Article 83 of the Saudi Labor Law: A Detailed Guide on Non-Compete Clauses and Protection of Trade Secrets

Article 83 of the Saudi Labor Law governs the non-competition clause, which grants employers the right to protect their business secrets. This clause exists to address the varying nature of jobs, where an employee might gain access to trade secrets or interact with the employer’s clients. Without such protection, an employee could leave the job and immediately compete with the employer.

To safeguard this right, Article 83 imposes a legal period of up to two years during which the employee is prohibited from competing with the employer after leaving the position, especially if their work involved handling the employer’s clients or accessing sensitive business information. This provision is a legitimate right of the employer.

Significance of Article 83:

Article 83 is one of the cornerstone provisions in the Saudi Labor Law because it guarantees the employer’s right to non-competition. It serves as protection for the employer in situations where an employee leaves the job but must wait for two years before using information acquired from the employer (such as client details).

Through this article, employers can ensure that their trade secrets, client relationships, and business interests remain protected from unfair competition.

Overview of the Saudi Labor Law

The Saudi Labor Law was issued on 23/08/1426 AH (corresponding to 27 September 2005) and published on 25/09/1426 AH (corresponding to 28 October 2005). This law is considered one of the most significant pieces of legislation as it was designed to regulate the relationship between employers and employees, ensuring a balance of rights and obligations for both parties. It also aims to promote the development of the labor market and improve national economic growth.

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Text of Article 83 According to the Latest Amendments

1. Non-Compete Clause:
   If the work assigned to the employee allows them to gain knowledge of the employer’s clients, the employer may—to protect their legitimate interests—stipulate that the employee must not compete with them after the contract ends. For this clause to be valid:
   • It must be written.
   • It must be specific in terms of time, location, and type of work.
   • The duration of the non-compete period must not exceed two years from the date the relationship between the parties ends.
2. Confidentiality Clause:
   If the work assigned to the employee allows them access to the employer’s trade secrets, the employer may—to protect their legitimate interests—stipulate that the employee must not disclose these secrets after the contract ends. For this clause to be valid:
   • It must be written.
   • It must be specific in terms of time, location, and type of work.
3. Legal Recourse:
   As an exception to the general provisions of this system, the employer may file a lawsuit within one year of discovering the employee’s violation of any of the obligations outlined in this article.

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Purpose of Article 83

The primary goal of Article 83 is to protect the employer from competition by the employee after the employee leaves the job. The article aims to clearly outline the conditions of the non-compete clause, specifying how it should be organized in terms of duration, location, and the requirement for the clause to be written.

Key Objectives of Article 83:

1. Employer Protection:
   • The article safeguards the employer’s interests by preventing an employee from competing with them after leaving the job, particularly if the employee had access to sensitive information or client relationships.
2. Clear Regulation of Non-Compete Clauses:
   • It establishes guidelines on the duration, location, and type of work where the non-compete clause applies, ensuring clarity and enforceability.
3. Balancing Rights of Both Parties:
   • The article organizes the relationship between the employer and employee by specifying the time frame and conditions under which the employee may utilize the knowledge or information acquired during employment.
4. Written Agreement Requirement:
   • The article ensures the protection of both parties by mandating a written agreement between the employer and employee regarding the non-compete clause.
5. Employer’s Right to Legal Action:
   • It grants the employer the right to file a lawsuit within one year from discovering the employee’s violation of their obligations under this article.

By implementing these provisions, Article 83 seeks to maintain a fair balance between the rights and responsibilities of both the employer and the employee.

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What Does Article 83 Cover?

Article 83 of the Saudi Labor Law outlines the employer’s right to impose a non-compete clause on employees. It applies in situations where the nature of the employee’s work grants them access to sensitive business information, such as the employer’s clients or trade secrets. The article ensures the employer’s legitimate interests are protected by allowing specific conditions to prevent competition after the end of the employment relationship.

Explanation of Article 83:

Article 83 clearly establishes that:

• The employer has the right to include a non-compete clause in the employment contract.
• This clause is applicable if the employee’s work involves access to:
  1. The employer’s clients.
  2. The employer’s business secrets.

To ensure fairness and enforceability, the non-compete clause must meet the following criteria:

• Written Agreement: The clause must be explicitly documented in writing.
• Time and Location: The clause must specify the duration, geographical area, and scope of the restriction.

Key Provisions:

1. Non-Compete Clause:
   • Protects the employer from unfair competition after the employee’s departure.
   • Ensures the clause is reasonable and does not exceed a legal maximum of two years.
2. Protection of Business Secrets:
   • Prevents the employee from disclosing the employer’s trade secrets after leaving the job.
3. Duration of the Clause:
   • Specifies a reasonable period for the non-compete clause, ensuring it is enforceable and not overly restrictive.
4. Employer’s Right to File a Lawsuit:
   • Grants the employer the right to take legal action within one year of discovering any breach of the non-compete or confidentiality clauses by the employee.

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What is the “Non-Compete Clause” in the Saudi Labor Law?

The non-compete clause is a provision that may be included in the employment contract between the employer and the employee. This clause restricts the employee from directly competing with the employer for a specific period after the employment relationship ends. The clause ensures that the employee refrains from working in similar roles or establishing a competing business that could harm the employer’s commercial interests.

Purpose of the Non-Compete Clause:

The non-compete clause is designed to:

1. Protect the Employer’s Business Interests:
   Prevent employees from using the knowledge, trade secrets, or client relationships gained during their employment to compete with the employer.
2. Define Clear Boundaries:
   Restrict the employee from engaging in similar work or starting a competing business within a defined timeframe, geographical area, and industry sector.

Example of a Non-Compete Clause:

“Mr. [Name] agrees not to work in any position or engage in any business activity that directly competes with the employer or harms its commercial interests in the logistics sector, either individually or through another company, within the Kingdom of Saudi Arabia. The employee is prohibited from working for competitors or establishing a business that competes with the employer in logistics for a period of two years after the contractual relationship ends. Furthermore, the employee agrees not to participate in business activities that provide similar or competing logistics services to those of the employer. If the employee wishes to work with a competitor or establish a personal project that may conflict with this clause, they must notify the employer and obtain prior written approval.”

Key Elements of the Non-Compete Clause:

1. Duration: Limited to a reasonable time, typically no more than two years.
2. Geographical Scope: Specifies the area where the restriction applies (e.g., within the Kingdom of Saudi Arabia).
3. Industry or Activity: Clearly defines the type of work or business that is restricted.
4. Written Agreement: Must be included explicitly in the employment contract.
5. Employer Approval: In certain cases, the clause requires the employee to seek the employer’s consent before engaging in potentially conflicting activities.

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The Importance of Article 83

The importance of Article 83 lies in its ability to protect employers from unfair competition by employees who might exploit sensitive business information, trade secrets, or client details obtained during their employment. Without this provision, employees could harm the employer’s interests by using these resources for personal gain after leaving their job. This article serves to safeguard the employer’s rights and ensure that employees act ethically even after the end of their employment relationship.

Legal Framework for the Non-Compete Clause

The Saudi Labor Law outlines specific rules and conditions for the non-compete clause to ensure that it is both lawful and enforceable. These include:

1. Specified Duration:
   • The restriction period must be defined and reasonable, not exceeding two years from the date of contract termination.
   • The duration should not be excessive to avoid being considered an unjustified restriction of the employee’s freedom.
2. Geographical Scope:
   • The clause must clearly specify the geographical area where the employee is prohibited from competing.
   • The geographical scope should be reasonable and relevant to the nature of the work and the employer’s business operations.
3. Prohibited Roles:
   • The clause must define the specific types of roles or jobs that the employee is restricted from pursuing after leaving the employer.
   • These roles must have a direct connection to the employee’s previous position and the employer’s business.
4. Legitimate Interest:
   • The employer must have a legitimate business interest to justify the restriction, such as:
     • Protecting trade secrets.
     • Safeguarding confidential business strategies.
     • Preventing unfair competition that could harm the employer’s business.

Why These Rules Matter

These legal requirements ensure that the non-compete clause is fair and balances the interests of both parties:

• For employers, it provides essential protection against the misuse of sensitive business information.
• For employees, it ensures that the restrictions imposed are reasonable and do not unjustly limit their career opportunities.

Practical Examples of Applying Article 83 of the Saudi Labor Law

1. Example of a Non-Compete Clause Violation:

An employee previously worked for a company specializing in digital marketing services. After leaving the job, they started their own business in the same field and within the same geographical region. If the original employment contract included a valid non-compete clause (aligned with Article 83 requirements), the employer has the right to file a lawsuit against the employee for breaching this agreement.

2. Example of Breaching Confidentiality:

An employee held a managerial position at a factory and had access to confidential production details. If the employee shared these sensitive details with a competing company, the employer could take legal action against them for violating the confidentiality clause, as stipulated in Article 83.

Rights of Both Employer and Employee Under Article 83

Employer’s Rights:

1. Protection Against Competition:
   • The employer has the right to require the employee to refrain from competing after the contract ends.
   • To be enforceable, this non-compete clause must:
     • Be written.
     • Specify the time, location, and type of work restricted.
     • Be limited to a maximum of two years from the end of the employment relationship.
2. Protection of Trade Secrets:
   • The employer can require the employee to refrain from disclosing business secrets after the employment ends.
   • The confidentiality clause must also:
     • Be written.
     • Define time, location, and scope.

Employee’s Rights:

1. Freedom After Two Years:
   • The employee has the right to contact the employer’s clients or engage in competing work after the two-year restriction period expires.
2. Negotiation of Terms:
   • The employee can negotiate with the employer to agree on a shorter restriction period, provided both parties consent.
3. Right to Refusal or Modification:
   • The employee can refuse to agree to the non-compete clause or negotiate a compromise that ensures both parties’ rights are protected.

Frequently Asked Questions About Article 83

Sources:

• Ministry of Human Resources and Social Development
• Bureau of Experts at the Council of Ministers
• Executive Regulations of the Labor Law and Annexes