The new UAE Labour Law: What's keeping your HR team awake at night?

9 minute read
16 December 2021

Current talk in the UAE around the HR community is the new four and a half day week announced by the Government applicable to the public sector (with the exception of Sharjah that has announced a four day week). It is clear the UAE is striving towards a new approach to HR where employee happiness and productivity is key to creating an attractive workplace destination. It is likely the private sector will follow suit with changes to the working week and we expect private companies to align their working week with the public sector (with adjustments to address commercial requirements) from January 2022.

In addition to the changes to the working week, the Government also announced a new framework of labour laws for the private sector under the Federal Decree - Law No.33 of 2021 (the "New Law"), coming into effect on 2 February 2022.

The New Law repeals the previous law (Federal Law No. 8 of 1980) in its entirety. The New Law is not exhaustive. Indeed many important aspects of the New Law require clarification and detail in the form of Implementing Regulations to be announced in the short to medium term. This may lead to some uncertainty as to the application of the New Law.

Employers will note that there are some important changes to keep in mind. We provide a short summary below.

1. Form of Contracts

Employers have until 1 February 2023 to adopt template forms of employment contracts that are for a fixed term (not to exceed three years). The template form will be provided by the Ministry of Human Resources and Emiratisation. The requirement for fixed term contract removes the former distinction between limited and unlimited duration contracts. Note, however, a fixed term contract can be renewed as many times as necessary and any such renewal will not hinder an employee's continuity of employment. Therefore rights and benefits that accrue over the fixed term (for example, a right to end of service gratuity) will not be affected. Rather, the fixed term concept appears to replicate the duration of a standard UAE residency visa and therefore the renewal of the contract will likely be in parallel with the renewal of residency.

2. New Patterns of Working

The New Law recognises part-time, temporary and flexible working (in addition to full-time working). The statutory recognition of part-time working is a welcome concept in the UAE and means, for the first time, an employee may be employed by two or more employers. The New Law provides protection for part-time employees by requiring an employer to adhere to their agreed hours, presumably to allow an employee to maintain two or more jobs in parallel.

3. Non-Discrimination and Equal Pay

The New Law entrenches the right for female workers to be paid the same salary as male workers if in the same role or another role of equivalent value. Moreover, discrimination on the basis of race, colour, sex, religion, nationality, social origin or disability is illegal. This does not preclude any policies that are intended to promote Emirati participation in the workplace. Accordingly, Emiratisation policies (as applicable in the private sector) will continue to be encouraged.

4. Probation

The employer and employee must provide 14 days' written notice to terminate an employment contract during the probationary period (under the former law it was possible to do this on a day's notice). If the employee chooses to move to another job immediately after ending a contract during the probation period, then he/she is obliged to provide 30 days' notice and the new employer is required to compensate the former employer for the costs incurred (e.g. visa and on-boarding fees).

5. Non-Compete Restrictions

The New Law provides welcome rules on the validity of non-compete obligations that apply on termination of employments. Non-compete obligations are enforceable if they are:

  • specific in time, place and type of work to the extent necessary to protect the employer's law interests; and
  • do not exceed two years following termination.

The New Law also provides that if an employment contract is terminated by an employer in breach of the New Law, then the non-compete provision is not enforceable. Further, any court action to enforce a non-compete obligation must be initiated within 12 months of the employer becoming aware of a breach. It is important that employers take a careful look at the drafting of such clauses.

6. Minimum Wage

The New Law allows for a new national minimum wage to be introduced. We anticipate this will be announced at the direction of the UAE Cabinet. Under current laws, there is no national minimum wage but rather guidelines on minimum salary to be eligible to sponsor spouses and/or dependents in the UAE.

7. Disciplinary Sanctions

The New Law provides a framework for an employer to deal with performance related matters which commences with a letter of reprimand and can escalate towards dismissal. Employers are able to make deductions from pay (not exceeding 5 days' pay per month) and to suspend an employee for up to 14 days. Further details of this will be addressed in the Implementing Regulations. As a general rule, employers should align current disciplinary measures with those recommended in the New Law. However, clarification is necessary as to the extent to which the measures are mandatory. The Implementing Regulations may provide this guidance.

8. Termination of Employment

Notice periods for the termination of an employment contract are prescribed under the New Law and are to be no less than 30 days and no more than 90 days. The 90-day limit may prove to be a challenge for senior executives within certain industries where termination periods (and garden leave) can be up to 12 months.

The New Law retains a concept of termination for a legitimate reason. A legitimate reason is not defined in the New Law. Employers will likely need to rely on previous practice that the termination must be with good cause, otherwise it is deemed arbitrary. The New Law does however provide a concept of "Unlawful Termination". Any termination of an employment contract following a complaint having been submitted to the UAE authorities or commencement of court action against the employer is unlawful and the New Law provides for compensation to be paid to the employee if this does occur.

The New Law also retains the employer's right to terminate an employment contract summarily (without notice). The grounds for summary dismissal are similar to those in the previous law and therefore does not widen the scope for dismissal without notice.

9. Maternity and Paternity Leave

Pregnant mothers are now entitled to a minimum of 45 days at full pay, plus 15 additional days at 50% pay. Additional leave is allowed for mothers who need to attend to a child with extra care commitments comprising 30 days' additional leave at full pay and 30 days' leave unpaid.

The New Law also allows five days of paid parental leave, applicable to both parents in the first six months of the birth of the child.

10. End of Service Gratuity

The principle for payment of end of service gratuity on termination of employment has not been changed, other than:

  • it is payable even if the employment contract is terminated summarily (without notice), under the previous law the employee forfeited the right;
  • there is no adjustment to the calculation of end of service gratuity if the employee resigns; and
  • the calculation of end of service gratuity is made by reference to the number of "Working Days" in service not the total days under employment. Hence, the daily rate at which end of service gratuity accrues will be apportioned to the actual number of days worked, not the total calendar year.

Neither does the New Law introduce a workplace savings scheme (akin to the DIFC/DEWS scheme) whereby employers and employees may designate a pension fund or provident savings scheme as a substitute to end of service gratuity. As with other aspects of the New Law, the Implementing Regulations are left to fill in this detail.

11. Dispute Resolution

Employment disputes having a value not exceeding AED 100,000 are now exempt from court fees from initiation to execution. This is helpful for employees wishing to initiate a claim who may otherwise be put off by the extent of costs.

One interesting development is in the introduction of a group dispute that can be initiated through the Ministry of Human Resources & Emiratisation. It would appear a collective dispute can be channelled through this Ministry who may then make arrangements for determining the dispute. This is not quite the same as collective bargaining, but does appear to give some merit to groups of employees wanting to raise complaints collectively.

The New Law also introduces a series of fines that may be levied against an employer for breach of employment regulations.

Next Steps

Any change to employment law and contracts requires consultation with employees. Employers should initiate this process now and take steps to amend their HR policies to bring them into line with the New Law.

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