Restrictive covenants post- termination in the UAE
Unlike many jurisdictions, in the UAE it is not possible to obtain injunctive relief that prevents an employee from joining a competitor, leaving many employers exposed to rivals poaching their staff, teams and clients.
Article 127 of the UAE Labour Law No 8 of 1980 provides that employers may include restrictive covenants in their employment contracts to protect their legitimate business interests, provided such restrictions are limited in duration, geographical scope and type of work. The types of covenants we recommend organisations incorporate restrict employees from joining competitors, poaching/recruiting employees of the business and approaching or dealing with clients of the business following the termination of employment.
Provided the covenant is reasonable and restricts the former employee only to the extent necessary to protect the company, the UAE courts will recognise the restriction as lawful. If an ex-employee acts in breach of the restriction, resulting in financial loss to the former employer, the firm will be able to issue legal proceedings against them to recover such losses. An obstacle in enforcing restrictive covenants is being able to demonstrate that the financial loss is directly attributable to the employee’s breach of the covenant.
There are several measures that employers may adopt to mitigate the risk arising from an employee acting in breach of restrictive covenants, such as ring-fencing particular clients within the wording of the restriction or including a liquidated damages provision to agree the amount of loss that will be suffered by the business if the employee breaches the covenant.
The alternative to relying on restrictive covenants is to enter into a fixed-term contract, which provides both parties with a guaranteed length of service. Should an employee resign from a fixed-term contract early, they will automatically be required to pay compensation to the company unless the employee can demonstrate that the company committed a fundamental breach of the terms of the employment contract. In light of there being no injunctive relief, fixed-term contracts are one of the most effective ways of protecting the business in practice.
Qatar Kafala system changes
In Qatar, there has recently been a lot of discussion around restrictions applied to former employees in respect of visa cancellations and visa transfers. It has now been almost six months since the changes to the Kafala system were introduced by Law No 21 of 2015.
The changes allow expatriate workers to obtain an exit permit more easily than under the old system. More significantly, the new law allows workers to return to Qatar two or three days after leaving the country to begin employment with a new company.
The Kafala system also relates to an employee’s right to work for another employer. Under the old law, without special permission a sponsored employee was prohibited from working for another employer. The changes to this aspect of the Qatar Labour Law allow foreign workers to switch jobs at the end of a fixed-term contract without having to leave the country for two years.
This is a positive development for Qatar and makes the arrangements more aligned with the approach of the UAE and other GCC countries.
