Author(s):Several

A Guide to Non-compete Clauses in the Middle East

Introduction

Non-compete clauses are sometimes incorporated into the contracts of employees to ensure the security and protection of the employer if an employee decides to move to another company. When working for an entity, individuals will likely pick up on and be privy to highly confidential information and practices of their employers. In the modern and extremely competitive business environment, companies look to obtain every advantage they possibly can. A company’s unique selling points are what allow them to rise above their competitors, and these unique characteristics can include everything from trade secrets to working practices and even knowledge of specific customers and interacting with them. These are all things that an entity would seek to protect.

Placing a non-compete clause in a contract restricts an individual’s future employment in specific ways. That employee will be unable to obtain jobs at similar competing establishments, though the duration and specifics of how this will work will vary based on the country. The clause will have the effect of preventing one from obtaining employment under certain circumstances to ensure one company will not lose business to a competitor due to the profession of the ex-employee.

It is no small matter, and so there are regulations in place within all of the GCC countries to ensure employers do not take advantage of employees. An individual working for a company in a particular field and at a specific position, when looking for a new job, will most probably be seeking in a similar sector. Realistically, this related sector will also be the one they would be most likely to find work in, and so this gives rise to something of a problem. If a non-compete clause is present, how will an employee find further employment?

There are solutions to this, such as time limits, though more often than not, these limitations have to be reasonably specific. Non-compete clauses are not intended to give any single party an advantage over the other, and they are indeed not intended as oppression to the employee. Preferably it is merely a preventative measure used by the employer to secure their business.

Contents

1. Non-Compete Clauses in the UAE

1.1 Federal Law Number 8 of 1980

1.2 In the Case of Litigation

1.3 Ministerial Resolution Number 297 of 2016

2. Non-compete Clauses in the DIFC

2.1 DIFC Law Number 6 of 2004

3. Non-compete Clauses in the ADGM

3.1 The Employment Regulations 2015

3.2 The UK Common Law and Equity

4. Non-compete Clauses in Kuwait

4.1 Law Number 10 of 2007 (Competition Law)

4.2 Damages for a Breach of Contract

5. Non-compete Clauses in Bahrain

5.1 Law Number 36 of 2012

6. Non-compete Clauses in Oman

6.1 Royal Decree Number 50/90

6.2 Sultan’s Decree Number 35/2003

7. Non-compete Clauses in Saudi Arabia

7. 1 Royal Decree Number M/21 of 1969

8.1 Royal Decree Number M/51 of 2005

8. Conclusion

1. Non-compete Clauses in the UAE

The UAE is a highly competitive business market, being the most famous and popular in the Middle Eastern region; this is made clear when looking at its population, which consist of around 90% being expatriates. Non-compete clauses are quite well regulated although the matter can often be complicated. On top of this, the ADGM and DIFC free zones have differing regulations.

The principal regulations on this matter are:

Federal Law Number 8 of 1980 (Labour Law)

Ministerial Resolution Number 297 2016

1.1 Federal Law Number 8 of 1980

Federal Law number 8 of 1980 is the general labor law of the UAE. It does not explicitly mention non-compete clauses, though Article 127 does concern the matter Within Article 127, it says that in the case that an employee’s work allows them to become familiar with the clients of their employer, or if that work exposes them to the trade secrets of the company, the employer will be in a position to oblige a non-compete restriction upon the employee. These are the conditions under which a non-compete clause may be allowed as per the law, though the Article also states conditions. Article 127 States that for this restriction to be applicable, the employee must be over the age of 21 from the time of the contracts initial formation. On top of this, the clause must be limited regarding the time and place. Further, it should also be limited to similar forms of work that would directly allow for competition with the original employer and will not be permitted unless it is necessary for them to protect and safeguard their lawful interests. From this, a point that can be noted is that the law is stated in such a way to ensure a fair system. A non-compete clause cannot be used to take advantage of the helpless. The age restriction is present to provide that those who are very young do not have the early and crucial stage of their careers unnecessarily restricted, as this could have more considerable repercussions on them. On top of this, the time and place restrictions are just a matter of fairness. For time limitations, markets change and so there must be an absolute time limit after which the employment of that employee will not have a noticeable or competitive impact. Further to this, employees employed within the UAE will be less likely to interact with clients in competitors in other jurisdictions, and with the international market and competition on such a scale being far more unpredictable, a limitation will have to exist. Of course, the non-compete clause must prevent work in a similar business that would be in direct competition with the employer. They should be able to demonstrate that in the ex-employee working in the new company, they will suffer losses directly as a result. Due to Article 127, it is more often than not, more senior employees who receive these clauses in their contracts. Those at a decision-making level who would potentially be able to impact the interests of a company and their competitivity with their knowledge may genuinely require a non-compete clause; there will be little to no positivity to arise from applying non-compete clauses to lower level employees or those privy to less insider knowledge.

1.2 In the Case of Litigation

Escalating a case to litigation is a serious matter, and so there must be a certainty of a breach. However, the UAE’s outlook and handling of these cases can be quite a complicated procedure. Click here to read more.