Rebecca Ford and Sara Khoja, partners in Clyde & Co’s Dubai office, give an overview of employment law in the United Arab Emirates (UAE)
Employment relationships in the private sector in the UAE are subject to UAE Federal Law No 8 of 1980 on the Regulation of Labour Relations in the Private Sector (as amended) (UAE Labour Law), save that employees working in the Dubai International Financial Centre (DIFC) are subject to the DIFC Law No 4 of 2005 (DIFC Employment Law).
In addition to the DIFC, other free trade zones have been established in the UAE in order to encourage direct foreign investment. These other free zones have issued their own employment regulations in some cases, although (unlike the position in the DIFC) these must be read in conjunction with the UAE Labour Law.
The UAE Labour Law has been supplemented over the years by Cabinet Resolutions and Ministerial Resolutions issued by the Ministry of Labour. In addition, individual emirates have also issued emirate-wide regulations on a limited basis (for example, there is a pension law for UAE nationals which is unique to the Emirate of Abu Dhabi).
To date, the legislation has provided a broad brush nominal framework for the employment relationship with labour courts adopting an employee friendly approach to enforcement. However, with the establishment of free trade zones and the government drive to diversify the economy through its establishment of government owned entities, the regulatory regime in terms of enforcement and applicable legislation has become increasingly complex. This, coupled with a drive to promote the employment of nationals in the private sector, means that employment is set to be increasingly regulated.
As noted above, employees working in the DIFC are subject to a separate employment law. The DIFC was established through a constitutional amendment to create a free zone in which no UAE federal commercial laws apply. The DIFC is a common law jurisdiction with its own set of commercial laws and court system.
Issues arising on hiring individuals
All expatriate employees working in the private sector must be sponsored by their employer (or free zone authority on behalf of the employer) and registered with the Ministry of Labour or applicable free zone authority (for work permit purposes) and Department of Immigration within the Ministry of Interior (for residence visa purposes). In order to obtain sponsorship, employees must submit attested educational and professional qualifications, as well as undergo medical examinations for communicable diseases. There are restrictions on an employee’s ability to move from one sponsor to another (i.e. to effectively move jobs) and various factors come into play including length of service, earning levels and educational qualifications.
UAE nationals working in the private sector must also be registered with the Ministry of Labour, although they will not require registration with the Department of Immigration.
Employment of UAE nationals
An employer is under a duty to consider UAE nationals for all vacancies prior to engaging a foreign national. Certain roles, including HR managers, secretaries and Government Liaison Officers are reserved for UAE nationals through Ministerial regulations, although these are not always enforced in practice. Specific sectors including retail, insurance and banking are subject to quota requirements to employ UAE nationals of 2%, 5% and 4% of their workforces year on year, respectively. The UAE government is increasingly offering subsidies and funds to private sector employees to employ UAE nationals and government authorities are taking into account a company’s achievement of Emiratisation targets as part of any public tendering process.
The Emiratisation requirements do not apply in the free zones.
UAE nationals are protected from termination of employment in the private sector and employers who fall under the Ministry of Labour jurisdiction must obtain the Ministry’s consent before dismissing a UAE national employee.
Recruitment agencies and employment businesses
The sourcing and supply of labour is extremely regulated, with the trade licence for such commercial activities being restricted to UAE nationals, with an additional requirement for the General Manager of the business to be a UAE national with a university degree. The engagement of individuals from a manpower supplier without the appropriate trade licence can render an employer liable to penalties for engaging individuals without proper sponsorship and can also have personal repercussions for the individual.
Issues arising during the employment relationship
The UAE Labour Law provides for maximum normal working hours of 8 hours per day, or 48 hours per week, assuming a 6-day week. Friday is the statutory day of rest each week. Employees who are not in managerial positions (which is limited to certain specified senior individuals who have the delegated authority to act on behalf of the company) are also entitled to overtime pay, calculated with reference to rates set according to whether overtime is completed on a normal working day, during night time, a Friday or other normal rest day, or on a public holiday. Overtime is normally restricted to 2 hours a day, meaning an employee should not be asked to work for more than 10 hours a day. During Ramadan, working hours are reduced to 6 hours a day for all employees.
The DIFC Employment Law does not provide for statutory overtime. It does provide for a maximum working week of 48 hours and various rest periods. However, an employee is able to agree to contract out of these working time limits.
Wages and leave
There is no minimum wage in the UAE. However, there are minimum earnings requirements for a foreign employee who wishes to sponsor his family to reside with him in the UAE. In 2009, the Ministry of Labour introduced the Wages Protection System pursuant to which all employees registered by the Ministry of Labour must be paid by direct electronic transfer through an institution regulated by the UAE Central Bank. The Wage Protection System initially only applied to employees working outside of a free zone, although most recently, the Jebel Ali Free Zone has adopted the system, and others may follow suit.
The minimum entitlement to paid annual leave under the UAE Labour Law is 30 calendar days a year, after the first year of employment. During the first year of employment, an employee is only entitled to 2 calendar days per month, after completion of the probation period. Under the DIFC Employment Law, minimum holiday entitlement is 20 working days for an employee employed for at least 90 calendar days.
The minimum entitlement to sick leave under the UAE Labour Law is 90 calendar days a year, with full pay for 15 days, half pay for 30 days and nil pay for 45 days. An employee only becomes entitled to sick pay three months following the successful completion of the probationary period. Under DIFC Employment Law, sick leave is 60 working days on full pay.
Finally, an employee can take 30 days’ unpaid leave to perform Haj, once in their employment.
Trade unions and labour associations are unlawful in the UAE with the UAE Penal Code outlawing labour strikes. However, the UAE Labour Law contains a workforce disputes procedure under which employees may collectively submit a written complaint to the Ministry of Labour, who will appoint a labour committee to investigate the complaint and conciliate between the employees and the employer.
Family friendly policies
The UAE Labour Law entitles a female employee to 45 days’ paid maternity leave if she has accrued 12 months’ continuous service. Such leave is paid at 50% of remuneration if the employee does not have the required service.
The DIFC Employment Law provides for 65 working days’ maternity leave. Provided that the employee has achieved 12 months’ service prior to the expected week of childbirth, the maternity leave is paid at full pay for the first 33 working days, and at half pay for the remaining 32 working days. A female employee may take time off for ante natal classes and has the right to return to work following maternity leave. A female employee adopting a baby under 3 months has the right to claim leave according to the same provisions as those for maternity leave.
Issues arising on termination of the employment relationship
There is no provision providing for the automatic transfer of employees from one employer to another, pursuant to the sale of a business or part of a business as a going concern, or the movement of a service contract pursuant to a retendering or a service provision change. Movement of employees can only occur pursuant to a process of termination and rehire.
An individual employed under an unlimited term contract (subject to the UAE Labour Law) may be given notice to terminate the contract of at least 30 calendar days, or such longer period as may be stated in the contract. The employee will also be entitled to accrued but untaken annual leave calculated to the termination date. In addition, an employee who has achieved at least one year’s service prior to termination and is not being dismissed for gross misconduct, will be entitled to receive an end of service gratuity payment, calculated with reference to the employee’s length of service and the last basic pay received prior to termination. An employee who is in receipt of a pension in lieu of gratuity may not accept both benefits, however the employee can choose on termination of employment to accept whichever of gratuity or pension is more favourable.
The DIFC Employment Law contains minimum notice provisions where the parties have failed to agree to any contractual notice, although the parties are free to contractually agree to any length of notice (or waive notice altogether). The DIFC Employment Law contains similar provisions regarding end of service gratuity, save that an employee may elect to receive pension in lieu of gratuity during the course of employment.
Under the UAE Labour Law, where the reason for termination of an unlimited term contract is not considered to be valid, as determined by the courts, may claim arbitrary dismissal compensation, of up to three months’ remuneration. This is in addition to any notice or gratuity payment.
The DIFC Employment Law does not provide for an entitlement to claim unfair dismissal.
Article 120 of the UAE Labour Law sets out an exhaustive list of gross misconduct reasons for which an employer may terminate employment without notice or the payment of end of service gratuity. The DIFC Employment Law provides that an employer may terminate without notice or the payment of end of service gratuity if it would be reasonable for an employer in those particular circumstances to do so.
Neither the UAE Labour Law nor the DIFC Employment Law provide for a concept of redundancy. The UAE courts have recognized an employer’s right to reorganize its business and restructure resulting in elimination of roles. However, a high burden of proof is applied and the employer’s business decision scrutinized closely.