The new UAE labor legislation, Federal Code No. 8 of 1980, and its modifications went into force on February 2, 2022, effectively replacing the current labor law.
The new law, Federal Decree-Law No. 33 of 2021 on Labor Relations Regulation, alters the old one in several ways. The legality of restricted covenant clauses, such as a non-compete provision, which prohibits employees from working for a competitor after their employment agreement expires, is one of the most contentious issues in an employment agreement. Is the non-compete provision in the New UAE Labour Law subject to any exceptions? Here’s a quick rundown of what the new law says regarding employees who switch employers.
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What is a Non-Compete Agreement (Non-Compete Agreement)?
A non-compete agreement forbids an employee from working for a competitor. A non-compete clause is a contractual restriction placed on an employee as part of their employment contract or supplementary agreement.
Under this provision, the employee agrees to refrain from engaging in any activity that is directly competitive with the employer for a set amount of time, within a specific geographical area, and in designated sectors of activity. An employee is prohibited from doing the following under a non-compete agreement:
- Working for a competitor of his prior employer
- Conducting any business with the clients of his former job
- Soliciting current and former employees from his previous employer
Provisions Concerning Non-Compete Agreements the UAE’s New Labor Law
Article 10 of the new UAE labor code, Federal Decree-Law No. (33) of 2021, lays out the requirements for a full-time employee to transfer to a rival. Article 10 also lays forth the basic standards that a non-compete clause in an employee’s employment contract must meet.
According to Article 10 of the new UAE labor code, Federal Decree-Law No. (33) of 2021, the employer may include a condition in the employment non-compete contract indicating that the worker will not compete with or engage in any business in the same sector as him (employer) once the contract expires. Unless the worker’s job requires him to have access to the employer’s clients or trade secrets.
The Non-Compete Clause’s Importance in the UAE’s New Labour Law
The private sector is currently governed by the UAE’s New Labour Law. On February 2, 2022, Federal Decree-Law No. 33 of 2021 was passed, repealing and replacing Federal Law No. 8 of 1980. Employers will need new employee agreements as well as updates to present employment contracts, policies, and procedures as a result of the considerable changes in labor legislation. The UAE government is expected to release administrative regulations to guide the new legislation. One of the most significant modifications in the new legislation is the non-competition rule.
Article 10 of the new legislation, which governs non-compete clauses in contracts, also incorporates several changes made to the previous law, bolstering an employer’s rights significantly.
What is a post-termination limitation, exactly?
Post-termination constraints, in their most basic form, are contractual provisions aimed at preserving an employer’s business by restricting workers’ actions after they have been fired. The most well-known type of post-termination restriction is the non-compete agreement. These measures are designed to keep employees from working for or starting a business that competes with their current employer.
However, it is not the only type of post-termination restriction.
Non-poaching, non-dealing, and non-solicitation agreements may benefit an employer, despite their rarity.
Conditions that render the non-competition clause null and void
The non-compete clause is unenforceable:
- If the employer violates the conditions of this Decree-Law by terminating the employment contract for any unlawful reason, or if the employer terminates the contract for any unlawful reason.
- It may be agreed in writing that the non-competition clause will not apply once the employment contract has ended.
Non-Compete Clause Enforceability
If an employee has access to sensitive business information that could cause financial loss to the company if disclosed to a competitor, the new rule allows an employer to impose a non-compete clause. If an employer wants to protect its economic interests, it must engage in a Non-Compete Agreement with the employee, according to the new rule.
Above all, depending on whether the employee has access to sensitive information, the former employer must establish a Non-Compete Agreement with the latter.
Cabinet Resolution No. (1) of 2022 Establishes New Rules Regarding the Non-Competition Clause
While Article 10 of the New Labour Law specifies the aforementioned requirements, the Ministry of Health and Human Resources has published a new decree – Cabinet Resolution No. (1) of 2022 (Executive Regulation)– that extends the non-compete provision’s provisions and implementation.