Three new UAE Ministerial Decrees (the “Decrees”) came into force on 1 January 2016. They introduce new rules that clarify the costs and implications of terminating employment contracts, offer reassurance to employees (especially foreign workers) entering into UAE employment contracts, and enable greater mobility of workers in the labour market.
The Decrees, which were issued by the Ministry of Labour (“MOL”), provide for a standard employment offer to complement a standard employment contract, conditions for terminating employment contracts, and conditions for granting new work permits to employees following termination of previous employment.
MOL-approved Standard Employment Contracts
Ministerial Decree No. 764/2015 (“MD 764”) requires employers to use a standardised employment contract to employ foreign workers in the Emirates. The MOL has long had a template employment contract available for employers to use so this is not a new concept. However, MD 764 now also requires a signed employment offer, conforming to the standardised employment contract, to be filed with the MOL before its tentative approval, to admit a foreign worker for employment in the UAE, will be granted. This requirement for a signed employment offer to be filed prior to obtaining tentative approval applies even when the foreign worker is already in the UAE. Furthermore, the employment contract subsequently entered into, between the foreign worker and the employer, must match the terms set out in the employment offer. This is designed to ensure that foreign workers will be hired on the terms they were promised when being recruited into the UAE and not made to accept lesser terms on arrival.
The employment offer template is expected to be issued by the MOL, but it is not clear if the existing template employment contract from the MOL will change. MD 764 prescribes that no alterations, additions or substitutions may be made to the standard employment contract unless they are both beneficial to the employee and approved by MOL and the employee. This creates an interesting question around the enforceability of those terms which are not included in the MOL employment contract (“MOL Contract”) but are typically dealt with through a standalone employment contract which is not filed with the MOL (“Standalone Contract”). In addition to the terms dealt with in the MOL Contract, the Standalone Contract usually contains supplementary terms on matters such as IP, restrictive covenants, and grievance procedures. Employers could choose to seek approval from the MOL to include all of their preferred provisions in the MOL Contract or maintain both the MOL Contract and the Standalone Contract side by side. Given the likely time consuming nature of the former approach and the willingness of the Labour Courts to consider the position set forth in both contracts up to this stage, employers may prefer to continue with the latter approach.
It is also important to note that contracts which were entered into prior to MD 764, but which are to be renewed, would need to be amended to adhere to the new standard employment contract should the existing template be amended.
Terminating Employment Contracts
Ministerial Decree No.765/2015 (“MD 765”) updates the permitted conditions for the termination of employment contracts. In addition, it sets limits on the permitted term of fixed contracts (the maximum term has now been reduced from 4 years to 2 years) and on the required length of notice periods.
MD 765 confirms the position under existing law that: a) fixed term contracts may terminate on expiration of their term if not renewed; b) all employment contracts may be terminated by mutual consent or by one party serving notice and complying with the legally mandated procedures; and c) termination can also occur where either party has fundamentally breached the contract, i.e. any act by the employee under Article 120 of Federal Law No.8 of 1980 (as amended) (the “UAE Labour Law”) or any failure by the employer to meet his contractual or legal obligations to the employee (such as non-payment of wages for 60 days or more).
MD 765 also outlines the procedure by which an employment contract may be unilaterally terminated by either party. The terminating party must send written notice of its intention to terminate the contract in accordance with the required notice period. The parties will be required to perform their obligations under the contract throughout the duration of the notice period. The terminating party may be required to indemnify the other party and pay compensation in the case of fixed term contracts.
Interestingly, MD 765 creates a limit on the permitted length of the notice period. Previously, up to six (6) months’ notice period had been permitted for those in managerial or more senior business occupations. However, now the contractual notice period is not to be greater than three (3) months, nor less than one (1) month. Such a change reinforces the importance of robust garden leave, non-compete, non-solicitation and confidentiality provisions in employment contracts to assist companies in managing the risks associated with employee termination.
Obligation to indemnify
Previously the UAE Labour Law had provided for compensation for early termination of fixed term employment contracts of up to three (3) months. This gave rise to prolonged negotiations at termination over compensation amounts and led to labour cases when the parties could not agree. MD 765 permits the parties to agree the level of compensation payable on early termination at the outset; this should not exceed the equivalent of three (3) months gross wages. The amount of compensation agreed is likely to depend on the negotiating position and intent of the parties at the time they enter into the employment contract. Employers recruiting foreign workers unfamiliar with the local labour laws may use this to their advantage to negotiate a better position than they might previously have been faced with in any compensation claim. MD 765 appears to contradict Article 116 of the UAE Labour Law which provides that, where the employee terminates, the amount of compensation owed to the employer should not exceed 45 days. Since the Decrees do not formally amend the UAE Labour Law, it is anticipated that the provisions of the UAE Labour Law will prevail, however its application in practice remains to be seen.
Greater mobility in the labour market is expected to be seen with the introduction of Ministerial Decree No. 766 of 2015 (the “MD 766”). MD 766 sets out the circumstances in which new work permits will be granted to employees after termination of previous UAE employment (and hence no labour ban enforced) in respect of both limited and unlimited contracts. This is likely to have the greatest impact on blue-collar workers.
These Decrees came into effect on 1 January 2016, so employers should be aware of the practical implications for any recruitment or redundancy procedures, and ensure any new employment contracts (or those due to renew) are fully compliant with the new rules. Furthermore, employees should be aware of the new rules, which attempt to safeguard their rights when moving to the UAE and increase the ability for existing UAE employees to pursue new employment opportunities.