Can employees start their own business while being employed?

KT reader wants to know what procedures need to be followed to set up a separate entity while working for an employer

Question:

I work in a mainland company in Dubai. I am planning to start a business that has nothing to do with my job. I am an accountant and the business I am eyeing is textiles related. Will I be breaking any labour laws if I do this? What's the procedure I need to follow?

Answer:

Pursuant to your queries, it is assumed that you intend to incorporate your own mainland entity in Dubai while you are employed with your employer. It is also assumed that your current employer's activity is not the same as your proposed entity's activity (textiles industry). As you are employed by a mainland company in the emirate of Dubai, the provisions of Federal Decree Law No. 33 of 2021 on the Regulation of Employment Relations and Cabinet Resolution No. 1 of 2022 on the Implementation of Federal Decree Law No. 33 of 2021 Regarding the Regulation of Employment Relations are applicable.

In the UAE, an employee may incorporate an entity, provided the employer of such employee issues an NOC (no objection certificate/letter). Normally, an NOC is required by Dubai Economy and Tourism.

Moreover, an employer may refuse to provide NOC (no objection certificate/letter) to an employee if he or she intends to be a shareholder or a partner or a sole owner in a proposed new entity in Dubai if such new entity of an employee is a competitor.

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 noncompetition 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 noncompetition 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.

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.