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

Enforcing a non-compete can be a complex and costly affair, the experts said

Several companies based in the media city freezone require their employees to sign non-compete agreements, especially for those who are in roles like advertising, PR, journalism, etc. What does a non-compete in media and internet city freezones typically involve?

From a legal standpoint, non-compete agreements in these freezones aim to protect an employer's legitimate business interests, such as confidential information, client relationships, and goodwill. These agreements typically restrict employees, particularly in media-related fields like advertising, PR, and journalism, from working for a competing company within the same freezone or a nearby area for a specific period of time after leaving their current role. However, the enforceability of these agreements depends on several factors, including:

  • Reasonableness of Restrictions: The timeframe and scope of the non-compete clause must be reasonable. Courts generally frown upon overly broad restrictions that significantly limit an employee's ability to find new employment.
  • Protection of Legitimate Interests: The non-compete clause should safeguard a legitimate business interest, such as trade secrets or unique client relationships.
  • Specificity of Roles: The agreement should clearly define the restricted roles and activities to avoid ambiguity.

When it comes to tech jobs, are they also required to sign non-competes?

Non-competes are less common for tech jobs in these freezones. However, they can be implemented for highly specialized roles where the employee possesses unique knowledge or access to confidential information critical to the company's competitive edge.

Why do people and companies not take them seriously? Could it be because the cost of taking legal action is too high?

  • Enforceability Challenges: Non-compete agreements in the UAE can face challenges regarding their enforceability. Courts may scrutinize the terms to ensure they are reasonable and necessary to protect legitimate business interests, which can lead parties to question their effectiveness.
  • Ambiguous Language: Poorly drafted non-compete clauses with unclear terms or ambiguous language can create confusion about what actions are prohibited. This lack of clarity weakens the perceived strength of the agreements.
    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.
  • Market Dynamics: 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.
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. Well-drafted agreements aligned with UAE laws and tailored to specific business needs are more likely to be taken seriously and upheld if challenged.
  • Employee Breach: If an employee violates a valid non-compete clause, the employer may seek an injunction to prevent them from working for the competitor. They could also pursue damages for any financial losses incurred due to the breach.
  • Employer Overreach: If an employer enforces an overly broad or unreasonable non-compete clause, the employee could challenge it in court. This could result in the clause being declared unenforceable.

How does it work to take legal action against an employee who violates their non-compete?

Enforcing a non-compete agreement requires the employer to demonstrate several key points in court:

  • Valid Agreement: The agreement must be signed by both parties and comply with freezone regulations.
  • Substantive Harm: The employer must show that the employee's new position poses a genuine threat to their legitimate business interests.
  • Reasonableness of Restrictions: The court will assess whether the timeframe and scope of the non-compete are reasonable in light of the employee's role and the specific industry.

Do you think non-compete agreements have become a formality that people no longer take seriously?

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. However, it's crucial to ensure they are drafted reasonably and comply with freezone regulations to be enforceable.

Both employers and employees should approach non-compete agreements with caution. Employers should consult legal counsel to ensure their agreements are enforceable, and employees should carefully review the terms before signing and seek legal advice if necessary.

Is there anything else you would like to add?

Regarding non-compete agreements, it's essential to recognize that their effectiveness and perception can vary widely based on jurisdiction, industry, and specific circumstances. What works in one context might not be suitable for another. Therefore, it's crucial for both employers and employees to understand the legal framework governing non-competes in their respective areas and to approach these agreements with diligence and clarity.

Additionally, ongoing dialogue and legal updates can help refine and improve the enforceability of non-compete agreements, striking a balance between protecting business interests and respecting individual rights. Collaborative efforts between legal professionals, industry experts, and policymakers can contribute to creating fair and effective practices regarding non-compete agreements.

This article was originally published by Arabian Business

This article was written by Maroun Abou Harb, Associate and emphasizes the importance of clear and well-crafted non-compete agreements in the UAE to protect employers' interests, cautioning that enforcement challenges, ambiguity, and high costs underscore the need for careful drafting and consideration of market dynamics.

BSA is a regional Law Firm in the Middle East with offices in the UAE, Oman and Saudi Arabia. As a full-service law firm our practice areas include litigation, arbitration and corporate services, including M&A, banking & finance, Intellectual Property, TMT, Fintech, employment and insurance.

Published on 10 May, 2024.

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