Recruitment (or employment) agencies have become increasingly prevalent in the Arabian Peninsular over the last decade, with the relatively transient expatriate workforce proving  to be a particularly lucrative market. However, following the global economic downturn, the focus  of employers has inevitably shifted from the hiring of permanent employees, to identifying ways of  reducing labour costs and increasing efficiency.

The UAE has consequently witnessed the emergence of alternative staffing models, in particular through the establishment of “Employment Businesses”,  operating as manpower suppliers. Distinct from “Recruitment Agencies” (which are focused on the  placement of employees in permanent roles within the client’s business), Employment Businesses  employ individuals directly and sponsor them for work permit and residency purposes. The  individuals are then provided to the client on a temporary basis to support the client’s normal  workforce during times of peak demand and/or specific projects.

The launch of the Dubai Outsourcing Zone (DOZ) in 2007 has also enabled many outsourcing providers  to establish a presence within the region, viewing the UAE as an ideal off- shore location for  companies in both Europe and Asia.

The division of legal rights and obligations between the parties to these types of arrangement is  often uncertain (and contentious) and frequently leaves workers vulnerable to exploitation.  Ministerial Resolution No (1205) of 2013 concerning the licensing and regulation of private employment agencies (MR1205) aims at  regulating the sector of temporary employment.

Licensing

In order to operate as an Employment Business or Recruitment Agency in the UAE, a business is  required to obtain a commercial licence which specifically authorises such activities. Such  licences must be renewed on an annual basis.

MR1205 makes it clear that licences to operate as an Employment Business or Recruitment Agency  onshore in the UAE will only be issued to businesses wholly owned by UAE Nationals. An additional requirement is that the relevant business is managed by a UAE  National, in so far as the position of General Manager must be held by a UAE National. Further, as  part of the application process, the applicant must now submit a written undertaking to the  Ministry that they will not add or dismiss partners of the business without its consent. This is  consistent with the Government’s policy on Emiratisation, which is aimed at increasing the number  of UAE national employees in both the public and private sectors.

Currently, expatriates are able to obtain a commercial licence to run a Recruitment Agency within  one of Dubai’s Free Zones and in the Dubai International Financial Centre, the latter, which  operates independently from Federal Law, is the base for a large number of individuals working in  the professional services sector.

Under MR1205, businesses which do not hold the appropriate licences are at risk of investigation by  the authorities and the sanctions which may be imposed include imprisonment of the business’  General Manager and/or fines of up to AED 100,000.

Protection of workers

A further objective of MR1205 is to prevent malpractice within the recruitment industry and ensure  that businesses comply with their responsibilities to the workers they recruit. To safeguard  against abuses, businesses intending to operate as Recruitment Agencies onshore in the UAE are required to submit a bank guarantee of AED 300,000 in favour of the Ministry. For Employment  Businesses, the 

guarantee is increased, to a limit of AED 1 million. These guarantees must be renewed annually and may be called in by the Ministry, in whole or in part, at  any time if the Recruitment Agency or Employment Business fails to comply with its obligations.

Under MR1205, Employment Businesses are also now required to pay a deposit of AED 2,000 in respect  of  each worker brought into the UAE and to undertake all legal obligations as an employer (such as  the provision of housing and health insurance and the payment of the individuals’ salaries). MR1205  specifically provides that these deposits may then be used by the Ministry to compensate workers engaged by the Employment Business to the extent they are not provided with  their contractual entitlements.

In order to promote transparency and workers’ rights, MR1205 also includes a number of additional  prohibitions and conditions, principally on Employment Businesses, but some also apply to  Recruitment Agencies.

Outsourcing and offshoring

The outsourcing market is something which the UAE has, for several years, been seeking to tap into,  presenting itself as a viable alternative to the more traditional offshore locations of India,  China and the Philippines. However, instead of directly competing with the established operations  in these countries, the UAE, through the Dubai Outsourcing Free Zone, is positioning itself as a  place where companies can place their more senior or more qualified employees, who may be attracted  by the associated tax and lifestyle benefits.

The legislation also seeks to encourage the recruitment of a skilled workforce – and indications  from the Ministry suggest that new licences will be granted to those who want to provide skilled individuals to carry out administrative or business support roles (for  example in the back office or accounts department) or professionals who want to work flexibly (for  example engineers, teachers etc.), as opposed to those who intend to supply blue collar workers.

From a legal perspective, the more limited regulation surrounding business transfer arrangements  and the provision of outsourcing services within the UAE also provides businesses with greater  flexibility to adopt alternative staffing models. For example - when a business ceases to outsource a function in the UAE, workers assigned to the function will return to the  Employment Business or outsource provider, without further implications for the client or any new  service provider. It will also be possible for the Employment Business or outsource provider to dismiss the workers  at the end of an assignment without carrying out a consultation process as would commonly be  required in other jurisdictions such as Europe, Australia and New Zealand.

One issue that is yet to be fully addressed in the context of outsourcing in the UAE, is the  assignment or supply  of employees of an Employment Business to the client. At present there are no  licence activities available within the DOZ that permit a business to provide manpower supply  services. Practical solutions may be available, however these will require a dialogue with the Free  Zone Authority and at present there is no standard procedure for such applications. Even where  permission to operate as a manpower supplier is obtained by the business, the ability of the  Employment Business to assign expatriate employees to a client is not clear-cut.

As is the case across the region, the right of an expatriate to be in the UAE is inextricably  linked to their employment (with the onshore employer or the relevant Free Zone Authority acting as  the individual’s sponsor for work permit/ID and residency purposes). The terms of an expatriate’s  visa, whether they are based onshore or in one of the Free Zones, will also prohibit the individual  from working for an entity other than the employer identified  on their visa and those sponsored by  a Free Zone Authority will be prohibited from working outside that Free Zone. It follows therefore that expatriate employees of an Employment Business will contravene the  conditions of their visa and the regulations issued by the Free Zone if they work for a client of  the Employment Business.

One way round this general prohibition is for the Employment Business to obtain special permission  from the relevant Free Zone Authority. Such permission may be granted on a case by case basis and  will usually only be granted in respect of a finite assignment or project. Whether employees of an Employment Business will ever be authorised to work at a client’s premises  on a long term basis (and therefore effectively become integrated into the client’s business) remains uncertain.

Failure to obtain permission for such arrangements is not without repercussions. For example, if an Employment Business based within the DOZ is found to be  in breach  of the TECOM Employment Regulations (which also apply to employers based in the DOZ and  specifically prohibit employees from working outside the relevant Free Zone) the Free Zone Authority may impose financial penalties. In extreme cases, it is also open to the  Free Zone Authority to suspend or revoke the Employment Business’ licence and/ or impose  restrictions on the ability of the Employment Business to recruit additional employees. The degree  to which these rules are enforced is unclear. However, spot checks or inspections of premises have  been known.

The future for manpower supply

MR1205 demonstrates the Government’s determination to promote a transparent employment intermediary  sector in the UAE and ensure greater protection for temporary workers. However, the actual effect  of these changes and the viability of alternative staffing arrangements in the UAE will take time to assess and it will  be interesting to see how these arrangements develop in practice.