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The rise of post-termination restrictions in the Middle East
29/04/2021
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The Middle East
Authors
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Rebecca Ford
Rebecca Ford is a partner at Clyde & Co

 

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Sarit Thomas
Sarit Thomas is a professional support lawyer at Clyde & Co

Although the concept of post-termination restrictions is not new in the Middle East, the popularity of restrictions and a willingness on the part of employers to enforce them appears to be on the rise. The increase in employers looking to include post-termination restrictions in employment contracts can be explained in part by a softening in the approach by some Gulf Cooperation Council (GCC) authorities to the sponsorship arrangements for employees.

For example, in the Kingdom of Saudi Arabia, new reforms which came into effect on 14 March 2021 mean that the previous requirement for an employee to obtain an employer’s approval to transfer to a new employer within the kingdom no longer applies. In addition, the Implementing Regulations to the Labour Law have recently been amended, such that non-Saudi national employees may transfer employer without the approval of their current employer, (unless restricted by any Saudisation requirements), either on completion of their fixed term of employment or where they have been in the kingdom for at least 12 months and have served a minimum of 90 days’ notice.

Changes are also taking place in Qatar. Historically, employers have relied upon the ability to withhold a letter of no objection to the transfer of employment to a third party, as a practical way of controlling an employee's activities post-termination. However, a recent amendment to the Qatar State Immigration Law omits the requirement for a no-objection certificate (NOC). The implementation of this amendment is still under process and so in most instances, some form of approval is still required. Currently, a transfer request in the state can be uploaded with no NOC, but the Ministry of Administrative Development Labour and Social Affairs will hear objections from employers. The ministry has indicated that it will support an objection where a legally compliant written restrictive covenant is in place.

While there have been no recent changes in the UAE’s employment or immigration laws, there has been an increase in interest in post-termination restrictions in contracts, as well as their enforcement. This may be due to the fact that many companies implemented redundancy programmes during the pandemic and many expatriates are likely to have left the country. As businesses now strive to return to normal, demand for locally based staff with UAE-specific knowledge and skills may encourage more movement in the market, including team moves, against which employers now wish to protect themselves.

...even in the absence of injunctive relief, it is possible to use other mechanisms to effect a similar restriction as an injunction order

Whilst each GCC jurisdiction has its own labour laws and limitations regarding post-termination restrictions, the approach is broadly similar. It is expected that the requirement for a post-termination restriction (and in particular, a non-compete restriction) arises because of an employee’s access to confidential information and key clients. Restrictions should go no further than is necessary to protect the legitimate business needs of the employer. In the UAE, federal labour law specifically identifies three areas that should be addressed in a valid non-compete, namely, the duration of the restricted period, the geographical scope, and the nature of the work being restricted. Even where these three factors are not expressly listed in the law of other GCC jurisdictions, they are likely to be a consideration in the event of a dispute.

However, enforcement of the restrictions can be a challenge for an aggrieved former employer. Other than in the two financial free zones in the UAE – the Dubai International Financial Centre and Abu Dhabi Global Markets – injunctive relief is not an available option. For those employers and employees within the UAE financial free zones, injunctive relief is available and departing employees and their new employers should undertake a thorough assessment of the restrictive covenant terms.

Nevertheless, even in the absence of injunctive relief, it is possible to use other mechanisms to effect a similar restriction as an injunction order, where an employment contract contains a well-drafted non-compete restriction. For example, for employers falling under the jurisdiction of the UAE’s Ministry of Human Resources & Emiratisation, the ministry will decline to issue work approval, or withdraw it, where the Labour Court has upheld the terms of a non-compete restriction. In addition, as noted above, in Qatar the existence of a well-drafted non-compete restriction may mean the ministry supports an employer’s objection of a transfer of employment.

Given the compelling reasons for companies including post-termination restrictions in their employment contracts, it seems likely that this trend will become the norm and we will see more court cases in the Middle East looking at the enforceability of these terms.