UAE non-compete clauses: Employers could face challenge of enforcement if terms unclear, experts warn

The inclusion of post-contractual non-compete clauses in employment contracts has become commonplace in the UAE, particularly in freezones.

These clauses aim to protect companies’ legitimate business interests, client relationships, and confidential information. However, the impact of these clauses for some employees can be unclear, with ambiguity in contractual language making the feasibility of enforcement unclear, experts told Arabian Business.

“Under UAE law it is generally accepted that post-employment restrictions with a duration of up to 6 months with a geographic scope limited to the Emirate within which the employee has been working are considered reasonable,” said Rachel Hill, a Partner at law firm Addleshaw Goddard.

However, these agreements often come with enforcement challenges, Hill explained.

“The Dubai Courts cannot grant interim relief (such as injunctions) for the enforcement of post-termination restrictions. In practice, an employer cannot therefore prevent an employee from acting in breach of post-employment restrictions.”

This lack of injunctive relief available to employers is a crucial factor underpinning perceptions of non-compete clauses in most UAE jurisdictions outside of the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) freezones.

Maroun Abou Harb, an Associate at BSA, highlighted that non-competes “aim to protect an employer’s legitimate business interests, such as confidential information, client relationships, and goodwill.”

Yet their effectiveness hinges on several factors. “Courts generally frown upon overly broad restrictions that significantly limit an employee’s ability to find new employment,” Abou Harb cautioned.

At the UAE’s media and technology hubs, non-compete agreements are especially prevalent in certain professions. These agreements are typically applied to media-related fields like advertising, PR, and journalism. However, they are less common for tech jobs in freezones, according to Abou Harb.

“However, they can be implemented for highly specialised roles where the employee possesses unique knowledge or access to confidential information critical to the company’s competitive edge,” he added.

Enforceability challenges

Beyond the restrictions themselves, the enforceability challenge posed by the UAE’s legal landscape and market dynamics has also had an impact on the perception of these clauses.

“Non-compete agreements in the UAE can face challenges regarding their enforceability. Courts may scrutinise the terms to ensure they are reasonable and necessary to protect legitimate business interests, which can lead parties to question their effectiveness,” Abou Harb explained.

Ambiguity in language and a lack of clarity about prohibited actions can weaken the agreements’ perceived strength, the experts said, with this legal ambiguity compounded by practical hurdles.

“Enforcing a non-compete agreement in the UAE can be complex and resource-intensive. Gathering evidence and navigating legal procedures can be time-consuming and costly, making parties hesitant to pursue legal action,” he said.

Enforcing a non-compete often requires the employer to demonstrate a valid argument, prove substantive harm was caused, and prove the reasonableness of restrictions in court.

However, there are several factors that influence whether or not non-competes are enforced. Despite any scepticism held by employees, non-competes can carry substantial legal consequences for both employers and employees if not properly handled.

If an employee chooses to violate the terms of a valid non-compete clause, their former employer maintains the right to pursue legal action such as seeking an injunction against the new job or damages for financial losses from the breach.

Similarly, Abou Harb said, “If an employer attempts to enforce an overly broad or unreasonable non-compete clause, the employee could challenge it in court. This could result in the clause being declared unenforceable.”

Cost is a deterrent to legal action

“The main remedy an employer has where it considers that there has been a breach of a post-employment restriction, is to bring a claim for damages,” explained Hill.

“In order for a claim for damages to succeed, not only would the restrictive covenant clause have to be deemed reasonable, the employer would need to adduce documentary evidence to show that it has sustained financial loss as a result of the employee’s breach.”

“As a general observation, a civil claim for damages is an expensive and often lengthy process in the UAE Courts, and in our experience, extremely difficult to prove with very limited prospects of success. There is no doubt the cost of any litigation can be eye-watering.”

For employers considering legal recourse, the financial toll can be daunting. According to Hill, employers should expect to spend between AED100,000 and AED200,000 minimum for a case before the Court of First Instance – with costs increasing on appeal.

This, coupled with the burden of proving tangible harm, has continued to shape perceptions regarding the application and enforcement of non-competes.

“While the cost of legal action is a consideration, it’s part of a broader context that includes legal complexities, practical challenges, and market dynamics shaping the perception and enforcement of non-compete agreements in the UAE,” said Abou Harb. “Well-drafted agreements aligned with UAE laws and tailored to specific business needs are more likely to be taken seriously and upheld if challenged.”

A worthwhile investment?

Moreover, in the UAE’s highly competitive talent landscape, aggressive enforcement of these clauses could potentially tarnish a company’s reputation and hinder its ability to attract skilled professionals, Abou Harb explained.

“In the UAE’s dynamic business environment, where talent mobility is valued, companies may be cautious about aggressively enforcing non-compete clauses. They may fear negative repercussions on their reputation or difficulties attracting skilled employees,” he said.

Despite these challenges, both legal experts emphasised that well-crafted agreements tailored to specific business needs and compliant with regulations should not be dismissed outright.

“Prudent employers would be well advised to make what is a comparatively small investment in fees at the outset of the employment relationship in crafting a solid contract of employment containing carefully drafted post-termination restrictions,” Hill advised.

Harb echoed this perspective, stating, “While some might view non-competes as a formality, particularly if poorly drafted or overly broad, they can be a valuable tool for employers to protect their confidential information and client base.”

Legal and industry experts advocate for ongoing dialogue to strike the right balance between competing interests.

“Collaborative efforts between legal professionals, industry experts, and policymakers can contribute to creating fair and effective practices regarding non-compete agreements,” said Abou Harb.