The UAE owes much of its success to a historic emphasis on encouraging foreign commerce. In a country where at least 80% of the residents are expatriates, two trends can be seen in the UAE. On the one hand, there is encouragement of foreign investment, encouraged by the establishment of free trade zones, where the regulations sit alongside federal laws and can add a layer of complexity to UAE employment law. Concurrently, there is an emphasis on boosting the local Emirati population in the private as well as the public sector, with the imposition of quotas for Emirati employees in certain sectors, such as retail, insurance and banking. All signs point to increased regulation in the UAE in the near future.
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 (the Ministry) 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. Until recently there were tighter restrictions on an employee's ability to move from one sponsor to another (i.e. to effectively move jobs). However, a new Ministerial resolution was implemented at the start of this year designed to increase the mobility of employees, particularly the unskilled workforce, between UAE employers. This resolution reduces the circumstances in which a ban may be imposed on employees moving from one sponsor to another, taking into consideration the skills level of the employee length of service.
UAE nationals working in the private sector must also be registered with the Ministry, 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 workforce 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's 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.
Employment structuring and documentation
Employees based `onshore' in the UAE (i.e. not in a free zone) are required to enter into a prescribed form, duallanguage employment contract that is registered with the Ministry. Prior to the prescribed form employment contract being issued, employers are required to issue prospective employees with a standard offer letter containing clear and enforceable terms and conditions of employment. Once this is executed employers must obtain the Ministry's preliminary approval for employment. The signed offer must be filed with the Ministry 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 Ministry 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. This contract sets out both the employer's and employee's rights and obligations under the Labour Law and forms the operative employment contract for UAE law.
Other free zones (such as the Jebel Ali and Dubai Airport free zones) have specific dual-language employment contracts similar to the Ministry contract.
Employers in the Dubai International Finance Centre (DIFC) and Abu Dhabi Global Market (ADGM) need not enter into a prescribed form employment contact, but must submit a written employment contract to the authority for every employee.
As a general rule, the UAE Labour Law, the DIFC Employment Law and the ADGM Employment Regulations set out minimum employment entitlements and standards which can be exceeded to the employee's benefit by agreement between the parties, but cannot be reduced or excluded to the employee's disadvantage.
Contracts may be for either fixed or unlimited terms in accordance with the UAE Labour Law. The maximum duration for a limited term contract is two years, after which the employment is automatically converted into an unlimited term contract with minimum notice provisions unless renewed.
Contracts in the DIFC and ADGM may be for limited or unlimited terms.
Issues arising during the employment relationship
Wages, annual leave and working time
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, 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 two 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. An employee can take 30 days' unpaid leave to perform Haj, once in their employment. The ADGM Employment Regulations provide for 20 working days of annual leave (exclusive of national holidays) for any employee who has been employed for 90 days or more.
The UAE Labour Law provides for maximum normal working hours of eight hours per day, or 48 hours per week, assuming a six-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, du ring night time, a Friday or other normal rest day, or on a public holiday. Overtime is normally restricted to two hours a day, meaning an employee should not be asked to work for more than ten hours a day. During Ramadan, working hours are reduced to six 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. The position in ADGM is very similar to the DIFC in that ADGM Employment Regulations set out a maximum weekly working time of 48 hours for each seven day period, unless prior consent (to work in excess of this) is obtained from the employee.
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 three months has the right to claim leave according to the same provisions as those for maternity leave.
Similar to the DIFC, the ADGM Employment Regulations provide for 65 days maternity leave (or adoption leave where a child under three months' old is being adopted) if the employee has been employed for 12 months or more and complies with the notification requirements. Such leave will be paid in full for the first 33 days and at half pay for the remainder. The ADGM Employment Regulations also provide for two weeks paternity leave.
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.
There is no applicable social security legislation for expatriate employees. However, UAE and other GCC nationals are entitled to participate in state pension and social security schemes.
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, subject to a maximum of three months. 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 is 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 on termination of employment, the employee can choose to accept whichever of the 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.
ADGM Employment Regulations provide for minimum notice periods which the parties cannot contract out of but are free to agree increased notice periods. Provisions regarding end of service gratuity are similar to those contained in the DIFC Employment Law.
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, an employee 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. Similarly, the ADGM Employment Regulations do not expressly provide for compensation for unfair dismissal nor is there a requirement for an employer to follow established
procedures for implementing dismissals. That said, ADGM is a relatively new free zone which was only established in 2013 and largely applies English common law (to the extent not overridden by ADGM). Such recognition of common law principles could potentially open the door to employee claims for damages under the common law concept of implied duty of trust and confidence. It is yet to be seen how this may be interpreted and applied in practice.
When it comes to limited term contracts, pursuant to a recent Ministerial resolution, parties now have more flexibility to terminate a renewed limited term contract. Either party is permitted to terminate such 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 renewed 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. Where the contract does not contain a notice period, a notice period of three months will automatically apply, and similarly, if no compensation has been contractually agreed, the provisions set out in the Labour Law relating to early termination compensation will apply 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 and the ADGM Employment Regulations provide that both parties are free to terminate "for cause" without notice in specified circumstances. Employees are also entitled to a written statement of reasons for dismissal (upon request and subject to a minimum service requirement of one year).
Finally, the UAE Labour Law, the DIFC Employment Law and the ADGM Employment Regulations do not provide for the concept of redundancy The UAE courts have recognised an employer's right to reorganise and restructure its business, resulting in the elimination of roles. However, a high burden of proof is applied and the employer's business decisions are scrutinised closely.
Published in collaboration with L&E Global: an alliance of employers’ counsel worldwide
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