Employment – Confidentiality Agreement

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What is the importance of the confidentiality agreement for an employee to know?

An employment contract is a contract entered into by two parties, usually called the employer and the employee. On signing the employment contract, the parties are bound by the terms of the contract set out in form of contractual obligations, provided that the said terms are in contrary to the relevant provisions of the law, regulations and public morals. However, the said terms of the contract may be permissible despite the fact that it is not in consonance relevant laws if the term would be in favour of the employee. Examples of legal obligations provided by law is the legal obligation relating to confidentiality and non-disclosure, wherein the employee is expected not to disclose business secrets of the employee to a third party irrespective of whether the employee is paid or unpaid. This primary aim of this contractual obligation is to prevent the employee from disclosing information and business secret that would be detrimental to the business of the employer.

The aforementioned confidential information that the employee is expected not to disclose include information that the employee was privilege to in the course of working for the employer under the contract. For example, the method of production, the materials used for production, special business dealings, transactions, and customers of the employer, which may give the employee high and easy chances of competing with the employer and resigning after getting the necessary information needed to compete with the employer or after expiration of the contract.

In view of the importance of ensuring that the employee does not explore the confidential information to the detriment of the employer, non-compete and non-disclosure obligation make it mandatory for the employee to maintain such confidential information during and after the term of the employment contract between the employee and employer. However, the employee may be allowed to use such confidential information after the expiration of the employment contract for his own interest, if such secrets shall be one of his inventions issued therewith a patent. In the light of the foregoing, the employer may be of the view that the legal obligation does not provide adequate protection for him. This is more so as the employee may have the right to do similar business with the employer after the expiration or termination of the employment contract to the detriment of the employer, in the event that the employee works in a position where he/she would be able to acquainted with the confidential information that form the basis of the employer.

As a result of the above, the employer would be propelled to add a condition in the employment contract to the effect that the employee cannot engage in similar business of the employer or engage in any activity that would amount to competing with the employer. Such condition of non-compete in the employment contract shall not be deem to be contrary to the law.

The laws shall set out that it may list such condition in the employment contract. For Instance, the article 909 of the Emirati civil law shall stipulate that:

  1. If the worker shall carry out a job that allow him to know the secrets of work or the clients of the entity, the parties may reach an agreement that the workers shall not compete the employer or engage in a work that may compete the employer after the expiration of the contract.
  2. Such agreement shall not be valid, unless it was defined by a time, place and the kind of work to the extent necessary to protect the legitimate interests of the employer.
  3. The employer shall not commit to such agreement, if the employer shall terminate the contract without making any thing by the worker that may justify such termination. The employer shall not commit to the agreement, if he makes anything that justifies the termination of worker’s contract.
In Appeal No. 183/2017 Labour Appeal – Dubai Discrimination – 31/10/2017, it was held that:

“The two articles, 127 of the Labor Relations Regulation Act and 909 of the Civil Transactions Act, state that there should be agreement between the parties not to compete and that the business owner should take serious interest in implementing the non-competition clause after the employee’s contract has expired this should be important to the employer due to the employees exposure to data such as client name and case details that could jeopardize the employers work. The prohibiting of competition is relatively restricted by time, place, type of tasks as well as within the limits that helps the previous employer achieve the success of his business. This is due to the absolute prohibition of competition clause being unjust towards the employee and allows the employee to request compensation from his previous employer for the damage of not being able to work. This means that in accordance with the provision of article 127 of the above-mentioned labour law, the worker’s breach of obligation to refrain from conducting any work for a competitor for a specified period after the termination of his service to the employer resulted in the employer’s right to claim compensation for the damage caused by the worker’s breach of his obligation. However, it is not only important to prove that the employee has breached the no competing clause but to also prove that the previous employer has attained damage due to the employee’s breach”

Also, in Appeal No. 87/2008 Labour Appeal – Dubai Discrimination – Hearing 22-12-2008 it was noted that:

The provision in article 127 of the Labour Act and article 909 of the Civil Transactions Act states that there must be an agreement between both parties not to compete and that the employer should be seriously interested in requiring that the worker does not pursue working for a competitor after the contract expires and that this interest is founded on the fact that the worker’s work allows him to know the employer’s clients or know the secrets of his business. The prohibition of competition is relatively restricted by the legislator to time, place, and type of work and to the employer’s extent of legitimate interest, as the prohibition of absolute competition is a complete waste of the freedom of the worker. The worker is required to compensate for the breach of the non-competition clause of the contract as such. The extraction of the availability of the conditions mentioned or not, as well as the breach of the worker’s condition of competition, is the responsibility of the concerned court should the presented papers prove that a legitimate breach with damages caused to the previous employer has taken place.

For more information about this article, please contact Ashraf El Motei at a.motei@motei.com