In the United Arab Emirates (UAE), post-termination restrictive covenants are most common in employment contracts related to senior employees or those who have a material effect on the employer's business, including valuable connections, relationships or access to confidential information.
General Principles
UAE courts would enforce restrictive covenants in limited cases. The scope of the restrictions must be limited and precise to the most extent possible, and it should not be wider than necessary to protect the employer's legitimate business interests.
UAE courts tend to apply a reasonableness test in cases relating to the enforceability of restrictive covenants. There are four main factors the courts rely upon in making their determination: (i) the applicability to the employee in question; (ii) the duration; (iii) the territory; and (iv) the scope/definition of each of the restrictive covenants in the underlying employment contract (e.g., "competing"). In addition, in order for a restrictive covenant clause to be enforceable, it is crucial that the employer demonstrate that its business interests have suffered actual damage as a result of the employee's actions.
Non-competition
In addition to the above general principles, Article (10) of the UAE Labour Law (Federal Decree Law No. 33 of 2021) provides that, if the work assigned to the employee allows them to gain knowledge of the employer's clients or have access to its work secrets, the employer may require that the worker under the employment contract shall not, after the expiration of the contract, compete with the employer or be engaged in any competing project in the same sector, provided that the requirement is specified—in terms of time, location, and type of work—to the extent necessary to protect the legitimate business interests. The non-competition period shall not be more than two years from the expiration date of the contract. A claim filed by the employer for the employee's violation of the provisions of Article (10) shall not be heard if one year has passed from the date of the discovery of the violation.
Article (12) of the UAE Labour Law Implementing Regulations provides that the following shall be determined for the application of the non-competition clause: (i) the geographical scope of application of the clause; (ii) the term of the clause, provided that it does not exceed two years from the contract expiration date; and (iii) the nature of the work such that it causes significant harm to the legitimate interests of the employer.
Article (12) also provides that the employee shall be exempted from the non-competition clause provided in Article (10) of the labour law under the following conditions:
- the parties' written agreement;
- the new employer or the employee pays up to three months' compensation to the former employer (subject to the former employer providing their written consent);
- the employee is terminated during their probationary period; or
- as may be deemed appropriate, in light of the UAE labour market needs.
Non-service or non-dealing
Non-service / non-dealing provisions are usually seen in employment contracts related to senior employees who have material connection with business customers. Such restrictive covenants are usually limited to prohibiting contact with customers known to the employee, or with whom the employee was involved in the course of their employment. These are usually defined by reference to a limited period of time before termination (e.g., those they had contact within the six or twelve months prior to employment termination). The above general principles would apply to non-service / non-dealing clauses.
Non-solicitation
Non-solicitation clauses in UAE employment contracts prevent an employee from soliciting customers or employees of their current employer for a specified period after leaving their employment. The above general principles would apply to non-solicitation clauses.
On the Horizon
While there are no immediate changes on the horizon, we continue to monitor the evolution of UAE employment provisions—especially restrictive covenants—given the highly competitive UAE market.
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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.