Is it legal to start a business while working in the UAE?
What does the UAE Labour Law say about employees starting a business on the side? Find out
Dubai: If you are a full-time employee in the UAE and have business aspirations, you may be wondering about the legality of creating your own company and whether it is considered a breach of the employment contract.
Gulf News spoke with legal experts in the UAE to find out what an employee should keep in mind when starting his or her own business venture. Here is all you need to know.
Can I start a business while working full time?
Firstly, yes, you can start a business in the UAE even if you are a full-time employee at a company. However, you would need to ensure that the business activity of your venture is not the same as your employer. Business activity refers to the field in which a business operates.
“You can open a business in the UAE while being fully employed provided that your business activity is not the same as the business activity of the current employer and you may be required to obtain a No Objection Certificate (NOC) from the employer. Also, it is discretionary upon the employer to accept or reject the request for NOC,” Reda Hegazy, a Senior Associate and Arbitrator from Alsuwaidi and Company LLC, said.
You can open a business in the UAE while being fully employed provided that your business activity is not the same as the business activity of the current employer and you may be required to obtain a No Objection Certificate (NOC) from the employer. Also, it is discretionary upon the employer to accept or reject the request for NOC.
But do you always need an NOC before you start your own business?
According to Hegazy, you may or may not need one as each licensing agency (mainland, different free zones) has its own requirements.
“Additionally, in case the employee has a similar business activity with that of the employer, the employer may include a non-compete clause in the employment contract. With a non-compete clause in the contract, the employee cannot open a business activity which is the same as the employer, unless the employer issues the NOC,” Hegazy said.
Clarifying further on the non-compete clause, Hegazy said: “It is mentioned under Article 10 paragraph (1) of the Federal Decree Law No. 33 of 2021 on the Regulation of Employment Relations [the new UAE Labour Law] that where the employee’s work allows him to have access to the employer’s clients or trade secrets, the employer may include a non-compete clause and stipulate in the contract that the employee shall abstain from engaging or joining in any business which competes with his business sector after the expiry of the contract.
“The clause shall be specific in terms of the time, place and type of work to the extent necessary to protect the lawful interests of the employer. The terms of such clause may not exceed two years from the expiry date of the contract.”
What if I’m working part-time?
According to Sridevi Sidharthan, Principal Associate at Mahmood Hussain Advocates and Legal Consultancy, the legal requirement for running your own business while on employment, varies based on type of employment, which can be full-time, part-time or temporary.
“An employee on full-time basis must operate his or her personal businesses within the restrictions set by the employer - if any - while issuing the NOC, in order to run the business while fulfilling his or her employment duties.
“In case of a part-time or temporary employee, the employee has to obtain a work permit from the Ministry of Human Resources and Emiratisation (MOHRE) and does not require any further approvals from his employer,” Sidharthan said.
“It is important for an employee operating his or her own business while being employed on a full-time basis to not breach the terms of the employment contract and also abide by the worker’s obligations as provided under Article 16 of the Labour Law. These include, being of good behaviour and morals during work and not working for others, in violation of the provisions of the Labour Law and other applicable legislation in this regard,” Sidharthan said.
So, while it is legally possible to start your own business while being employed, you must ensure that it does not affect your work performance. Sidharthan also shared some basic tips that aspiring entrepreneurs should keep in mind, to ensure their full-time job does not take a hit:
1. Getting your colleagues involved in your business activity may be a breach of contract.
“Soliciting the services of colleagues to work on part-time basis will be in breach of non-solicitation clause, if stipulated under your employment contract,” Sidharthan said.
Additionally, each employee engaged on part-time basis in your business would need to obtain a work permit from MOHRE.
Soliciting the services of colleagues to work on part-time basis will be in breach of non-solicitation clause, if stipulated under your employment contract.
2. Taking business calls at work? That could lead to warnings from your employer.
“Taking business calls during your working hours may subject you to warnings or subsequent penalties imposed by the employer as the employment contract dictates the employee’s obligation to carry his and provide his services solely to the employer during the contracted working hours,” Sidharthan said.
3. Poor performance at work can lead to termination without notice.
“Any subsequent breaches could be a reason for termination of the employee without warning under Article 44 of the Labour law , which states that [a worker may be dismissed without notice] ‘if the worker fails to perform his basic duties according to the employment contract and continues to breach them despite conducting a written investigation with him for this reason and warning him twice of dismissal in case of repetition’,” Sidhharthan said.
“The Labour Law, pursuant to Article 39, grants employers the right to issue warnings, impose penalties or terminate employment contracts due to any breach of your obligation under Article 16 (8) of the Labour Law that is to continuously and diligently develop your functional and professional skills, and raise the level of performance you provide to the employer. This can also lead to termination without warning under Article 44 of the Labour Law for failure to perform basic duties according to the employment contract after repeated warnings,” Elhassan said.
4. Don’t use your salary account for business transactions.
You must have a bank account under your registered business name for the purpose of getting your licence issued and to lease an office space, according to Waddah Elhassan, Junior Associate at Mahmoud Hussain Advocates and Legal Consultancy.
“Importantly, business operations must ideally be separate from your payroll account to prevent risks resulting from associating both accounts, such as fraud, embezzlement and to provide transparency in the audit of your business. Additionally, utilising the salary account for the business transaction also raises a risk of possible attachment and freezing of salary account by the court in case of any legal dispute on the business transaction,” said Elhassan.
Importantly, business operations must ideally be separate from your payroll account to prevent risks resulting from associating both accounts, such as fraud, embezzlement and to provide transparency in the audit of your business.
So if you are interested in becoming an entrepreneur and have questions on how to go about the process, read our detailed guide on setting up a business in the UAE.