictions are called Post Termination Restriction. The most common Post Termination Restriction is “Non-Compete Clause”.
A non-compete clause is a contractual provision which intends to protect an employer’s business by limiting the activities of its employees after the termination of the employment contract. The main purpose of such a clause is to refrain the company’s ex-employees from competing or working with the competitors of the company.
Article 127 of the UAE Federal Law No. 8 of 1980 (“UAE Labour Law”) enables a company to impose a post termination restriction in the form of a non-compete clause. It is important to note that this clause can only be used to protect the company’s commercial and legitimate business interest. This clause can’t be used in a wide sense, and it must be specific with regards to time, place and nature of restrictions placed under the clause.
A non-compete clause doesn’t allow the employer to unnecessarily curtail the freedom of work of an employee. The employer needs to demonstrate the legitimate basis for using this clause which may include clients information, trade secrets, and other confidential information. The restrictions can’t be placed to simply stifle or prevent competition in the market.
For instance, a junior level associate, who primarily does the research task and never engaged with the clients shall not be
subject to a non-compete clause.
In case of breach of non-compete clause, the remedies are quite limited for the aggrieved employer. In the UAE, injunctive relief is not an available remedy before the labour court. So, if an employee breaches the restrictions and starts working for its employees, the employer can’t restrict him through a direct injunctive order. The main remedy that normally employers resort to is “monetary damages”.
However, in recent times, it is witnessed that the parties while drafting a non-compete agreement, put a liquidated damage clause therein. With this clause, the parties pre-estimate the potential loss, if the employee breaches the agreement.
The employers also have an alternative remedy in the form of filing a police complaint against the ex-employee. Article 279 of the UAE Penal code puts a criminal liability on a person who misuses or disclosed the trade secrets or commercially sensitive information of the company and jeopardizes its interest. It entails an imprisonment up to 1 year or a fine of 20,000 AED, or both.
Recently, the government through its ministerial Resolution No. 297 of 2016, tries to remove the lacunae involved in the actual enforcement of the non-compete clause. This resolution states that if the final court declares that a person has violated the non-compete agreement, the government will refrain from issuing a fresh work permit or it will revoke its earlier issued work permit.
However, it is important to note that the effect of this resolution will remain in force in respect of the validity period of the non-compete restriction.
For example, if the validity of non-compete agreement is of 6 months, then the restrictions regarding permit will also be valid for a period of 6 months.
Thus, a non-compete clause should be carefully drafted keeping in mind the time, place, nature of restrictions. To avoid any possible trouble in the future, it is strongly advisable to contact a lawyer regarding it.