What is a Non-Compete Agreement?

A non-compete agreement is a legal document between the Employer and the employee. This document is used to prevent the employee from entering into competition during and after their employment. Employers use this as a way to preserve trade secrets, strategy and pricing mechanisms within their organization and maintain their clientele.

Surprisingly, Omani Labour Law has been silent on this topic but the Omani Civil Transactions Law (CTL) promulgated in Royal decree 29/2013 and the Commercial Law promulgated in Royal Decree 55/90 has addressed this and further set up guidelines to govern its practice.

The Commercial Law 55/90

Article 50 of the Commercial Law provides that Employers cannot “induce” employees of another employer to assist him/her in drawing away their clients or to enter in his/her service to divulge secrets of their competitors.

Although the Commercial Law clearly allows the imposition of a non-compete agreement in employment contracts, it however, does not provide details on which the scope of which is permissible for a non-compete agreement to operate.

The Civil Transactions Law (CTL) 29/2013

Article 661 of the CTL further establishes clearer guidelines and addresses the scope of which Employers can apply when enforcing a non-compete agreement.

Firstly, an Employer may enforce a non-compete agreement with his employee once one of the following two conditions are met:

1. The employee has access to trade secrets (eg. strategy/ marketing/ finances)
2. Created a relationship between the employer’s clients.

Article 661 also provides that the agreement shall only be valid if it is limited in time, geographical area and the type of work; these must be reasonable and not exceeding what is necessary to protect the employer’s commercial interests.

Example of When You CANNOT Impose a Non-Compete Agreement

Ahmed works as a receptionist at a large trading and contracting company called X. Ahmed’s day-to-day job involves reading emails, answering calls, arranging meetings, typing and general secretarial work. Ahmed’s employment contract includes a non-compete agreement preventing him to work in another contracting company in Oman within 3 years of leaving company X.

Let’s apply the two conditions of when you can use a non-compete agreement:

1. The employee has access to trade secrets (eg. strategy/ marketing/ finances)
2. Created a relationship between the employer’s clients.

In this case, Ahmed is presumed to not have had access to trade secrets of X and his job did not involve creating any relationships with clients of X à The conditions of Article 661 of the CTL are not met therefore the non-compete agreement does not apply to Ahmed.

Example of When You CAN Impose a Non-Compete Agreement

Mariam is the general sales manager of X. Her day-to-day job involves overseeing the marketing and sales budgets, spending and structuring a strategy for maximizing profits of X along with attending X’s clients’ meetings. Mariam’s employment contract includes a non-compete agreement preventing her of working in another contracting company for 5 years in Oman after leaving X.  

Let’s apply the two conditions of when you can use a non-compete agreement:

1. The employee has access to trade secrets (eg. strategy/ marketing/ finances)
2. Created a relationship between the employer’s clients.

Here, Mariam has access to marketing, financial and strategic information relating to X as well as developing a relationship with clients of X. This satisfies both conditions set out in Article 661 of the CTL therefore X can enforce the non-compete agreement and Mariam cannot breach it.

How Do You Prevent a Breach in a Non-Compete Agreement?

Employers may think it is a good idea to impose a penalty if this agreement is breached. According to the CTL this is possible. Article 662 of the CTL provides that an Employer may impose a penalty on the ex-employee that breaches a non-compete agreement provided that it is reasonable and not too excessive to intend to keep the employee. Unfortunately, what is considered reasonable is not clarified by the law.

Conclusion

In summary, a non-compete agreement is a way which an Employer can protect is trade secrets and prevent competitors from poaching employees in order to gain a competitive advantage in the market. For a non-compete agreement to be valid it must satisfy the conditions set out in the Civil Transactions Law and Employers must make sure that the agreement defines a geographical location, a limited time and a type of work to be enforceable.

Check out our non-compete template

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