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UAE: How to start a business while being employed by a firm

KT reader wants to know if there are any legal complications to start own venture while working for a company

Question: I work with a firm in mainland Dubai. I am looking to start a business in the UAE. Are there any laws I need to be aware of? Are there any legal complications as far as starting a business while working is concerned? Conflict of interest, for example.

Response: Pursuant to your queries, as you are employed by a mainland firm in Dubai, the provisions of Federal Decree-Law No. 33 of 2021 on the Regulation of Employment Relations (the ‘Employment Law’) and those of Cabinet Resolution No. 1 of 2022 on the Implementation of Federal Decree Law No. 33 of 2021 Regarding the Regulation of Employment Relations (the ‘Cabinet Resolution No. 1 of 2022’) are applicable.

An employee may establish an entity or be a partner or shareholder in an existing one in the UAE, provided the employer issues a no objection certificate (NOC). Therefore, you should obtain an NOC from your current employer before starting your own business.

Further, if the activities of your proposed entity are similar to your current role, your employer may consider the entity as a competitor. This is in accordance with Article 10(1) of the Employment Law, which states: "Where the employee performs a work which gives him access to employer's customers or business secrets, the Employer may make a provision in the employment contract that the employee shall not compete with or be engaged in any business which competes with him in the same sector after the expiry of the contract. Such clause shall specify the place, time, and type of work to the extent necessary to protect the legitimate business interests, and the non-competition period shall not exceed two years after the expiration of the contract.”

However, a non-competition clause may not be applicable if you and your employer will agree in writing that it does not apply on termination of your current contract. This is in accordance with Article 12 (4) of the Cabinet Resolution No. 1 of 2022, which states: “If may be agreed in writing not to apply the non-competition clause after the termination of the employment contract.”

Further, the provisions of non-competition may be exempted as mentioned in Article 12 (5) of the Cabinet Resolution No. 1 of 2022, which states: “An employee shall be exempted from the non-compete clause provided for in Article (10) of the Employment Law under the following conditions:

a. If the employee or the new employer pays compensation not exceeding three months of the employee's wage agreed upon in the last contract to the former employer, and the former employer's written consent thereto is required.

b. If the contract is terminated during the probationary period.

c. Any professional categories according to the needs of the employment market in the UAE, as determined by decision of the Ministry under the employment classification approved by the Cabinet.”

Therefore, based on the aforementioned options and provisions of law, you may consider resigning from your employment by serving the stipulated notice period. Thereafter, upon completion of your notice period and cancellation of work permit/residence visa, you may establish your business entity in the UAE to avoid any legal consequences.

However, if you establish an entity which will conduct similar activities as your previous employer, the previous employer may file a complaint/civil case against you. Article 12(2) of the Cabinet Resolution No. 1 of 2022 states: “If a dispute arises over the non-competition clause and it is not settled amicably, the matter shall be referred to the judiciary and the burden of proving the alleged damage shall lie with the employer.”

You may contact the Ministry of Human Resources & Emiratisation for more clarifications related to this matter.

Ashish Mehta is the founder and Managing Partner of Ashish Mehta & Associates. He is qualified to practise law in Dubai, the United Kingdom and India. Full details of his firm on: www.amalawyers.com. Readers may e-mail their questions to: news@khaleejtimes.com or send them to Legal View, Khaleej Times, PO Box 11243, Dubai.

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