Prepare for Shift to Fixed-Term Contracts in UAE

​The new United Arab Emirates (UAE) labor law addresses and codifies a wide variety of topics, including a switch to fixed-term contracts. 

"The old law was a little bit of a patchwork quilt. It had various decrees and resolutions layered on top of it. And now, the new law will replace it. … Albeit, some of the existing decrees and resolutions will remain effective, provided that they are not contrary to the provisions of the new law," said Gordon Barr, an attorney with Al Tamimi & Co. in Dubai, UAE. "And there's provision for executive regulations, which have not yet been issued but which will add further meat to the bones in terms of the legislation."

The new labor law does not apply to the Dubai International Financial Centre or Abu Dhabi Global Market, which have their own employment laws.

Preparation

The shift to fixed-term contracts will require preparation and communication from companies. "That is going to involve putting in place new employment contracts and amending template employment contracts to reflect the fact that employment contracts are now going to be fixed-term," Barr said.

Under the prior labor law, "generally speaking, you could not terminate the contract prior to that limited period without paying compensation," said Rebecca Ford, an attorney with Clyde & Co in Dubai. "Effectively, all employees going forward will be on limited-term contracts. Although the limited term can include a notice period, you can still terminate at any time. But the contracts are stated to be for a limited period, not exceeding three years. And then the employer can renew those limited-term contracts any number of times afterwards."

Communicating the Change

Because many employees will be switched from their current unlimited contracts, it will be important for companies and HR professionals to communicate why and how the changes are happening. 

"If you've got a workforce who are used to having unlimited-term contracts, this is going to be quite a change. It may feel unsettling for staff," Ford said. "I think it's going to be important for employers, before they ask their staff to sign up for the new contractual terms, to pave the way by communicating the fact that this is a change that is included in the labor law, and therefore, it is a required change. It doesn't take away from the continuity of employment or the expectations of continued employment going forward."

End-of-Service Gratuity Is Now Protected 

Another notable change in the labor law is the protection of the end-of-service gratuity, which is paid to expatriate employees upon termination of their contract. Under the old law, it was possible to lose that gratuity for various reasons, including if the employee was let go for misconduct.

"Under the new labor law, gratuity is almost a protected payment," Ford said. "So regardless of the circumstances of the termination, provided the employee has achieved at least one year's service prior to termination, then they will get their end-of-service gratuity. There's no reduction or loss of that gratuity."

Protection Against Discrimination 

The new labor law also spells out protection against discrimination on certain grounds, including race, color, sex, national origin, disability and religion.  

However, "there is no specific penalty for committing an act of discrimination as an employer, so it remains to be seen how the courts will deal with claims of this nature. We still haven't seen the implementing regulations," said Sarah Lawrence, an attorney with Squire Patton Boggs in Dubai. "There are penalties generally under the labor law for breaches. In theory, therefore, breaches could attract compensation payments of anything from 5,000 dirhams [approximately $1,361] to a million dirhams [approximately $272,257]. It will be interesting to see how the UAE courts interpret acts of discrimination and how they will determine the compensation to be awarded, but this is definitely something employers should have on their radar going forward."

Leave

Maternity and paternity leave has also been reworked, expanding the option for paid leave. However, the law also does away with an option for 100 days of unpaid leave that had previously existed.

"Maternity [leave] seems, overall, to me to become slightly less favorable," Lawrence said. From a pay perspective, the law "does give an additional 15 days at half pay, taking the total paid period up to 60 days, as opposed to the previous 45 days. But in terms of the total overall amount of time you can take off, it's actually slightly less, because you've only got the prescribed paid maternity period of 60 days and then another 30 days unpaid, which overall ends up being less time off under the law, albeit a slightly increased amount of it is paid." 

With so many changes in the UAE's labor requirements, companies should make sure that they are in line with the new provisions.

Katie Nadworny is a freelance writer in Istanbul.