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United Arab Emirates
The United Arab Emirates or UAE, comprising of seven emirates (namely Abu Dhabi, Dubai, Sharjah, Fujairah, Ajman, Umm Al Quwain and Ras Al Khaimah) is an increasingly popular destination for businesses . It is known for being a relatively commercial and regulated place to operate, and it allows expat tax exemptions as a major incentive.But with new labor lawEffective February 2, 2022, the UAE moves towards the West, introducing more protections as part of the modernisation of the workplace for employers and employees. With just a few months to go with changes to new laws and recent policy developments, we highlight key action points and changes.
Please note that the new labour laws do not apply to the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market Free Zone.
major changes
- Mandatory Fixed Term Contract – Three Months: Strict requirements have been imposed, which means that all employees must be hired on fixed terms February 2, 2023. Originally, the law stipulated that these periods must be capped at three years (which could be terminated by notice). However, this has now been modified to provide a fixed term that can be unlimited. If an employer has agreed to a three-year fixed term and now wants to sign a longer contract with an employee, they can wait until it expires to renew, or amend the contract to include a longer term.
- Discrimination – new protections: Discrimination based on race, color, sex, religion, national or ethnic origin, or disability is now prohibited. However, this does not apply to the emirateization policy.
- Part-time/flexible work arrangements: Part-time work is now officially recognized, meaning employers can now legally prorate the rights of part-time employees without risking employees claiming that they are entitled to benefits equivalent to full-time employees.
- notice period: After the trial period ends, the minimum notice period of 30 days continues to apply, but now the maximum notice period is 90 days.
- Incompetence: Up to two years is now allowed, but the scope is limited.
- End of service tip: Now pay for all terminations, even resignations and reasons.
The UAE has introduced an unemployment insurance scheme to protect those who have lost their jobs (onshore and free zones). We understand that UAE residents will pay between $11 to $28 per year into the insurance plan, and in return, if they lose their job, they will be eligible to receive up to 60% of their base salary, or up to $5,445 per month for up to three years from the date of unemployment months. The scheme, which came into effect in October, applies to expats and UAE nationals.
The changes are aimed at boosting expats’ confidence that the UAE is a long-term destination, mandatory fixed-term contracts are aimed at demonstrating job security, and changes to the gratuity system and unemployment benefits provide more financial security should employees wish to change roles. However, the impact of the introduction of discrimination legislation on workplace relations is unclear. The new law does not clarify what compensation or remedies employees can get if they successfully file a discrimination claim. It remains to be seen how the UAE labour courts will interpret these new rules.
Emirates – two months to go
On the other hand, while seeking to attract expatriate talent, the UAE government is actively promoting its emirateization process by implementing new quotas.The new Emirates requirements will be January 1, 2023 Although they do not apply to free zones. Quotas will work in the private sector as follows:
- 0-50 skilled employees: 1 country
- 51 to 100 skilled staff: two nationals
- 101 to 150 skilled staff: three nationals
- 151 or more skilled employees: one national for every 50 employees
The aim of the Emiratisation requirement is to ensure that by 2026 the private sector workforce will include at least 10% UAE nationals. Non-compliance will mean a monthly fine of $1,634 per UAE national not employed, with fines increasing by $273/month per year. Aside from fines, the UAE government is also very active in this area, so employers are better off rolling out Emiraisation initiatives as early as possible.
Banking and insurance have separate emirate quotas, which will continue to remain at 4% and 5% respectively.
Action points
Employers should take the following steps immediately:
- Update employment contracts to meet fixed-term requirements and to comply with new labor laws (e.g., gratuity and termination clauses);
- Conduct policy reviews to ensure policies are consistent with the above developments, such as implementing equal opportunity, anti-bullying and harassment policies, and developing a long-term emirate strategy; and
- Review their current immigration and sponsorship practices. The UAE government has introduced various types of work permits to allow for part-time/flexible work arrangements. Employers must ensure employees are working under the correct license to avoid fines and penalties from the authorities.
Severance pay in DIFC free zone
A recent DIFC Court of Appeal case demonstrated the dangers of failing to pay employees’ contracts and statutory termination rights within the 14-day period.
In this case, the employer fired an employee. It then reduced the severance payment due to him to offset losses due to his own misconduct — he siphoned business profits — as well as a personal airfare and a personal loan he wrongfully claimed. Even though the employee owed the employer more money than was due at the time of dismissal, the DIFC Court imposed a fine of $380,000 for failing to pay severance within 14 days, as these were deemed to exist independently and not lead to termination.
DIFC employers need to be careful about severance pay, either paying the statutory minimum amount and then suing the employee for repayment, or trying to agree to a deduction in writing with the employee.
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