Non-Compete Clauses in UAE Franchise Agreements

When you turn your existing UAE business into a franchise, you may want to prevent franchisees from running a competing business. But wording such as ‘the franchisee is prohibited from carrying on any similar activity’ does not provide clear protection on its own. You need to identify the interest that warrants protection, choose an appropriate restriction and have it legally reviewed before presenting it to prospective franchisees. In franchising, clear boundaries help protect the business model without turning the relationship into an open-ended ban on investment.

Start with the interest you want to protect

Before drafting a non-compete clause, describe what the franchisee will receive that would not normally be available to an independent investor: refined operating procedures, service management tools or practical know-how developed within your business. Then ask: how, specifically, could running a competing business harm that interest?

Do not confuse three different objectives. Protecting non-public information requires confidentiality obligations and access controls. Preventing the use of your name and logo beyond the scope of the licence concerns trade mark rights. Preventing someone from running a competing business is a separate restriction that needs a clear justification and scope; it does not become appropriate simply because the other two obligations exist.

Prepare an internal note covering:

• The commercial interest you want to protect.
• The conduct that could harm it, with a realistic example from your business.
• Why confidentiality obligations or restrictions on using the trade mark would not be sufficient on their own.
• Any less restrictive alternative that would provide the same protection.

This note is not a legally required document, but it will make the legal review more focused. If you cannot explain the harm beyond saying ‘we do not want competitors’, reconsider whether the clause is needed before broadening it.

Understand the UAE legal framework before setting restrictions

The UAE has no standalone federal franchise law, nor a general federal regime requiring a standard disclosure document or registration of franchise offerings simply because they are franchises. That does not mean every restriction agreed by the parties is automatically enforceable.

The agreement is subject to the general rules governing contracts under the Civil Transactions Law and relevant commercial rules, including Federal Decree-Law No. 50 of 2022 issuing the Commercial Transactions Law. Restrictions on competition must be assessed in light of Federal Decree-Law No. 36 of 2023 on the Regulation of Competition, taking account of the nature and effect of the arrangement, the relevant market and any applicable exemptions.

Rights to use the trade mark are governed by Federal Decree-Law No. 36 of 2021 on Trade Marks. If the relationship is a registered commercial agency, Federal Law No. 3 of 2022 on the Regulation of Commercial Agencies becomes a central part of the assessment. Not every franchise is automatically a registered agency.

Have the clause reviewed as part of the agreement as a whole, rather than as an isolated provision. Give your legal adviser a description of the business, its operating territories, the nature of the know-how being transferred and any exclusivity or supply restrictions associated with the relationship. Do not copy time limits or geographical boundaries from an overseas agreement on the assumption that they will be acceptable in the UAE.

Define the activity, people, duration and territory

Turn the general idea into four elements that a prospective franchisee can understand before signing. The first is the prohibited activity: describe the competing products or services in practical terms, rather than banning investment in every business activity related to yours. Prohibiting the operation of a competing restaurant concept is different from prohibiting ownership of any business that serves food.

The second is who is covered. Identify the contracting party, then seek legal advice on whether separate undertakings are needed from anyone else. Do not assume that a company's signature personally binds its shareholders or their family members. Clarify how passive investments and existing business interests will be treated, rather than leaving them open to later dispute.

The third is duration. Separate the obligation that applies during the agreement from any obligation intended to continue after it ends; each has a different effect and justification. No single duration is automatically suitable for every franchise model. The validity of the proposed restriction must be reviewed in light of the circumstances of the relationship and the applicable law.

The fourth is geographical scope. Link it to the interest you want to protect, and do not choose the whole country simply because the trade mark is registered at federal level. Trade mark registration does not, in itself, give you the right to prevent others from carrying on a lawful business under different brands.

Test the clause with the prospective franchisee before finalising it

Ask the prospective franchisee to disclose their relevant existing interests, then test the draft against specific scenarios: can they retain an existing investment stake? What if their company operates a different concept offering some of the same products? How will a new investment opportunity be reviewed during the term of the agreement?

Clearly document any agreed exceptions and establish an approval process that specifies the information required, who makes the decision and how the response will be recorded. Do not treat silence as consent or refusal without expressly addressing this in the contract and reviewing its legal effect.

Also define the process for dealing with a possible breach: establishing the facts, giving notice and allowing an opportunity to remedy the breach where appropriate to the circumstances and the contract. Do not assume that a stated compensation amount automatically becomes payable, or that suspicion justifies termination without following the required procedures.

Practical takeaway: Before granting your first franchise, prepare a note explaining the protected interest, the limits on activity, duration and territory, and any exceptions needed. Then submit it with the agreement to a UAE legal adviser. A clear, justified clause is more useful than a broad prohibition that is difficult to interpret.