Non-competitor clause in contract is legally applicable

Employers can sue employees for breach of clause if specifically mentioned in the contract when they join a competitor.

I was working with a company on a limited period contract. After finishing my first contract period, I renewed my contract as per the company’s request, but after five months, they found my work unsatisfactory and terminated me.

They said I can look for another job, but cannot work for any of their competitors for two years, a clause, which they claim, was in my offer letter. But the company never issued me any offer letter.

I have been working for one of their competitors for the last one year. On coming to know of this, my previous employer is threatening to sue me in a court of law. Please advise if this clause of not working for competitors is legally valid.

Conditions to enforce non-competitor clause > Employer has to prove employee signed contract which specifically obliges the latter to not take up employment with a competitor > Employer must prove employee joined a competitor which is directly associated with the same kind of business > Employee’s designation must be similar to the one at previous employer > Employer must prove that employee joining a competitor caused the company financial loss, loss of client or loss of confidentiality pertaining to a trade-secret

It is understood that you had worked with an entity in the UAE on a limited period contract. And, after completion of the initial contract period, your employer had renewed the contract but terminated the same after about five months as they were not satisfied with your work. Subsequently, you were allowed to seek employment with other employers, but you were asked not to take up employment with any competitor for a period of two years from the date of termination of your employment contract with the previous employer. Nevertheless, you have mentioned that you are now working with a competitor and that your previous employer has come to know of it and has threatened to initiate legal action against you. It is assumed that your employment is subject to provisions of the Federal Law No 8 of 1980 on the Regulation of Labour Relations (the “Labour Law”).

Pursuant to your question, it may be noted that where by virtue of the nature of employment, an employee gets acquainted with the employer’s clients or becomes familiar with the secrets of the employer’s business, the employer may impose obligations on the employee to restrain from becoming a competitor or from taking up employment with a competitor of the employer. This is in accordance with Article 127 of the Labour Law which states:

“Where the work assigned to a worker allows him to become acquainted with the employer’s clients or to become familiar with the secrets of his business, the employer may require him to become acquainted with the employer’s clients or to become familiar with the secrets of his business, the employer may require him to refrain, after the termination of his contract, from competing with him or participating in any enterprise competing with his own. Such agreement shall be valid only on condition that the worker is at least 21 years of age at the time of its conclusion that the agreement is limited, as regards the time, the place and the nature of the business, to the extent necessary to safeguard the employer’s lawful interests.”

In view of the foregoing, it may be noted that if you had signed an offer letter containing a clause which restrains you from taking up employment with a competitor of your employer for a period of two years, then such a clause does have a legal applicability, and you are legally obligated to respect that clause. Now, as you mentioned that you are working with a competitor, your previous employer may initiate a legal action against you for breach of contract in the form of a civil suit and claim compensation from you. However, in a civil suit, your previous employer will have to be prove his contention before a court of competent jurisdiction before it can claim compensation from you.

In this context, it may be noted that in order to sustain its claims against you, your former employer will have to specifically prove that you had signed a contract which specifically obliges you not to take up employment with a competitor of your previous employer. And, if such a contract exists, then your previous employer will also have to prove the following points:

>That after termination of your employment with the previous employer, you had joined an entity which is directly associated with the same kind of business as that of your previous employer;

> That your designation at your current work-place is similar to the one at your previous employment; and

> That your joining your current employer has actually caused damage to your previous employer in the form of financial losses, loss of client or loss of confidentiality pertaining to a trade-secret ultimately leading to financial losses.

Rents can’t be increased without 90 days’ notice

I took a one-bedroom flat on rent on February 1, 2014. The owner did not approach us for the tenancy contract renewal. Do we need to ask him for the renewal of the tenancy contract? If he increases the rent, should we comply, since the owner did not give us any prior notice of an increase?

It is understood that you are the tenant of a one-bedroom flat, and      you are in possession of the   property since February 1, 2014, but the property owner never approached you for renewal of the tenancy contract. Since, you have not mentioned the Emirate you are staying in, we may presume that you are staying in the Emirate of Dubai. Further it may be presumed that your tenancy is subject to provisions of Law No 26 of 2007 Regulating Relationship Between Landlords & Tenants in the Emirate of Dubai (as amended by Law No 33 of 2008) (the “Tenancy Law”).

Pursuant to the Tenancy Law, it may be noted that tenancy contracts may be renewed with amended terms and conditions only on the basis of a notice served by either party to the contract at least 90 days prior to the expiry of the contract. If no amendment or renewal process is undertaken, the tenancy contract is deemed to have been renewed on the same terms and conditions as the previous tenancy contract. This is in accordance with Articles (13) and
(14) of the Tenancy Law which states as follows:

“Article 13: For the purpose of renewing tenancy contract, landlord and tenant upon expiry of the tenancy contract may amend any of the contract’s terms or review the rent whether by increase or decrease. If the parties do not reach an agreement regarding this, the Committee may decide fair rent considering the standards referred to in Article No. (9) of this Law.”

“Article 14: If either party of tenancy contract wishes to amend any of its conditions pursuant to Article (13) of this Law, then he must notify the same to the other party not less than 90 days prior to expiry date, unless both parties agreed otherwise.”

In view of the foregoing, it may be advised that the owner of the property cannot increase your rent for this year as the owner of your property did not send any notice to you 90 days prior to the expiry of the tenancy contract. As such the terms and conditions pertaining to the previous tenancy contract shall continue to be applicable in the same manner for the subsequent year as well.

However it would be prudent to ask the owner of your property to renew the tenancy contract immediately, and get the same registered with Real Estate Regulatory Authority of Dubai.

Ashish Mehta, LLB, F.I.C.A., M.C.I.T., M.C.I.Arb., is the founder and Managing Partner of Ashish Mehta & Associates. He is qualified to practise law in Dubai, the United Kingdom, Singapore and India. He manages a multi-jurisdictional law firm practice, providing analysis and counselling on complex legal documents, and policies including but not limited to corporate matters, commercial transactions, banking and finance, property and construction, real estates acquisitions, mergers and acquisitions, financial restructuring, arbitration and mediation, family matters, general crime and litigation issues. Visit www.amalawyers.com for further information. Readers may e-mail their questions to: news@khaleejtimes.com or send them to Legal View, Khaleej Times, PO Box 11243, Dubai.