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Cassation Court Protects the Right of Companies to Confidentiality of Their Information in a Dispute against an Employee

Introduction

Some of the employers we meet in the UAE believe that the labour courts are naturally inclined to rule against them in disputes against their employees. Their argument goes that no matter how compelling their arguments, they will fall on the deaf ears of the courts which often grant generous compensation to aggrieved employees.

It is contended here that there is a great deal of exaggeration in the above statement and that it stems from the lack of understanding of the labour law and, when it comes to dismissal of employees, the misapplication of the pre-termination steps by some employers.

That being said, a judgment that has been issued recently by the Dubai Cassation Court will be discussed below whereby the Court ruled in favour of the employer in a controversial matter, being disclosure of confidential information, by depriving the employee of his end-of-service gratuity and other benefits.

Work secrets and confidential information that an employee gains during his work are protected under UAE law and its disclosure is banned.

Article 120/6 of the UAE Labour Law (ULL) allows the employer to dismiss the employee immediately without notice: if he divulges any secrets of the establishment where he is employed.

Furthermore, more protection is afforded to work secrets and confidential information in the following articles of the Civil Transactions Code of the UAE under the heading ‘Obligations of the Employee’.

Article 905/5 of the Code stipulates that the employee must: Keep the industrial or trade secrets of the employer, including after the termination of the contract, as required by the agreement or by custom.

Article 909/1 states: If the work of the employee is such as to permit him to have access to work secrets or to make acquaintance with the customers of the business, it shall be permissible for both parties to agree that it shall not be permissible for the employee to compete with the employer or to engage in an employment which competes with him after the termination of the contract …

The Case

By way of background, the case concerned an employee who was dismissed immediately by his company when it discovered an email wherein the employee diverted the clients of the company to a competitor company run by his brother who held 49% of its shares.

The employee filed a lawsuit against the company to claim his ‘arbitrary termination’ compensation amounting to AED 211,079, which included, inter alia, compensation for annual leave, end-of-service gratuity, termination notice, and return ticket.

The Court of First Instance granted the employee his relief. The Court of Appeal upheld the judgment in part, observing that the employee had not been dismissed arbitrarily and consequently he was not entitled to the annual leave and return ticket. Thus it reduced the compensation to AED 196,079.

The company appealed before the Court of Cassation on the ground that that while the decision of the Court of Appeal established that the employee had not been arbitrarily dismissed, the said Court erred in its decision to grant him end-of-service gratuity and notice period on the grounds that the company had failed to warn him and to conduct a written investigation as per Article 120/5 of the ULL.

The Court of Cassation observed that the employee had breached his obligation not to divulge the secrets of the company that came to his knowledge during his employment. The Court elaborated:

… the intention of the legislator behind this ban was to prevent moral or material harm to the employer due to the disclosure of his establishment secrets to third parties which may be used by competitors in the same business to fight him economically, psychologically or publically which may negatively affect his industry, trade or economic activity that the employer practices if such secrets were published. In this respect, a secret means all the information that relates to the establishment which may if disseminated shake the trust in the establishment or its owner or to harm his trade or industry with economic stagnation which may lead to the enterprise incurring losses …

The Court concluded that the employee had breached Article 120/6 of the ULL and as a result he had not been arbitrarily dismissed and there was no requirement for a notice or an investigation of the breach prior to his dismissal. It then applied the provisions of Article 139/(a) so as to deprive the employee of his end-of-service gratuity if he was dismissed pursuant to Article 120. The sum awarded to the employee was reduced from AED 211,079 before the First Instance Court to AED 4,500.

Conclusion

The above ruling demonstrates that UAE courts are equally keen to protect the rights of both employers and employees pursuant to the law. In this case, the employee had acted expressly against his employer by diverting one of the company’s clients to his brother’s company.

It appears that the breach committed by the employee is not explicitly mentioned under Article 120 of the ULL. The employee’s actions cannot be considered a mistake (Article 120/3) because he committed an intentional breach with the aim to gain illicit profit. His breach is also deemed to be more severe than a mere failure to perform basic duties (Article 120/4).

Although the action of the Employee does not fall technically in the category of divulgement of work secrets, it appears that the Court of Cassation classified the breach as such because it was closest, out of the other breaches enumerated under Article 120, to the breach committed by the employee. It is submitted that the Court deemed, justly, the employee’s action to be serious and to merit a punishment that deprived him of his end-of-service gratuity.

Furthermore, the Court provided a remarkable definition of the kind of work secrets that are protected under the law and has extended it to include secrets that may be used to fight the employer psychologically, and which may lead to undermining confidence not only in the enterprise itself but also its owner. It is submitted that this extended definition of secrets goes in line with the modern interpretation of trade secrets that does not limit the confidential information to those of the business itself only, but it would include also those related to the persons undertaking that business if the disclosure took place in the context of business and to harm the business of the company.   

Note: Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.

For further information please contact:

Samer Abou Said, abousaid@mideastlaw.de

Tel. +971 4 443 3013

MIDEAST LAW
Lawyers | Avocats | Rechtsanwälte
Office 1206, Zone B
Aspect Tower, The Executives Towers
Business Bay, Dubai, U.A.E.

www.mideastlaw.de

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Non-Egyptian investors will be finally allowed to carry out importation business in Egypt

As an important step towards the liberalization of the Egyptian market, the Government has recently proposed a number of amendments to remove the foreign ownership restrictions that are currently imposed under the Importation Registrar Law No. 121 of 1982 (the “Importation Registrar Law”) (the “Draft Amendments”).

The proposed Draft Amendments were recently approved by the Egyptian Council of State, and then by two committees at the Parliament, namely the Industrial and Economical Committees. The approval of the Parliament’s Economical Committee today is the last required step in order to get the final approval of the Parliament.

Currently, there are no foreign ownership restrictions on doing business in Egypt except for few sectors and locations such as:

  • undertaking the importation business for the resale purpose, commercial agencies, and/or intermediary business; and, or
  • doing business in Sinai and/or North or South Kantara.

As regards the importation business, item (e) under the second paragraph of Article 2 of the Importation Registrar Law (in its current form) requires that “all shares or allotments in joint stock companies and limited companies by shares shall be owned by Egyptians etc.” (the “Restrictions”), which is one of the conditions that are required in order for a company to be eligible for registration with the Importation Registrar in Egypt. This being said that the entire share capital in companies carrying out importation activities for re-sale purposes shall be directly owned by Egyptians; however, these Restrictions do not apply to all ultimate shareholders above the first tier of the shareholding structure of such joint stock companies.

Article 2 of the Draft Amendments (in its current approved form) allows foreign investors to hold up to 100% of the share capital in any limited liability companies and/or joint stock companies carrying out the importation activities providing, inter alia, the following:

  • the applicant company shall be registered with the Commercial Registrar for no less than a year;
  • The issued capital of the applicant company shall not be less than EGP 5,000,000 (five million Egyptian Pounds) (approx. USD 563,063);
  • The total value of the business transactions made by the applicant company shall be at least EGP 5,000,000 (five million Egyptian Pounds) (approx. USD 563,063) in accordance with the income tax declaration submitted by the said company for the last financial year; and
  • The importation manager(s) at the applicant company shall have the Egyptian nationality.

It seems that the removal of the Restrictions is not the only step that will be taken very soon to reform the investments laws and regulations in Egypt as the Government is currently also in the process of proposing a number of key amendments to the Investment Law No. 8 of 1997, the Capital Market Law No. 95 of 1992 and the Special Economic Zones Law No. 83 of 2002 providing new investment incentives and adopt several recommendations made by the World Bank and IFC for improving the rank of doing business in Egypt.

For further information please contact:

Dr. Christian Ule, ule@mideastlaw.de
Tel. +20 – 10 – 99 55 3871

MIDEAST LAW
Lawyers | Avocats | Rechtsanwälte
41 Abdel Khalek Sarwat St.
Cairo – Egypt

www.mideastlaw.de