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The United Arab Emirates is a popular destination for foreign businesses to set up regional offices and consists of several jurisdictions for registration and entity establishment. Each emirate in the UAE has its own licensing agency, and there are more than 40 free zones in the UAE. Each emirate and each free zone can be considered a separate jurisdiction for entity registration and establishment.
Federal Decree No. 33 of 2021 on the regulation of labor relations. As amended (New Labor Law), repealing and replacing Federal Law No. 8 of 1980, concerning the management of labor relations, as amended (Old Labor Law), applicable in all jurisdictions within the UAE except Dubai International Financial Center (DIFC) ) Free Zone and the Abu Dhabi Global Market (ADGM) Free Zone, both of which have their own employment laws.
Below are some basic points commonly made by employers based outside the UAE who have little knowledge of the new labor laws. While there are commonalities across all jurisdictions, the points covered here apply to entities incorporated in the UAE, excluding DIFC and ADGM.
UAE Residence Visa and Work Permit
The majority of the UAE’s workforce is made up of expatriates – excluding nationals of Gulf Cooperation Council (GCC) countries – who are sponsored by their employers. To sponsor employees, UAE employers will arrange residence visas and work permits for such expatriate employees. It is easy for the relevant UAE authorities to issue UAE residence visas and work permits, subject to compliance with certain procedural requirements and passing routine health and security checks.
Use of standard forms of employment contracts
Most jurisdictions in the UAE require a standard form of employment contract. For entities operating in the UAE mainland (outside the free zones), the UAE Ministry of Human Resources and Emiratisation has issued a standard form of employment contract. Likewise, the Jebel Ali Free Zone Authority (the authority that manages the Jebel Ali Free Zone) and some other free zones issue standard forms of employment contracts.
A standard form employment contract is always the basic document covering the minimum terms required for an employment contract. As a result, employers and employees (such as senior employees) often enter into more complex contracts that cover additional points not covered in the standard form contracts, or provide contracts with standard terms that are more detailed than what is usually included in the standard form.
Employment contract period
Under the old labor law, employment contracts could be concluded for a limited or unlimited period. The new Labor Law abolishes the concept of an indefinite labor contract. There is no minimum or maximum number of years for a term. Renewal of the employment contract for a similar or shorter period agreed upon by the parties is permitted.
Probation
Employees have a probationary period of up to six months. According to the old labor law, either party can terminate the labor contract during the probationary period without prior notice. However, under the new labor law, notice of termination of employment is mandatory, and the notice period will depend on the circumstances.
Wages and End of Service Tips
Salary is generally divided into two parts, basic salary and allowances. Allowances can be further divided into different types of allowances, which can be any amount chosen by the employer and need not be the amount actually incurred by the employee. For example, the monthly housing allowance need not be equal to the employee’s actual monthly rent.
Employees are entitled to end-of-service payments (benefits that employers must pay at the end of an employee’s service), which are based on base pay. The higher the base salary, the higher the end-of-service gratuity. Typically the monthly base salary and allowances are split in a 40-60, 50-50 or 60-40 split. Employers may, at their discretion, further reduce the base salary and provide higher allowances.
Once agreed in the employment contract, the employer cannot unilaterally reduce or adjust basic wages and allowances to the detriment of the employee.
Employees from GCC countries are required to contribute to the pension. No termination gratuities are required to be paid to employees in GCC countries.
terminate at will
The Labor Law does not provide for the termination of the employment relationship at will. The Labor Code specifies the grounds on which either party may terminate an employment contract. In the event of wrongful termination of the employment contract by the employer, UAE courts may award compensation to the employee for up to three months of current wages.
Applicable Law and Dispute Resolution
All employment contracts must be governed by UAE law and subject to the jurisdiction of the UAE District Courts. In case of a dispute, the UAE courts shall have jurisdiction and apply UAE law, regardless of the provisions of the employment contract. Labor disputes cannot be resolved through arbitration.
Injunctive Relief and Specific Performance
UAE courts generally do not grant injunctive relief and specific performance relief. If the employee breaches the non-compete obligations by joining a competitor of the former employer, the former employer will need to file a lawsuit in the UAE courts to prove and claim compensation from the employee (this is often difficult).
Bashir Ahmed and Saurbh Kothari are attorneys at Afridi & Angell, a Lex Mundi member firm located in Dubai, UAE. Lex Mundi is a network of independent law firms. © 2023 Afridi and Angel. all rights reserved.Reprinted with permission Lexicology.
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