Restrictive Covenants in MEA: balancing business interests and employee rights

Restrictive covenants are clauses inserted into a contract that limit or prohibit an employee from competing with their ex-employer for a certain period once they have left the organisation, or prevent the employee from using their knowledge gained during the employment to solicit or deal with former customers and co-workers.

The enforceability of a restrictive covenant depends on the jurisdiction where it is enforced, the scope of the agreement and the type of covenant, which can include:

Non-competition covenants, restricting former employees from working in a similar role for a competitor;

Non-solicitation covenants, which prevent the soliciting or poaching of clients, customers and suppliers;

Non-poaching covenants, which prevent an employee from poaching their former colleagues or subordinates.

The legality and implementation of restrictive covenants must factor in the jurisdiction that the employment contract has been signed and can include non-compete, solicitation, confidentiality, non-dealing and garden leave agreements.

Comparing how restrictive covenants are handled throughout the Middle East and South Africa offers a window into the complexity of enforcement between each jurisdiction.

Both the United Arab Emirates and South African courts apply a reasonableness test to determine if a restrictive covenant is enforceable, although the UAE places a stricter burden on the employer to prove that the covenant is both necessary and reasonable, while in South Africa the onus is on the employee to prove that the covenant is unreasonable or against public policy.

Restraint of trade agreements in South Africa are valid and binding and as a matter of principle, and are enforceable unless considered to be unreasonable and thus contrary to the public policy.

A restraint will be considered to be unreasonable, and therefore contrary to public policy and unenforceable, if it does not protect a legally recognisable interest of the employer, but merely seeks to exclude or eliminate competition.

In Saudia Arabia, restrictive covenants, including non-compete clauses, are enforceable up to two years after employment has ended without required compensation. No specified timeframe exists within South African law, however, the duration must be found to be reasonable.

The enforcement of restrictive covenants in the UAE, where there is a growing trend of imposing post-termination restrictions, can also be challenging due to the lack of injunctive relief from courts.

Another challenge is the differing rules contained within the Dubai International Finance Centre (DIFC) freezone and the Dubai Multi Commodities Centre (DMCC), where the legal framework operates in a similar way to the United Kingdom, and onshore business governed by UAE Labour Law.

Courts within the UAE have made findings that a post-termination restriction that covers the entirety of the country is too wide in scope, while DIFC courts will also factor in the financial loss or damages that a company has incurred while hearing cases.

Qatar’s employment laws were amended in 2020, imposing new requirements on employers and enhancing rights for workers.

Employers were previously able to include non-compete clauses into contracts that could last a maximum of two years after termination, however, the permissible length has been reduced to one year.

The use of restrictive covenants is also influenced by future legal developments, economic growth, labour market dynamics and social changes in the Middle East and Africa.

For example, countries with high unemployment rates may be more inclined to limit the use of restrictive covenants in an effort to promote job creation and economic mobility, while technological advancements and uptake in remote work may add complexity to enforcement.