The United Arab Emirates (UAE) has issued Federal Law No. 33 of 2021 (the New Labor Law), which will take effect Feb. 2, 2022, and will repeal UAE Federal Law No. 8 of 1980 (the Current Labor Law).
Like the Current Labor Law, the New Labor Law will apply to all companies and employees in the private sector in the UAE, including its free zones, save for the Dubai International Financial Centre and the Abu Dhabi Global Market, which implement their own employment laws.
The New Labor Law introduces a number of unexpected changes. The rationale for some of the changes is not always clear and it is difficult to see how certain provisions will operate in practice, not least because much of the detail in the New Labor Law has been outsourced to forthcoming executive regulations. It is hoped that these executive regulations will clarify existing areas of uncertainty.
Nevertheless, there are a number of significant issues for affected employers to bear in mind and changes will need to be made to employment contracts, policies and practices.
We have summarized the key aspects of the New Labor Law below, together with the main action points for employers.
Application
The New Labor Law applies to any entities owned "in conjunction with the federal or local government" unless the entity's constituent documents state otherwise.
Protections Against Discrimination
The law prohibits discrimination against persons specifically on the grounds of race, color, sex, religion, national origin, ethnic origin or disability. It remains to be seen how this protection will be enforced in practice or what the remedy will be for individuals who are victims of discriminatory conduct.
Protection Against Harassment
The law expressly prohibits harassment, bullying, or any verbal, physical or mental violence against employees. As with the anti-discrimination provisions, it remains to be seen how this protection will be enforced in practice or what the remedy will be for individuals who are subjected to harassment.
Equal Pay for Women
Although much has been made of this being a new development, the concept of equal pay in the UAE is not new—provisions requiring women to be paid the same as men undertaking work of equal value were actually introduced into the Current Labor Law in 2020.
Fixed-Term Employment Contracts
All employees must be employed on fixed-term employment contracts not exceeding three years, which may be extended for the same or period. Employers will have 12 months from Feb. 2, 2022, to transition all their employees onto new contracts.
Flexible Working Models
Employees may undertake full-time, part-time, temporary or flexible work. In practice, these "models" reflect the common working modes already implemented by many UAE employers and we do not believe that the references to them in the New Labor Law will materially impact employers or employees or the way in which they operate.
Template Employment Contracts for Flexible Working Models
Executive regulations will be issued containing template employment contracts for each of the new flexible working models. These templates are likely to be in the relatively straightforward dual language format issued by the Ministry of Human Resources & Emiratization (MHRE) and we anticipate that companies will still want to issue their own employment contracts containing more sophisticated terms and conditions alongside the new template contracts being introduced.
Termination by Employer During Probationary Period
Employers may terminate employment during probationary period by giving 14 days' written notice.
Termination by Employee During Probationary Period
Employees who want to move to another employer in the UAE during their probationary period may terminate their employment by giving a least one month's written notice. The New Labor Law states that, in this case, the employee's new employer should compensate the old employer for recruitment costs.
Employees who want to leave the UAE during their probationary period may terminate their employment by giving at least 14 days' written notice. The New Labor Law states that if the employee returns to the UAE and obtains a work permit issued by the MHRE with another employee within three months of this departure, the employee's new employer should compensate their old employer for recruitment costs.
It is difficult to see how these new rules governing termination during probationary period are going to work in practice.
Termination on Notice
Either party may terminate the employment relationship for "good cause" by giving written notice.
Notice Periods
Minimum notice periods are still 30 days but notice periods are now capped at 90 days. This is likely to be an unwelcome development for employers who need to deal with the departure, replacement and recruitment of senior executives, who typically have notice periods of six to 12 months.
Search for Work
When the employer issues notice, the employee will be entitled to one unpaid day of leave per week during the notice period to look for new employment.
Notice Periods for Current Unlimited Employment Contracts
Although unlimited contracts are to be replaced by fixed-term employment contracts, rather unusually the New Labor Law imposes minimum notice periods for the termination of existing unlimited contracts, depending on the employee's length of service: (i) 30 days if the employee's period of service is less than five years; (ii) 60 days if the employee's period of service is more than five years; and (iii) 90 days if the period of service is more than 10 years.
Reasons for Termination
The scenarios in which an employee's employment may be terminated have been expanded to include the permanent closure of the employer, the bankruptcy of the employer and the failure of the employee to satisfy the requisite immigration requirements.
Summary Dismissal
Regrettably, the list of reasons permitting immediate or summary dismissal has not been materially amended, although the New Labor Law specifically requires a written investigation and two written warnings to be given to an employee before dismissing the worker for failure to perform the employee's main duties.
Disciplinary Process
It is suggested that a disciplinary process will be contained in the executive regulations.
Suspension
Suspension of up to 30 days with half pay will be permitted to enable an employer to undertake a disciplinary investigation. However, an employee will be entitled to be reimbursed all pay that is withheld if the worker is ultimately cleared of any wrongdoing. We therefore anticipate that most employers will continue to suspend employees on full pay and benefits.
Internal Policies and Procedures
Employers will be required to "put in place internal work regulations" in accordance with the forthcoming executive regulations.
End-of-Service Gratuity Calculation
An employee's end-of-service gratuity is stated to be calculated on the basis of working days, which would be a significant change.
In our view, this is likely to be an oversight that we hope will be addressed in the executive regulations. If the change was intentional, it will result in a significant increase in employer's liability for end-of-service gratuity.
End-of-Service Gratuity on Resignation
There is no reduction in end-of-service gratuity if an employee resigns.
End-of-Service Gratuity on Summary Dismissal
Employers do not have the right to withhold an employee's end-of-service gratuity if the worker is summarily dismissed (that is, if employment is terminated immediately without notice). This is a significant development and reflects the approach adopted by the Dubai International Financial Centre in 2019.
Maternity Pay and Leave
Maternity pay is increased to 60 days (45 days' full pay, 15 days' half pay). There is no qualifying service requirement.
Employees will now be entitled to maternity leave and pay in the case of stillborn babies and new-born deaths.
Employees will be entitled to additional unpaid leave of 45 days if they suffer a pregnancy-related illness. This period of leave will not be included when calculating the employee's end-of-service gratuity.
Parental Leave
Employees will be entitled to five days' paid leave in the six months following the birth of their child. This leave will be in addition to an employee's entitlement to maternity leave and there is no qualifying service requirement. Parental leave was introduced into the Current Labor Law in 2020.
Disability Leave
Employees with babies who have disabilities may be entitled to an additional 60 days' leave on full pay.
Compassionate Leave
Employees will be entitled to five days' paid leave for the death of their spouse and three days' paid leave for the death of a parent, child, sibling, grandchild or grandparent. There is no qualifying service requirement.
Study Leave
Employees with more than two years' service may be entitled to 10 working days' study leave, although the New Labor Law is silent on whether this leave will be paid or unpaid.
Sick Pay During Probation Period
Employees will not be entitled to any paid sick leave during their probationary period.
Holiday
Employees will be required to take their holiday in the year it falls due, although it is unclear what will happen to that holiday if they don't.
Holiday Pay
Payment in lieu of holiday pay on the termination of employment is to be calculated using basic pay only.
Deductions
Deductions from wages of up to 50 percent of the monthly wage will be permitted.
Non-competition
Non-compete clauses must be no longer than two years, although such a lengthy restriction is going to be difficult for an employer to justify in most cases.
Certain positions will be exempt from non-compete obligations, although this will be addressed in executive regulations.
Frustratingly, other types of restrictive covenants, such as non-poaching of employees or non-solicitation of clients and customers, are not addressed in the New Labor Law.
Passports
Employers are expressly prohibited from retaining an employee's passport.
Overtime
Overtime will be capped at 144 hours in every three-week period and will be calculated according to basic salary only.
Overtime Exemption
The overtime exemption that applies under the Current Labor Law, for employees in a supervisory or managerial position, no longer applies, and the executive regulations will determine new exemptions.
Rest Days
Weekly rest days no longer have to be on a Friday.
Entitlements on Death of Employee
Employers should pay a deceased employee's spouse or children (as designated by the employee) all outstanding wages and end-of-service benefits within 10 days from the date of the employee's death. It is unclear how this requirement will interact with other UAE inheritance laws.
Resignation Without Notice
Employees will only be able to resign without giving notice if (i) in the case of an employer's non-compliance with their obligations, the employee notifies the MHRE 14 days before leaving and the employer fails to rectify the matter; and (ii) in the case of harassment or violence, the employee notifies the MHRE within five working days of being able to do so.
Currency of Salary Payments
Employees may be paid in currencies other than UAE dirham if agreed in the employment contract, although it remains to be seen how this would work in practice for employers who are required to pay their employees via the Wages Protection System.
Payment of Final Entitlements
Employers must pay their employees all their final entitlements within 14 days of the termination of their employment.
Retention of Employment Records
Employers are required to retain employment records for two years after the termination of employment.
Fines
Fines of up to 1,000,000 UAE dirham (approximately 272,257 USD) may be imposed for breaches of the New Labor Law, which may be multiplied in cases where numerous employees are affected.
Action Points
All affected employers should consider the following actions points:
1. Communicate to employees how they are going to be affected by the New Labor Law.
2. Update template employment contracts to reflect the requirement for all employees to be issued with fixed-term contracts not exceeding three years.
3. Ensure that all existing employees employed on indefinite employment contracts are moved onto fixed-term employment contracts by no later than Feb. 2, 2023.
4. Amend or replace existing employment contracts or policy documents that contain references to specific statutory entitlements (for example, 45 days' maternity leave).
5. Amend current sick leave policies to reflect the fact that employees are not entitled to take paid sick leave during their probationary period.
6. Amend existing maternity and paternity leave policies to reflect the different entitlements.
7. Consider implementing equal opportunities and anti-bullying and harassment policies to reflect the new anti-discrimination/bullying/harassment provisions.
8. Consider implementing a grievance policy to facilitate employee complaints of discrimination, bullying and harassment.
9. Update disciplinary policies to reflect (i) the expanded number of reasons for termination; (ii) the fact that an employee's end-of-service gratuity can no longer be withheld in any circumstances; (iii) the prohibition on discrimination, bullying and harassment.
10. Amend working time policies to reflect the cap on overtime hours and the changes to the calculation of overtime pay.
11. Implement a compassionate leave policy.
Ben Brown and David True are attorneys with Addleshaw Goddard LLP in Dubai, UAE. © 2021 Addleshaw Goddard LLP. All rights reserved. Reposted with permission of Lexology.