The Minister of Labour last week issued three ministerial decrees due to take effect from 1 January 2016. The Ministry stated that 'the new rules will also bring greater transparency, clarity and tighter monitoring of labour contract conditions and ensure both employer and employee enter into fully voluntary relationships.' Whilst Ministerial Decrees 764, 765 and 766 do not formally amend Federal Law No 8 of 1980, as amended, on the Regulation of Labour Relations in the Private Sector (Labour Law), the new Decrees will have far reaching practical implications on the UAE labour market and employment practices.

The Ministerial Decrees have not yet been published in full and we will provide further commentary and guidance as the implications of the Decrees become clearer.  However, we explore the main provisions of the new Decrees (as reported) and their likely impact on employee relations going forward.

New prescribed form Ministry of Labour Offer Letter and Contract (Decree 764 of 2015)

Whilst the Ministry of Labour has long required the execution and registration of a prescribed form contract, this Decree seeks to ensure that individuals are fully informed of their contractual terms and conditions before moving to the UAE or leaving their existing UAE employer.

Before an employer can seek the Ministry's preliminary approval for an individual's employment, employers will need to issue the prospective employee with a standard offer letter containing clear and enforceable terms and conditions of employment. The signed offer is to be filed with the Ministry of Labour.

The Ministry of Labour 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 Ministry of Labour.

A revised standard form Ministry of Labour contract will also be issued for use from 1 January 2016. It is expected that the revised contract will expand the existing version to provide greater information to employees on the minimum provisions under the Labour Law.

Rules and Conditions for the Termination of Employment Relations (Decree 765 of 2015)

The key provisions in this Decree relate to the use of notice periods in both fixed term and unlimited term contracts and have wide implications with regard to an employer's potential liability for terminating either type of contract.  The main provisions are as follows:

Limited term contracts

  • Currently, 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 compensation 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. Under the new Decree, the circumstances in which a limited term contract will terminate will be broadened so that the contract may be terminated:
    • at any time by either party upon the provision of a contractually agreed notice (which should not be less than one month and should not exceed three months), so long as the terminating party honours his contractual obligations for the duration of the notice period. During notice an employee continues to be employed and is entitled to receive salary for the period; or
    • automatically on the original expiry date, unless it is renewed by mutual consent; or
    • at any time by mutual consent of the employer and the employee.
  • The maximum duration of a limited term contract will be reduced from four years to two years.
  • The provisions relating to the termination of limited term contracts will apply retrospectively. Where no provisions relating to notice are included in the limited term contract, a three month notice period will automatically apply. Employers may consider terminating an employees' employment on three months' notice prior to the agreed expiry date. Similarly, employers may experience employees resigning from their limited term contracts prior to the agreed expiry date.
  • Going forward, employers will need to update their limited term contracts to include notice provisions and to ensure the duration does not exceed two years. In any case, the Ministry of Labour will refuse to register a contract for a longer duration.

Unlimited term contracts

  • The existing requirement for notice periods to be at least one month remains; however it appears that the Ministry of Labour will going forward only accept a maximum notice period of three months. Once the full Decree is published the extent of this cap will be clearer but this is likely to impact employers of more senior employees, where we frequently see notice period of six months and occasionally up to 12 months.

The decree 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 Ministry of Labour. An employee in such circumstances may apply to the Ministry of Labour for cancellation of his old work permit and seek a new permit with a new employer.

Rules and Conditions for Granting a Permit to a Employee for employment by a new employer (Decree 766 of 2015)

This Decree relates to the issuance of labour bans and is designed to increase the mobility of employees 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. Where an employee doesn't meet his contractual obligations then he could face a potential ban of 12 months from being able to take up another job.

In the case of employees at skill levels four and below (i.e. unskilled employees), the employee will generally need to have been employed for at least six months in order to avoid the labour ban. For employees of skill levels three and above (i.e. skilled employees) the minimum service requirement does not apply.

Greater employee mobility and a dynamic workforce

The new Decrees develop the Ministry of Labour's policy decision in December 2010 to promote labour mobility and decouple the strict link between sponsorship to work and the employment relationship (the Decrees make clear that determining an employee's status is the duty of the Ministry, as the public regulating authority). It is notable that the Ministry has now extended greater mobility to less skilled employees and sought to prevent a much criticised practice whereby individuals were reportedly engaged to come to work in the UAE on an agreed package which was then revised on entry into the country. Through the decrees and its practices the Ministry is seeking to promote employment relationships built on informed mutual consent and the voluntary participation of the employee.  Further developments are expected to provide for greater cooperation with labour exporting countries to align contract validation and employee registration systems, thus protecting the more vulnerable segments of the labour market.