Alsuwaidi & Company

Foreign Ownership

Non-compete Clause In Federal Decree-Law No. (33) of 2021 on the Regulation of Labor Relations and its Executives Regulations and Exceptions Contained Therein

The Federal Decree-Law No. (33) of 2021 took effect on 2 February 2022 and one of the significant changes which both the employer and employee must take into consideration is the non-compete clause in the employment contract.

The Federal Decree-Law No. (33) of 2021 the Regulation of Labor Relations states, in Article 10, that the employer may make a provision in the employment contract that the worker shall not compete with, or be engaged in any business which competes with him in the same sector after the expiry of the contract under specific conditions, namely that the nature of worker’s work allows him to access employer’s customers or business secrets. such clause shall specify the place, time and type of work to the extent necessary to protect the legitimate business interests, and the non-competition period shall not exceed (2) two years after the expiration of the contract. This Article also provides for that the non-compete clause shall be void in the event that the employer terminates the employment contract in violation of the provisions of this Decree-Law, as in the case of arbitrary dismissal or termination of the contract by the employer for any unlawful reason.

This Article also specifies a period of time after which the right of the employer to initiate lawsuit against the worker who violates non-compete clause expires and which it estimates at one year from the date on which the violation is detected. The Article left the determination of skill levels or occupations that may be excluded from such clause to the Executive Regulations of the Decree-Law.

The Executive Regulations of the aforementioned Decree-Law issued by the Cabinet Resolution No. (1) of 2022 provides, in Article 12, for the controls necessary to implement the non-compete clause and the exceptions thereto. The said Article states that the application of the non-compete clause must take into account the following: 1. the geographical scope in which the clause is applied, in the sense that it is not permissible to leave the clause general and be applied everywhere and a specific geographical place must be determined; 2. the period of application of non-compete clause shall not exceed two years from the date of expiry of the employment contract, such that it may be agreed that the period be less than two years but in no way exceed two years, otherwise, the clause is void; 3. the nature of work must be physically harmful to the employer. It is understood here that not every work performed by the worker is considered to compete to the employer, even if it causes him harm, and competition acts protected by the Decree-Law and its Executive Regulations are those that give rise to a serious harm to the employer which affects his business.

This Articles of the Executive Regulations also provides for that the non-compete clause may be agreed in the employment contract not only during its validity, but also after its expiration, subject to the consent of worker.  

The Executive Regulations also state that the non-compete clause shall not apply if the employment contract is terminated due to an employer’s breach of its contractual or legal obligations.

The said Article exempts workers from the application of the non-compete clause after the end of the work relationship according to specific conditions, namely, first: that the worker or his new employer pay compensation estimated at a maximum of three-month wage agreed upon in the last contract between him and his former employer, subject to the consent of the former employer; Second: in the event of termination of employment contract during probationary period; and third: occupational groups needed by the labor market and classified by decision of Minister of Human Resources and Emiratization after such classification is approved by the Cabinet.

Reda Hegazy  is a Senior Associate at Alsuwaidi & Company.

Reda is listed Legal Consultant in the Government of Dubai Legal Affairs Department, a Member of the DIAC 40, Young Practitioners Group in Dubai International Arbitration Centre (DIAC), a certified arbitrator and member of the International Commercial Arbitration Centre (ICAA) in Sharjah (Tahkeem).

To speak to Reda directly, contact him at reda.h[email protected]