Non-compete and confidentiality clauses

In briefA worker must keep the employer’s industrial and commercial secrets even after the contract ends, under article 909 of Civil Code No. 40 of 1951. A post-contract non-compete agreement is valid only on the conditions in article 910: legal age, a limit in time, place and type of work, no unjust effect on the worker’s economic future, and proportionate compensation in the contract. Those rules are read with freedom of work in article 6 of Labour Law No. 37 of 2015 and the duty of confidentiality in article 42.

The Law Office of Ali Barakat, from Baghdad, al-Yarmouk, addresses non-compete and confidentiality clauses in a private-sector employment contract. The first source is Civil Code No. 40 of 1951, published in the Official Gazette, issue 3015, of 8/9/1951, articles 909 to 911 in the rules on the contract of employment. With them is read Labour Law No. 37 of 2015, especially article 6 on the protection of freedom of work, and article 42 on the worker’s duty not to disclose secrets learned through the work.

The duty of confidentiality in the Civil Code and in the Labour Law

Article 909 of the Civil Code, on the worker’s obligations, requires the worker to perform the work in person and to exercise the care of a reasonable person, to obey the employer’s orders on performing the agreed work if those orders do not contradict the contract, the law, or morals and if obeying them does not expose the worker to danger, to take care of items handed over to the worker, and to keep the employer’s industrial and commercial secrets even after the contract has ended. The worker is liable for every breach of that article.

In the Labour Law, the worker is bound, under article 42, second, to preserve the employer’s property placed in the worker’s charge, not to keep any records, instruments, or papers belonging to the work, and not to disclose any secrets learned by reason of the work. That duty is stated in the text without being made to depend on a special agreement, though its scope may be spelled out in a written contract. It is not the same as a non-compete clause, which regulates the worker’s activity after the contract ends in a competing enterprise.

A worker, as defined in article 1 of the Labour Law, works under the employer’s direction, supervision, and control in return for a wage. The distinction between a contract of employment and a contract for work (muqawala) in article 900 of the Civil Code rests on the employer’s right to manage and direct the worker’s efforts during the work, or at least to supervise the worker. If that subordination is absent, the employment rules in the Civil Code or the Labour Law are not loaded onto a relationship the text does not draw. Who counts as a worker is set out in Who is a worker under Iraqi labour law?.

Conditions for a valid non-compete agreement

If the work entrusted to the worker enables the worker to know the employer’s clients or to learn the secrets of the business, the parties may agree that, after the contract ends, the worker may not compete with the employer or take part in any project that competes with the employer, under article 910, first, of the Civil Code. For that agreement to be valid, the second paragraph requires that the worker be of legal age at the time the contract is concluded; that the restriction be confined, in time, place, and type of work, to what is necessary to protect the employer’s legitimate interests; that the agreement not affect the worker’s economic future in a way that is contrary to justice; and that the contract provide the worker with compensation for this restriction on freedom of work, proportionate to the extent of the restriction.

The employer may not rely on the agreement if the employer terminated the contract or refused to renew it without conduct on the worker’s part that justified that step, and may not rely on it if the employer’s own conduct justified the worker in terminating the contract, under article 910, third. If the undertaking not to compete is backed by a penalty clause, the worker may be released from the undertaking by paying the agreed sum, unless it appears from the contract as a whole that the parties did not intend the clause to be a lump-sum estimate. If that appears, the employer may claim supplementary compensation for damage exceeding the agreed amount, and may also claim that the breach be stopped if the employer’s interests and the worker’s acts justify it, under article 911. If the penalty clause is so exaggerated that it becomes a means of forcing the worker to remain in the employer’s service for longer than the agreed period, the clause is void, and its invalidity extends to the non-compete clause as well.

Each restriction on duration or geographical scope is assessed against article 910 of the Civil Code on the facts of each contract. Each restriction is measured against the conditions in article 910 on the facts.

How are these limits read with the Labour Law?

Article 6 of the Labour Law states that freedom of work is protected and that the right to work may not be restricted or denied, and that the fundamental principles and rights are to be respected, including the elimination of all forms of forced or compulsory labour. The Labour Law itself, in the published articles, does not contain a separate heading on non-compete clauses. The detailed framework for the validity of the agreement therefore remains in articles 909 to 911 of the Civil Code. Freedom of work and the duty of confidentiality in the Labour Law are read together with those articles, without one text being cancelled by the silence of the other. Any term in an employment contract that diminishes a right drawn by the Labour Law is read in the light of the invalidity of terms that conflict with its provisions where the Law so provides, and in the light of the Court of Labor’s jurisdiction over employment-contract disputes.

Termination of the contract, and its effect on reliance on a non-compete clause, is reviewed with Ending an employment contract, because article 910 itself bars reliance on the agreement in the cases of termination or refusal to renew that it describes.

Legal basis and sources

Frequently asked questions

Is a confidentiality clause enough to prevent the worker from working for someone else after the contract ends?

The duty of confidentiality in article 909 of the Civil Code and in article 42 of the Labour Law concerns secrets the worker has learned, and in the Civil Code it continues after the contract ends. A ban on competition after the contract ends is a separate agreement, valid only on the conditions in article 910, including proportionate compensation and a limit in time, place, and type of work.

What is required for a non-compete agreement to be valid?

The work must have enabled the worker to know the clients or to learn the secrets of the business; the worker must be of legal age at the time of the contract; the restriction must be confined to what is necessary to protect the employer’s legitimate interests; it must not affect the worker’s future in a way contrary to justice; and the contract must provide compensation proportionate to the extent of the restriction, under article 910.

Does an exaggerated penalty clause also bring down the non-compete clause?

If the exaggeration in the penalty clause makes it a means of forcing the worker to remain in service for longer than agreed, the penalty clause is void and its invalidity extends to the non-compete clause as well, under article 911.

Always check the text in force and its amendments in the official source.

To ask about your matter

Call +964 770 848 7526 WhatsApp Email

Non-compete and confidentiality clauses in the employment contract