In our October 2015 newsletter, we published an article regarding the (then) imminent Ministry of Labour ministerial resolutions. At the time of writing, the Minister of Labour had not yet released the official resolutions or the revised Ministry of Labour (MoL) prescribed form employment contract. Having now received the official resolutions and revised MoL employment contract, we have updated our commentary below. By way of reminder, the resolutions took effect from 1 January 2016. They do not formally amend Federal Law No 8 of 1980, as amended, on the Regulation of Labour Relations in the Private Sector (Labour Law) and only have direct effect to employment relationships governed under the MoL's jurisdiction.

Resolution 764 of 2015 – New prescribed form MoL offer letter and Contract

  • As previously reported, going forward, employers will need to issue prospective employees with a standard offer letter containing clear and enforceable terms and conditions of employment before it can seek the MoL's preliminary approval for employment. The signed offer is to be filed with the MoL prior to the employee coming to the UAE to take up employment or starting the visa status change if the employee is already employed in the UAE.
  • The MoL Contract subsequently issued to the employee, must reflect the terms of the offer letter unless the proposed alterations are to the employee's advantage and are accepted by the employee and the MoL.
  • There have been fairly significant amendments to the length and form of the MoL contract.
  • Previously, there was a single prescribed form contract which was used for both limited and unlimited term employment. Now, there are three prescribed form contracts; one for an unlimited term and two for a limited term (one for the initial period and one to be issued on renewal).
  • Notably, the new contracts recognise that employers operate a range of different remuneration structures and allow employers to express remuneration as an hourly, daily or monthly figure or to be based entirely on commission or piecemeal production. This increased flexibility is likely to be welcomed by employers.
  • The contracts also set out a number of different optional allowances (for example, school fees, flight, phone etc.) which can be included. An employer is under no obligation to pay such allowances and can simply leave the relevant sections blank if no such allowances will be offered.
  • The contract provides that an employee's date of entering the UAE (or, in the case of employee's already residing in the UAE, the date the visa status changes) will be the employment start date.
  • The new contracts are considerably more detailed than the previous two page document. In addition to the substantive provisions (some of which are summarised above) each contract contains a number of pages of supplementary notes (which are expressly incorporated into the contract) and which set out both the employer's and employee's rights and obligations under the Labour Law.

Resolution 765 of 2015 - Rules and conditions for the termination of employment relations

The provisions set out in this resolution are reflected in the new MoL contracts. 

Limited Term Contracts

Duration

Under the new resolution, the maximum duration of each limited term contract will be two years (although a limited term contract may still be renewed for further periods).

Termination

By way of reminder, under the Labour Law:

  • A limited term contract may not be terminated by either party prior to its expiry date other than under articles 120 and 121 of the Labour Law (even on the provision of contractually agreed notice) without attracting an obligation to pay early termination compensation.
  • Such compensation is calculated with reference to salary (at full pay, in the case of default by the employer, or half pay, in the case of default by the employee) which would otherwise have been payable for the remainder of the contract, or for three months, whichever is shorter.

Position under the Ministerial Resolution and new MoL Contracts:

  • As set out above, the MoL have now issued two limited term contracts; one for the initial term and one for any renewal periods.
  • The limited term contract for the initial term will continue to operate in the usual way; namely if either party seeks to terminate the contract prior to the agreed expiry date, early termination compensation (as set out under the Labour Law) will be payable.
  • The parties do, however, have more flexibility to terminate a renewed limited term contract. Either party will be permitted to terminate the contract prior to the agreed expiry date by the provision of between one to three months' notice (such notice period to be agreed between the parties). In circumstances where a party terminates the limited term contract early on the provision of contractually agreed notice (other than due to the other's misconduct), compensation of between one to three months' remuneration (to be agreed between the parties) will be payable.
  • If an employee is currently engaged on a renewed fixed term contract which does not contain a notice period, a notice period of three months will automatically apply. Similarly, if no compensation has been contractually agreed, the provisions set out in the Labour Law relating to early termination compensation will apply.

Unlimited Term Contracts

  • The existing requirement for notice periods to be at least one month remains; however, going forward, the MoL will only accept a maximum notice period of three months. This is likely to impact employers of more senior employees, where we frequently see notice periods of six months and occasionally up to 12 months.
  • Additionally, under the new prescribed form MoL contract, the notice period is applicable to either party so an employer cannot, for example, require an employee to provide a longer period of notice to terminate the contract than the employer.
  • The resolution also sets out circumstances in which an employee can be taken to be relieved of his employment obligations and includes where the employer fails to meet its legal obligations (for example, paying on time) for 60 days or more or where the employing business has been inactive for more than two months provided the employee reports the situation to the MoL.

Resolution 766 of 2015 - Rules and conditions for granting a permit to an employee for employment by a new employer

  • This resolution relates to the issuance of labour bans and is designed to increase the mobility of employees, particularly the unskilled workforce, between UAE employers.
  • In summary, a new work permit may be granted to an employee (i.e. the automatic six month labour ban will not be imposed) in most cases so long as the employee has met his contractual and legal obligations.
  • In the case of employees at skill levels four and below (i.e. unskilled employees), this is subject to a minimum service requirement of 6 months. For employees of skill levels three and above (i.e. skilled employees) the minimum service requirement does not apply.

Summary

As set out above, given the resolutions do not amend the Labour Law, it is not entirely clear how certain provisions of the resolutions (particularly those related to termination of limited term contracts) will be applied by the Labour Court in the event of a dispute. We will no doubt see case law on the new resolutions in the coming year which should provide employers with greater clarity.