Dubai has seen an increasing number of professionals exploring the opportunity to start their own businesses while maintaining full-time employment. However, according to legal experts, this dual path comes with legal complexities and that require careful navigation.
“The entrepreneurial landscape in Dubai is incredibly vibrant, but there’s a critical need for employees to understand the legal framework before embarking on their business ventures,” explained Derek Robbins, Associate at BSA Global in an exclusive interview with Arabian Business.
Robbins highlighted the presence of intricate legal considerations that aspiring entrepreneurs must consider while maintaining their primary employment.
A recent report by the Dubai Framework for Cultural Statistics revealed that Dubai is home to 40 per cent of start-ups that secured over $1 million in funding in the region, with 306 based in the city.
“Having lived and worked in London, Munich, and Moscow, I can say that Dubai stands out as the most business-friendly city,” said Vadim Kouznetsov, Founder of JobX.
According to IFZA, over 55 per cent of entrepreneurs globally started their businesses while still employed.
Is it legally permissible for an employee to own a business?
In Dubai, anyone looking to engage in economic activity, whether as a full-time employee or otherwise, must obtain the necessary licenses from the relevant authorities. This includes obtaining a license from Dubai Economy and Tourism (DET) for onshore activities, or the relevant free zone authority for businesses operating within specific free zones.
“Carrying out any business activity without the appropriate license is unlawful. Depending on the free zone and the nature of the activity, a No Objection Certificate (NOC) signed by the employer may be required before a trade license can be issued,” Robbins explained.
An NOC is often required to ensure that the business does not conflict with the interests of the employer, highlighting the importance of obtaining formal approval before moving forward with a business venture.
“Depending on the free zone and chosen activity, authorities may require an NOC signed by the applicant’s employer before issuing a trade license,” he said.
Employment contracts and restrictions
One of the biggest factors to consider when pursuing a ‘side hustle’ while employed is the employment contract. According to Robbins, most employment contracts in Dubai have clauses that may restrict employees from engaging in business activities outside of their job responsibilities.
“If a person wishes to carry out any form of economic activity outside of their employment the person should ensure that they are not competing directly or indirectly with their employer and should carefully review their employment contract as well as any employment policies to determine what restrictions are contractually applicable,” he explained.
“Non-compete clauses are particularly significant,” he asserted.
Under Federal Decree Law No 33 of 2021, employees are prohibited from competing directly or indirectly with their employer. These restrictions can extend up to two years after employment termination and often include limitations on approaching clients and fellow employees.
Common contract restrictions include:
- Non-compete clauses: Employees are prohibited from directly or indirectly competing with their employer during and often for a period of up to two years after the termination of their employment.
- Prohibition on outside business activities: Many contracts specify that employees cannot engage in business ventures without obtaining prior written consent from the employer.
- Time and resources: Employees are typically expected to dedicate their working hours solely to their employment. A side hustle that interferes with the employee’s time or uses company resources could lead to a breach of contract.
“The key here is to carefully review the employment contract and any relevant policies to identify restrictions,” Robbins advised. “We recommend legal consultation to understand potential risks, especially if the employment contract or UAE labour laws are breached.”
Obtaining written approval from the employer
In many cases, employees must seek written approval from their employer before starting or owning a business. This is particularly important if an NOC is required for obtaining a trade license. Robbins explained.
“It is essential to assess the specific terms of your contract and understand whether your employer’s consent is needed. Not obtaining approval could lead to serious consequences, including the termination of employment and the revocation of your employment visa,” he added.
The requirement for written consent extends beyond just the employer’s consent to trade. It could also affect the type of business the employee is allowed to run, depending on the nature of the employer’s business and any potential conflicts of interest.
The Ministry of Human Resources and Emiratisation (MOHRE) regulates employee-employer relationships in the UAE. Robbins highlighted that should an employee register a company without the consent of their employer, there are several risks. “Employees may face termination of their employment contract, and their employment visa could also be canceled. In certain circumstances, MOHRE may also bar an employee from being registered as an employee with future employers.”
Jurisdictional considerations: Mainland vs. Freezone vs. offshore
The type of business jurisdiction whether mainland, free zone, or offshore also plays a role in the process of obtaining approval for a side hustle. Certain free zones may be less stringent in enforcing the NOC requirement compared to mainland businesses.
However, Robbins advised that this should not be seen as a loophole: “Regardless of the jurisdiction, the employee must always ensure that their business does not conflict with their current employment or violate any clauses within their contract.”
Navigating conflicts of interest
A conflict of interest occurs when an employee’s personal business interests directly or indirectly interfere with the employer’s interests. Robbins explained that such conflicts are a serious legal concern, as they could lead to breaches of contract or even legal consequences. “For example, if an employee’s business attempts to contract with their employer’s clients, or if the employee arranges for their business to serve as a vendor to the employer, these actions would likely violate employment terms and UAE labour laws,” he said.
Avoiding these conflicts is essential to maintaining both the business venture and the employment relationship.
Before diving into a side hustle, Robbins recommended employees take several precautionary steps:
- Open a discussion with your employer: It’s beneficial to have an informal conversation with your employer to gauge their reaction to the idea of you pursuing a business venture. “Many employers are sensitive about employees dedicating their time to ventures outside their role,” he said.
- Review the employment contract thoroughly: Understand the restrictions imposed on outside activities, including non-compete clauses and resource usage policies.
- Seek legal advice: Obtaining legal counsel ensures that employees are fully aware of the potential risks associated with breaching employment agreements or labour laws. Robbins suggests that legal advice is crucial before making any business decisions.
The desire to balance full-time employment with entrepreneurship is becoming increasingly common in Dubai. However, as Derek Robbins pointed out, there are several legal considerations that individuals must navigate carefully before embarking on such a venture.
By understanding the restrictions in their employment contracts, seeking the necessary approvals, and ensuring compliance with UAE laws, employees can reduce the risk of legal repercussions while pursuing their business aspirations.
“Seek legal advice early, and always ensure your side hustle aligns with both your employment contract and the relevant UAE regulations. It’s better to take precautionary steps now than face the consequences later,” Robbins concluded.
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