Confidentiality And Non-Competition Clauses In UAE Employment Contracts

by admin on January 4, 2012

in Emirates-Middle East, UAE Economy, UAE Investment and Finance, UAE Law and Business

Diaz Reus partner Arti Sangar

By Arti Sangar

Arti Sangar is a partner in the Dubai office of Diaz Reus LLP

Increasingly, employees in the UAE are required to sign contracts containing confidentiality and non-competition clauses by employers who seek to prevent disclosure of confidential company information or trade secrets. This is especially true in the technical, oil and engineering sectors where new production processes or chemical formulas are being developed. It also applies in sales and marketing environments where employees have access to customer and supplier information.

The nature of confidential information varies from company to company. It can be technical, such as detailed specifications of manufacturing processes, or it can relate to competitively sensitive customer databases. The information can be of enormous value, such as the recipe for a soft drink; it can a simple single word such as the name of a company’s takeover target; or it can be more complex, such as the details of a planned advertising campaign. The common factor is that all such confidential information can and should be protected.

While it varies from industry to industry, confidential information commonly consists of all business-related information on products, developments, finance, sales and marketing, profits, suppliers, pricing policies, operational methods, technical processes and other specific know-how of the business. It also includes information related to customers, potential customers, reports and analyses, data, materials, technology, computer programs or systems developed or improved by the employer, specifications, manuals, software, and other information related to business planning and future developments.

UAE Labour law states that employees must not disclose confidential information of the company they work for and states that, ‘where the work assigned to an employee allows him to become acquainted with the employer’s clients or to become familiar with the secrets of the business, the employer may require him to refrain from competing with him or participating in any enterprise competing with his own from the termination of his employment contract.’

In other words, employers can demand that their employees enter into confidentiality agreements as part of the employment contract. However, to be effective, this contractual provision must be agreed and signed by both parties. To avoid future problems, both employer and employee should have a clear understanding of what the contract involves, particularly the rights it protects and the duties it imposes. A well-drafted clause should clearly define what constitutes confidential and proprietary information and should state that the confidentiality obligation of the employee continues after termination of employment. If any employee discloses trade secrets or confidential information, then the employer can institute legal proceedings in the civil court, provided that he can present substantial evidence in court to prove that the damages incurred were due to that disclosure.

Employers may also consider it desirable or necessary to include a non-competition clause in employment agreements. This prevents employees from competing with the employer or soliciting its customers for a specified period of time following termination of employment. Such clauses are particularly important for employees who, by virtue of their jobs, gain knowledge of customer information and requirements. Article 909 of the Federal Law No. 5 of 1985 on the Civil Transactions Law for UAE further clarifies the restriction on an employee not to disclose company’s confidential information and states, “If a worker, in the course of his work, has access to the secrets of the work or gets acquainted with the customers of the firm, the two parties may agree that the employee may not compete with the employer or take part in a work competitive to his work after termination of the employment contract”.

However, to be valid, the agreement must be restricted to time, place and type of work, to the extent which is necessary to protect the legitimate interests of the employer. As a general rule, non-competition and confidentiality clauses must be reasonable in geographic scope and time limitations. Not all employees are subject to non-competition agreements. They generally apply to higher-level employees who have access to the company’s customers or highly sensitive information. The employer must be able to demonstrate that the non-competition agreement is needed to protect trade secrets, confidential customer lists, or other legitimate proprietary information.

 

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