Clients regularly ask questions regarding the position of post-termination restrictive covenants under UAE Law.
Post-termination restrictive covenants are permitted under UAE law and are generally binding subject to certain qualifications. The effect of Article 127 of Federal Law No 8 of 1980 as amended (theLabour Law) and Article 909 of the UAE Civil Code (the Civil Code) is that the inclusion of non-compete clauses in employment contracts is valid and lawful under UAE Law. However UAE Law requires that there are clear limitations on the scope of the restrictive covenant with regards to the duration, geographical location and the type of business activity to which the restrictions relate. Moreover, a restrictive covenant can only be as wide as is necessary to protect the lawful interests of the employer.
In the event of a dispute arising in relation to the enforcement of a non-compete clause, the UAE Courts may consider factors including the sensitivity and value of any confidential information, the role and seniority of the employee concerned, the damage to the company if the employee solicits clients etc. It is not unusual for Courts to reduce lengthy periods of time and wide geographical coverage.
It is difficult to predict whether the UAE Courts will apply the terms of any given non-compete clause, not least because of the lack of published case law or a system of binding precedent in the UAE Courts. The word “apply” rather than “enforce” is used intentionally because, notwithstanding the validity of restrictive covenants in certain circumstances, the UAE Courts have previously decided that:
- restrictive covenants are not enforceable by the Courts themselves; and
- an employment contract entered into in breach of a restrictive covenant will be valid.
The UAE Courts are therefore unwilling to grant injunctions to enforce restrictive covenants. Instead, the UAE Courts have held previously that a former employer’s remedy on the breach of a non-compete clause is compensation for any loss suffered as a result of a breach of contract.
The Dubai International Financial Centre (DIFC) is a financial free zone within Dubai which has its own common law based legal system and courts distinct from those of the wider UAE. The law of the DIFC contains no express provisions regarding restrictive covenants. In absence of express provisions, Article 8 of the Law on the Application of Civil and Commercial Laws in the DIFC (DIFC Law No. 3 of 2004) provides that the laws that apply will be the laws of any jurisdiction which appears to the Court to be the one most closely related to the facts of and the persons concerned in the matter. This law further provides that if it is unclear which laws should apply, the DIFC Courts will apply the law ofEngland andWales.
The DIFC Courts have wide ranging powers to grant injunctive relief and as such it is likely to be easier for an employer to enforce a restrictive covenant where the contract is subject to the exclusive jurisdiction of the DIFC Courts. It may however be difficult to enforce an injunction granted by the DIFC Courts outside the DIFC.