A reader is curious about the steps required to establish a new business while still working for an employer.
Question: I work for a company in Dubai that operates on the mainland. I want to start my own textile business, which is unrelated to my current job as an accountant. Would this violate any labor laws, and what steps do I need to take?
Answer: Based on your situation, it’s assumed you’re considering setting up your own mainland business in Dubai while still working for your employer. It’s also assumed that your employer’s business is different from your planned textile venture. Since you work for a mainland company in Dubai, the laws governing employment relations apply to you, specifically Federal Decree Law No. 33 of 2021 on Employment Relations Regulation and Cabinet Resolution No. 1 of 2022 on its Implementation.
In the UAE, an employee can set up a new business entity if their employer gives them a No Objection Certificate (NOC). Usually, Dubai Economy and Tourism require this certificate. However, if the new business could compete with the employer’s business, the employer might not give the NOC.
Article 10(1) of the Employment Law states related to a non-competition clause in an employment contract. It read as,
“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 apply to an employee if he or she agrees with an employer in writing that the non-competition clause in an employment contract does not apply to the termination of an employment contract. This is in accordance with Article 12 (4) of Cabinet Resolution No. 1 of 2022, which states,
“It may be agreed in writing not to apply the non-competition clause after the termination of the employment contract.”
Moreover, the provisions of non-competition may be exempted as mentioned in Article 12 (5) of 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 the decision of the Ministry under the employment classification approved by the Cabinet.”
Based on the aforementioned provisions of law, as you intend to incorporate your own entity while you are employed, you may request your employer to provide you with an NOC which states that your employer has no objection to you being a shareholder or a partner or a sole owner in an entity in Dubai. However, it is at the discretion of your employer to grant you the said NOC.
Alternatively, you may consider resigning from your current employer by serving the stipulated notice period as mentioned in your employment contract. Thereafter, upon cancellation of your work permit and your UAE residency, you may commence the procedures of incorporating your own entity in Dubai.
