UAE Labor Law: Governing Employment
The Ministry of Human Resources & Emiratisation (“MOHRE”) has announced an overhaul to the labor laws in the UAE. The new UAE Labor Law (Federal Decree Law No. 33 of 2021), will come into effect as of 2 February 2022. The New Law will replace the current Federal Law No. 8 of 1980, as amended in its entirety.
The New Law sets out several important changes that are detailed below in conjunction with the existing Law:
1. Part Time and Flexible Working Arrangements
Current Law:
The existing law do not mention anything clearly about the part-time and flexible working arrangements, however:
- Ministerial Decree Number 31 of 2019 in reference to the Introduction of Part Time Employment Contracts made ambiguous that part-time working arrangements were acceptable (despite the fact that the Current Law was not updated to address this); and
- Numerous resolutions were passed in 2020 due to the COVID-19 introducing the concept of remote working.
New Law:
A number of new alternative flexible and non-typical employment provisions have now been introduced:
- Part-time work: part-time employees are specifically documented and will be entitled to vacation leave on a pro-rated basis.
- Temporary work: applicable where time or a project objective is a determining factor in the length of the employment period. This seems to be similar as provided by fixed term contracts under the Current Law.
- Flexible work: where working hours and/or days of work alter depending on the employer’s workload and economic and operational variables of the employer.
It is still not specified as to what will be required from employers to have these new initiated implement under the alternative employment arrangements and how end of service entitlements will be affected for part-time, temporary and flexible workers.
The law states that “Executive Regulations of the New Law” will define the mechanism for regulating end of service benefits for expatriate workers other than full- time employees, which have still not been released.
On a separate point, there are no specific guidelines concerning remote working arrangements, but it recognizes that an employee may work remotely (whether from inside or outside the country) with the express approval of the employer.
Annual leave
The Executive Regulations clarifies that annual leave for part-time employees should be calculated with reference to the number of hours that they are contracted to work. The calculation is as follows:
- The total number of hours to be worked per year shall be converted into working days (one working day being eight working hours);
- The total number of working days is then divided by the number of working days in a full time calendar year;
- This figure is then multiplied against the full time equivalent annual leave entitlement.
Annual leave for part time employees must be a minimum of 5 working days.
End of service gratuity
The Executive Regulations also provide for prorating of end of service gratuity for both part time and job sharing employees. Note that the Executive Regulations does not make reference to the pro-rating of annual leave for employees in a job-sharing role.
The calculation of end of service gratuity in such cases is as follows:
- The total number of hours to be worked per year shall be converted into working days (one working day being eight working hours);
- The total number of working days is then divided by the number of working days in a full time calendar year;
- This figure is then multiplied against the full time equivalent end of service gratuity entitlement.
2. Work Permits
Current Law:
The Original Law stated that all expatriate employees must obtain an employment permit before they could be legally employed in the UAE. There was only one form of employment permit, and all employees whose employer was registered with the MOHRE were hired on a two year full time employment permit (or ‘labor card’).
Executive Regulations:
The UAE authorities recently announced the imminent implementation of a number of new visas and permits which is a sweeping change to the existing UAE immigration landscape.
The Executive Regulations makes reference to 12 different types of work permits to reflect the various types of sponsorship and employment arrangements that are both currently in place, and that are due to be introduced. These 12 permits are:
- A work permit for individuals recruited from outside the UAE;
- A transfer work permit for expatriate employees who are transferred to and from an employer registered with the MOHRE;
- Dependent permits for individuals who are sponsored for residency purposes by a dependent;
- Temporary work permits applicable where time or a project objective is a determining factor in the length of the employment period;
- Task work permit applicable to employees who have been recruited from outside the UAE to work on a temporary basis;
- Partial work permits applicable to individuals employed an individual on a part-time contract;
- Juvenile work permits applicable for individuals between the age of 15 and 18;
- Student training and employment permits which allows employers registered with the MOHRE to train or employ a student (of above 15 years of age) in accordance with specific controls and conditions that include a commensurate training and work environment;;
- Work permits for UAE and GCC nationals;
- Work permits for golden residency holders;
- Work permits to train a UAE national pursuant to his approved scientific qualification; and
- Self-employment permits which are granted to individuals who are self-employed. Interestingly, this permit allows individuals to work in the UAE on a self-employed status and without the requirement to submit an employment contract to the labor authorities. This is a dynamic change in the existing position which requires all individuals who work in the UAE to submit an employment contract to the UAE authorities at the time of work permit application.
3. Three Year Fixed Term Contracts
Current Law:
Two forms of contract currently exist:
- Unlimited term contracts, which continue in full force and effect unless and until terminated; and
- Fixed term contracts, which terminate at the end of the agreed term unless renewed by the parties.
New Law:
All employees will be required to enter into fixed term employment contracts for a maximum period of three years. On expiry of the term, the employment contract can be renewed or extended for similar or shorter periods (on multiple occasions). If the contract is neither renewed nor extended, but the parties continue to operate as though the contract is still in effect, the contract is deemed as renewed on the same terms and conditions as were set out in the most recent version. Any extension or renewal will automatically count towards an employee’s continuous service (for the purposes of end of service gratuity or otherwise).
For employees currently on unlimited term contracts, the provisions of the New Law will automatically apply following the Effective Date. Employers are required to convert existing unlimited term contracts into fixed term contracts within one year from the Effective Date (i.e. by 1 February 2023).
Where employees are currently employed under an unlimited term contract, either party may terminate the contract for a legitimate reason (see “Contract Termination” section below regarding what may constitute a ‘legitimate reason’), subject to the following minimum notice provisions:
- 30 days if the employee’s period of service is less than 5 years
- 60 days if the employee’s period of service is more than 5 years; and
- 90 days if the period of service is more than 10 years.
4. Contract Termination
Current Law:
At present, employment may only be legitimately terminated:
- Without notice, for the reasons expressly set out in Articles 88 and 120. Where an employee is terminated under Article 120, they forfeit any entitlement to end of service gratuity;
- With notice, for a “valid” reason. In practice, this is interpreted as being reasons attributable to an employee’s performance or conduct.
- By mutual agreement; or
- In the case of fixed term contracts, upon the expiry of the agreed term.
New Law:
Despite the use of the term “fixed”, the new legislation provides that fixed term contracts can be terminated on notice during the course of the term for a “legitimate reason”, provided that the period of written notice under the contract of employment is provided (minimum of 30 days’, maximum 90 days). The term “legitimate reason” is not defined, and therefore it remains to be seen how the Labor Courts will interpret what constitutes a justifiable grounds for dismissal.
In the event that the employee does not serve or the employer does not wish the employee to serve the notice period, the party terminating the contract must pay the other compensation equal to the amount of the employee’s salary for the notice period (or remaining part thereof). Where the employer terminates the contract, an employee is permitted one day of unpaid leave per week in order to search for a new job.
Termination with notice for reasons other than those related to an employee’s performance or conduct is now permitted. Most notably, the concept of redundancy is now expressly recognized as a valid reason for termination if the employer is bankrupt or insolvent, or there are any economic or exceptional reasons. Furthermore, termination is unambiguously permitted in the event of company closure, or where the employee’s work permit cannot be renewed (provided that the non-renewal is not attributable to any fault on the part of the employer).
Although the grounds for summary dismissal are mirrored from the existing legislation, there have been some notable additional grounds, where an employee:
- abuses their position for profit or personal gain; or
- Commences work for another employer without complying with the applicable rules and procedures.
Of significance, where an employee is terminated summarily, they will now be entitled to their end of service gratuity (which is previously forfeited in such circumstances under the Current Law).
The circumstances in which an employee may leave employment immediately and without notice have also been amended, and the following new grounds have been included:
- Where there is serious danger in the workplace that threatens the safety or health of the employee, provided than the employer was aware of the risk and took no action to eliminate the danger; and
- Where an employee is assigned to perform work (without their consent) that is fundamentally different from their job description as per the employment contract.
5. End of Service Gratuity
Current Law:
End of service gratuity entitlement is reduced where an employee resigns before completing five years of service. Specifically where an employee resigns:
- from an unlimited term contract having competed more than one year but less than three years of service, end of service gratuity is reduced by two thirds; where the period of service is more than three but less than five years of service, end of service gratuity is reduced by one third; and
- From a fixed term contract, before completing five full years of service, no end of service gratuity is payable.
Further, arrangements under which an employer pays contributions into a pension or other savings scheme in lieu of paying end of service gratuity are permissible if (i) the payments made by the employer are at least as favorable as the employee’s end of service gratuity entitlement, and (ii) the employee has elected to accept the fund benefits in lieu of end of service gratuity.
New Law:
End of service gratuity reduction provisions for resigning employees are absent therefore resigning employees are entitled to a full end of service gratuity payment (provided that they have completed at least one full year of service).
Likewise, provisions regarding alternative pension / savings schemes are not mirrored and it remains to be seen whether MOHRE will recognize such arrangements – particularly where an arrangement is already in effect come the Effective Date.
6. Payment of End of Service Entitlements
Current Law:
No provisions or time frames under the existing law to pay employees’ end of service entitlements.
New Law:
All end of service entitlements must be paid within 14 days from the termination date. Failure to comply may result in a fine of between AED 5,000 and AED 1,000,000 (with a possible multiplier effect for the number of employees affected by the breach). However, no compensation is payable to the employee in the event that this time frame is not complied with.
7. Compensation for Unlawful Termination
Current Law:
Currently, the courts may award compensation for “arbitrary” dismissal being a dismissal that is “unrelated to the work” of the employee. In practice, this is interpreted as being any reason not attributable to the employee’s poor performance or conduct.
New Law:
The concept of “arbitrary dismissal” has been removed. Instead, the law provides that an employee’s termination is unlawful:
(i) if the termination was as a result of the employee filing a serious complaint against the employer (akin to the concept of victimization in other jurisdictions); or
(ii) the employee filed a case against the employer which is successfully upheld. Where termination is found to be unlawful in accordance with these grounds, the Labor Courts may oblige an employer to pay compensation of up to three months’ total remuneration (basic salary and allowances), in addition to all other contractual and statutory entitlements. In awarding compensation, the court will have consideration to the amount of damage sustained by the employee, length of service and type of worked performed.
It remains to be seen whether compensation will also be available to employees who are terminated for reasons other than those expressly set out under the new legislation.
8. Probation Period
Current Law:
Probation may be up to a maximum of six months and employment can be terminated without notice during such probationary periods, without any notable consequences.
New Law:
A minimum notice period of 14 days for employers wishing to terminate an employee whilst on probation has been introduced. The maximum period of probation remains six months.
Where an employee resigns from employment during their probationary period, the law introduces various obligations. Where the resignation:
- is to join another employer in the UAE, the employee must provide a minimum of one months’ notice and the new employer is obligated to compensate the current employer for the employee’s recruitment costs incurred (unless agreed otherwise).
- Is to leave the UAE, the employee must provide 14 days’ notice. However, if the employee returns to the UAE for the purposes of employment within three months of their departure, the new employer will be liable to compensate the previous employer for the employee’s recruitment costs they had previously incurred (unless agreed otherwise).
Notably, in the event an employee fails to adhere to the provisions as set out under the New Law, they will be subject to a labor ban of a year from the date they leave the country (subject to exemptions from the MOHRE).
9. Labor Bans
Original Law:
The Original Law provided that an expatriate employee who ‘abandons his work’ without a valid reason, or without working his contractual notice period is not permitted to take up other employment for one year from the date of abandonment.
New Law:
The New Law provides that in certain circumstances, the MOHRE may not permit certain individuals to obtain a work permit (colloquially known as a ‘labor ban’) where they resign from their employment either (i) during their probation period or (ii) for an ‘illegal reason’.
Executive Regulations:
The Executive Regulations clarifies that labor bans shall not apply (i) where the individual is “of the skill, professional, or knowledge levels” required by the UAE; (ii) to individual is sponsored for residency purposes by a dependent; (iii) to golden visa holders; and (iv) any “occupational categories” as determined by the Minister of the MOHRE and approved by the UAE Cabinet.
10. Discrimination and Equal Pay
Current Law:
The law makes provision for equal pay for men and women for the same work and included protection for discrimination in the event of dismissal due to an employee’s pregnancy or maternity leave.
New Law:
The law provides protection for employees from discrimination in the workplace and specifically, prohibits discrimination on the grounds of race, color, sex, religion, national origin, social origin and disability that would impair equal opportunities for an employee or prejudice an employee from gaining employment and continuing such employment. Whilst maternity and/or pregnancy are not listed as a protected characteristic, employers are prohibited from terminating an employee (or threatening to terminate an employee) due to the fact she is pregnant or on maternity leave.
Additionally, the law provides that there should be equal pay for men and women for the same work.
Whilst there are no specific penalties attributed to discrimination and/or sexual harassment, an employer may be liable for fines ranging between AED 5,000 and AED 1,000,000 for breaches of the law (with a possible multiplier effect for the number of employees affected by the breach).
11. Bullying and Sexual Harassment
Current Law:
No existing provisions under the existing law relating to bullying or sexual harassment.
New Law:
Protection for employees against bullying and sexual harassment in the workplace has been introduced. Specifically, sexual harassment, bullying, verbal, physical or psychological violence towards an employee are prohibited by their employer, supervisor, colleagues or those working with them. In addition, an employer is prohibited from coercing or threatening an employee to undertake work or provide services against their will.
Whilst there are no specific penalties attributed to bullying or sexual harassment, an employer may be liable for fines ranging between AED 5,000 and AED 1,000,000 for breaches of the law (with a possible multiplier effect for the number of employees affected by the breach).
12. Maternity, Parental and Additional Leave
Current Law:
The existing maternity leave provisions provide 45 calendar days at full pay and, on expiry, employees are entitled to a further 100 days of consecutive or intermittent maternity “sick” leave if they are suffering from a condition related to pregnancy or delivery that prevents them from resuming work. Further, employees returning from maternity leave are entitled to two additional breaks per day (not exceeding one hour in aggregate) for nursing, until the child attains 18 months of age.
No provisions under the existing law pertaining to compassionate leave or study leave.
New Law:
Maternity leave has been increased to 60 calendar days, the first 45 days are fully paid, with the remaining 15 days at half pay. Maternity pay is not reduced in the event that the employee has not completed one full year of employment at the time of availing maternity leave. Maternity leave also applies in circumstances where an employee miscarries after 6 months of carrying, still births and/or upon the death of an infant after birth. An additional 30 calendar days of maternity leave (with full pay), for employees who give birth to a disabled or sick child whose health conditions require a “constant companion” is available which can be further extended for an additional 30 days (unpaid). An employee’s entitlement to nursing breaks are reduced from 18 months to six months from the date of delivery. Likewise, although the provisions pertaining to maternity “sick” leave remain, entitlement is reduced to 45 (consecutive or intermittent) days.
In addition to the amendments to maternity leave, a number of new leave categories have been introduced, namely:
- Compassionate leave: five days in the event of the death of an employee’s husband or wife, and three days in the event of the death of an employee’s mother, father, son, brother, sister, grandson, grandfather or grandmother.
- Parental Leave: five days (for both male and female employees) which must be utilised within six months of the child’s birth (as introduced under Federal Decree Law No. 6 of 2020).
- Study leave: 10 days per year, for an employee (with more than two years’ service) who is affiliated or regularly studying with an approved UAE education institution, to sit exams.
13. Currency of Salary Payments
Current Law:
Employees’ salaries must be paid in UAE dirhams, into a UAE bank account.
New Law:
Salaries may now be paid in a currency other than UAE dirhams, where agreed in the employment contract. It remains to be seen how this will work in practice for employers who are required to make salary payments through the Wage Protection System.
14. Non-Competition Restrictions
Current Law:
Restrictive covenants are permissible, provided that they are reasonably limited in terms of time, geographical location, and the type of work. In practice, the courts have appeared reluctant to consider restrictive periods exceeding six months as being reasonable (unless the employer is able to link a longer restrictive period to a legitimate risk to the business).
New Law:
The inclusion of non-competition restrictions in an employment contract is permitted provided that the provision are limited in time/duration, place/geographical scope and to the extent necessary to protect the legitimate business interests of the employer. However, the law specifically introduces a maximum restrictive period of two years from the termination date. Where employment is terminated by the employer, and the termination is not in accordance with the law, any restrictive covenants are automatically nullified.
15. Executive Regulations
The legal landscape that we have come to know in respect of post-termination restrictions has materially changed in the Executive Regulations. The Executive Regulations provide that:
- The non-compete must confirm:
(i) nature of the work;
(ii) the geographical scope; and
(iii) the duration of the restriction. - The non-compete only applies in cases where the employee resigns from their employment (unless the reason for termination by the employer is due to the employee’s breach of his legal or contractual obligations).
- The non-compete may be waived by mutual agreement where:
- The employee or his new employer pays the ex-employee compensation of up to three months’ total salary;
- The employer terminates the employee’s employment during his probation period;
- For any “occupational categories” pursuant to the needs of the labor market in the UAE as determined by the Minister of the MOHRE and approved by the UAE Cabinet.
16. Annual Leave Roll Over
Current Law:
The forfeiture of annual leave is prohibited and unused leave will either be automatically carried forward to the following leave year, or must otherwise by paid out in lieu.
New Law:
Unless advised otherwise by an employer employees must utilize their annual leave in the applicable annual leave year.
Employees are entitled to a payment in lieu of unused leave upon the termination of employment calculated on the basis of an employees’ basic salary only.
17. Work Regulations
Original Law:
The Original Law made reference to an employer’s obligation to have in place various ‘disciplinary rules’ which set out the circumstances in which disciplinary sanctions may be imposed on an employee by their employer.
Executive Regulations:
The Executive Regulations has broadened the employer’s obligations in respect of the regulations it must implement to include any regulations required to organize work such as:
- Work instructions including the daily working hours, weekends, festive holidays, health and safety precautions
- Penalties that may be imposed on an employee where the employee has breached the terms and conditions of their employment;
- A list of criteria and controls for promotions and rewards;
- Procedures to be followed prior to the termination of an employee’s employment,
(Collectively, the “Work Regulations”). The Work Regulations only apply to employers who employ over 50 employees.
18. Working Hours
Original Law:
Maximum number of normal hours of work for adult workers is eight hours per day, 48 hours per week (assuming a six day working week) or 8 hours per day, 40 hours per week (assuming a five day working week). Where employees are required to work more than the normal number of hours, excess hours were treated as overtime and employees were entitled to overtime pay. Different overtime pay calculations were applied depending on when the overtime was worked.
The Original Law provided for a ‘carve out’ of the overtime regulations to persons holding responsible managerial or supervisory positions, if such positions confer the powers of an employer over employees. According to Ministerial Decision No. 235 of 1984, this ‘carve out’ applied specifically to the following categories of personnel:
- Chairmen of boards of directors and board members;
- General Managers;
- Managers of Departments; and
- Individuals working in supervisory posts at the institution.
New Law:
Although the New Law makes reference to the number of normal daily working hours (eight) and it confirms how overtime should be calculated where an employee works (i) an extended working day; and (ii) on a rest day, it does not clarify whether any employees are exempt from the daily working hour and overtime provisions.
Executive Regulations:
The Executive Regulations confirm that certain employees are exempted from the working hour and overtime provisions of the New Law. The Executive Regulations that an exemption may be granted to:
- Chairmen of the boards of directors and board members;
- Employees who occupy supervisory positions (such that they represent the employer);
- Crew of naval vessels and employees who work at sea who have special conditions of service due to the nature of their work;
- Businesses whose technical nature requires employees to be engaged on shift work or tour guides provide that average working hours do not exceed 56 per week;
- Preparatory or complementary works that must be carried out outside the normal working day.
19. Disciplinary Process
Original Law:
The Original Law sets out a minimum disciplinary process that should be followed in advance of the employer imposing any sanctions on an employee. Specifically, the Original Law required the following minimum process to be carried out before a disciplinary sanction, including dismissal, is imposed:
- the employee should be notified in writing of the charge;
- employee should be invited to a meeting and his/her representations listened to; and
- the allegations investigated and the employee provided with written reasons of any penalty to be imposed, which should also be recorded in the employee’s personnel file.
The Original Law provided that the employee must be informed of the allegation within 30 calendar days of the employer becoming aware of the violation, and a disciplinary penalty must be imposed within 60 calendar days of the investigation being concluded.
No concept of an employee’s right to appeal a disciplinary outcome.
New Law:
Although the New Law sets out the types of sanctions that could be imposed, it does not provide for any guidelines as to what process should be followed in advance.
Executive Regulations:
This is clarified in the Executive Regulations which provides that:
- Disciplinary penalties imposed must be appropriate given the nature of the misconduct in accordance with the following criteria:
- Extent of breach of confidentiality of data and information related to work;
- The impact of the violation on the health and safety of employees;
- The financial impact of the violation;
- The effect of the violation on the reputation of the employer and its employees as a result of committing the violation;
- Exploitation of authority entrusted to the employee;
- Whether the violation is repetitive; and
- The existence of a criminal or moral part in the committed violation.
- The employer should have in place a list of disciplinary penalties that can be imposed in accordance with the New Law.
- In a similar manner as the Original Law, penalties can only be imposed after the following process has been conducted:
- The employee has been informed of the allegation in writing;
- His representations have been heard;
- His position has been investigated;
- The process is recorded in a written report and placed in his personnel file; and
- The employee is notified in writing of the penalty(ies) imposed, their type and amount, the reason for the penalty, and the penalty that he may receive in the event of a repetition of the violation.
- Likewise, the Executive Regulations mirrors the Original Law in that the employee must be informed of the allegation within 30 calendar days of the employer becoming aware of the violation, and a disciplinary penalty must be imposed within 60 calendar days of the investigation being concluded and the confirmation of this to the employee.
- If the employer employs 50 employees or more must put in place an appropriate complaints or grievance process.
A big change in the Executive Regulations from the existing position is the employee’s ability to internally appeal any disciplinary penalty imposed against him. The employee’s ability to appeal was not contemplated in the Original Law. The Executive Regulations provide that the employer should not suffer any detriment by raising an appeal and that the employer must inform the employee of the outcome of his appeal.
20. Labor Disputes
Original Law:
The Original Law provides that where an employee wishes to file a formal dispute against their employer, the employee must initially raise an informal complaint to the applicable labor authority prior to a formal claim being filed before the Labor Court.
New Law:
This process remains the same.
Executive Regulations:
Interestingly, the Executive Regulations states that where an employee continues to work during a labor claim, he is entitled to claim two months wages and in such cases, the MOHRE may compel the employer to either pay that amount or refer the complaint to the court.
It is important for all UAE companies (both onshore and within the free zones (with the exception of the DIFC and ADGM)) to review their contracts (which in many cases will involve putting in place new employment contracts), employee handbooks and any other employment policies and procedures to ensure consistency with the New Law. We look forward to working with you to ensure that you are fully compliant with the New Law. Please let us know whether you wish to up a meeting or call to discuss further.
