A client of mine, a senior executive at an international logistics company based in Dubai, had a Cheshire Cat grin when we met for lunch.
“I’ve decided the time has come,” he said as we sat down. “Fortune favours the brave.”
We hadn’t set an agenda for our meeting, so I was intrigued.
“I’ve decided to take the plunge and set up my own shop,” he continued. “I’ll need your help with setting up, shareholder’s agreements etc.”
Having spent over a decade in the business, he knew procurement and distribution like the back of his hand.
His father had set up a logistics company in his home country. He had lived and breathed the business even before he had started working for this present employer.
When he sent me his employment contract for review, it turned out that he was bound by a pesky non-compete provision. He couldn’t open up his own shop. Well, not for a year after resigning, at the very least.
Non-compete agreements prohibit employees from working for a rival business and launching businesses that would compete with the employer’s business.
The rationale for these restraints is that an employee should not be free to skip his existing employment armed with its client lists, marketing strategies and trade secrets.
That juicy offer of higher pay, a bigger office and double the annual holidays made by a competing business should not be so easy to accept, to the detriment of his current employer.
So while non-competes were historically intended to protect trade secrets and proprietary information, they have ended up ensnaring schoolteachers, baristas, and janitors in the US.
According to one study, 32% of American companies include them in their employment contracts regardless of the employee’s pay or position.
Unsurprisingly, non-compete provisions are a divisive subject.
While the majority of the states in the US allow the enforcement of non-compete provisions, California law outrightly outlaws them. Washington state makes non-competes unenforceable against certain employees, including those earning less than $100,000 a year.
In the United Kingdom, courts often see non-compete provisions in “restraint of trade” and unenforceable unless they are reasonable, limited in duration, geographical area, and content. The courts of India and Pakistan take a similar approach.
So too does the UAE.
Article 127 of the UAE Labour Code (Federal Law No. 8/1980) reads:
Should the work entrusted to the worker enable him to meet the clients of the employer or know the business secrets thereof, the employer may require the worker not to compete with him or participate in any competing project upon the termination of the contract. For the validity of such agreement, the worker shall be twenty-one years old at least upon the conclusion thereof, and the agreement shall be limited, with regards to time, place and type of work, to the extent necessary for the protection of the legal interests of the employer.
Article (909) of the UAE Civil Code states:
1. “If a worker, in the course of his work, has access to the secrets of the work or gets acquainted with the customers of the firm, the two parties may agree that the worker may not compete with the employer or take part in work competitive to his work after termination of the contract.
2. Nevertheless, such an agreement shall not be valid unless it is restricted to time, place, and type of work, to the extent which is necessary for the protection of the legitimate interests of the employer.
3. It shall not be permissible for the employer to rely on that agreement if he terminates the contract without any act on the part of the worker justifying that course, and likewise it shall not be permissible for him to rely on the agreement if he commits any act which justifies the worker in terminating the contract.”
Article (910) of the Civil Code states:
“If both parties agree that the worker shall be liable for damages if he does not abstain from competition with such liability being unreasonably excessive in order to coerce him to stay with the employer, the condition shall not be valid.”
For non-compete provisions to be enforced in the UAE, they must be agreed in writing, limited in time (usually not more than 1 year), and specific in the geographic area to which they apply.
Given that mainland courts do not issue injunctions, courts will not restrain the employee from working with a competing business. The employer will have the right to file a civil suit for damages against the employee once the employee has begun working at the competitor.
The employer will need to prove direct loss accruing from the employee’s breach of the non-compete provisions to be successful.
DIFC employment law, a jurisdiction where injunctive relief is available, does not provide for non-compete provisions. However, this does not prevent their inclusion or enforcement.
In 2016, then VP Joe Biden said “”Folks, no one should have to sit on the sidelines because of an unnecessary non-compete agreement.” Earlier this month, as President he asked the Federal Trade Commission to look into ways to ban or limit their use.
Watch this space.