Use of Restrictive Covenants in Commercial Contracts

Use of Restrictive Covenants in Commercial Contracts in the UAE

Restrictive covenants can be a useful tool for employers to protect themselves from current and/or former employees who may seek to gain an unfair competitive advantage by, for example, immediately joining a competitor business and/ or misusing confidential information to their own ends.

It is crucial to be aware that restrictive covenants are, to the extent that they restrict an employee’s activities following termination, a restraint of trade and therefore unenforceable unless they go no further than is reasonably necessary to protect the employer’s legitimate business interests. Accordingly, it is very important that consideration is given to the scope and duration of post-termination restrictive covenants.

Generally, taking an overly aggressive approach when imposing restrictive covenants may cause difficulties with enforceability. For example, a restrictive covenant imposed on a junior employee which prevents him or her from working with a competitor for twenty-four months may be seen by the courts as going further than is necessary to protect a legitimate business interest and therefore be deemed unenforceable.

Restrictive covenants must be carefully and well drafted – if they exceed what is considered necessary then they risk being unenforceable. This is something we can assist clients with. Other key tips to take note of are: (a) ensure employment contracts are properly signed to evidence the employee’s agreement to the restrictive covenants; and (b) consider updating such restrictions when employees are promoted to a more senior level. Finally, given the importance of social media, non-solicitation clauses should be drafted to work in this context and alongside a robust social media policy.

Bespoke drafting of restrictive covenants is vital. Template contracts are unlikely to provide you with sufficient protection as covenants need to be limited to the elements of the business the employee was involved with and to the relationships they shared. The duration of covenants should be no longer than what is necessary (usually up to a maximum of twenty-four months) and what is reasonable will vary depending on the sector and the employee’s role within your company. Consider the shelf life of confidential information and the time it would take to consolidate relationships with customers/the workforce following an employee’s departure.

Reach out to us for a confidential discussion on Restrictive Covenants or general Employment and/or Corporate matters and to find out how we can help.

Our team would be delighted to hear from you.

Rhea Bindra
rbindra@davidsoncolaw.com

Yousif Ahmed
yahmed@davidsoncolaw.com