Legal Articles

The Saudi Labor Law allows an employer, in order to protect its legitimate interests, to include certain restrictions in the employment contract that apply after the termination of the employment relationship. However, these restrictions are subject to controls that ensure they do not infringe on the employee’s right to work beyond the limits established by the law.

In this context, there is a common confusion between two legally distinct concepts: a non-employment-with-competitor clause and a non-compete clause.

A non-compete clause is a clause that prevents the employee, after the termination of their contract, from engaging in an independent business activity that competes with the employer. The law explicitly provides for this clause in Article 83 of the Labor Law and requires, for its validity, that it be written, clearly defined in terms of time, place, and type of work, and not exceed two years from the end of the employment relationship. This means that the scope of the restriction is limited to actual competition achieved through the creation or management of an independent business that competes with the employer.

On the other hand, a non-employment-with-competitor clause aims to prevent the employee from joining another employer operating in the same field, without the employee having any independent or competing business. This type of clause is not explicitly authorized by the Labor Law and essentially constitutes a restriction on the employee’s right to work, which is a right guaranteed by the law and can only be restricted by an explicit legal provision within defined limits.

Accordingly, an employee joining another employer, even if it operates in a similar or competing activity, does not constitute competition in the legal sense, as long as the employee works as an employee receiving wages, without engaging in an independent business activity that competes with the former employer.

Conclusion

It is clear from the above that prohibited competition refers to actual competition based on establishing a competing independent business, not merely working for another employer. This underscores the importance of precise drafting of employment contract clauses and the necessity of distinguishing between legally valid restrictions and invalid ones, thereby balancing the protection of employers’ interests with the preservation of the employee’s right to work.