In this edition of Middle East exchange, we take a look at two recent developments which affect the enforceability of employment contracts in the UAE and some other regional legal news.

UAE Labour Law – enforceability of employment contracts

There have been two material recent developments in UAE employment law in relation to the enforceability of employment contracts:

  • More, not less

The Dubai Court of Cassation has ruled that it is lawful for employers to provide for greater benefits for employees under their employment contracts than those stipulated in the UAE Federal Labour Law and, if they do so, it is the terms of the enhanced contract which will prevail.  This follows Article 7 of the UAE Federal Labour Law which states:

Any condition contrary to the provisions of this Law … shall be null and void, unless they are more beneficial to the employee.

Conversely, if an employer provides for lesser terms for its employees, that agreement will not be enforceable before the UAE courts (and not registrable with the Ministry of Labour – see below).

In the case before the Dubai Court of Cassation, an employer had agreed with an employee to a three month notice period, instead of the required 30 day notice period stated in the UAE Labour Law.  On termination of that employee's employment contract, the employer argued that it was lawfully able to give only 30 days' notice, relying on the Labour Law provision.  The Dubai Court of Cassation held that the employer was in breach of its contractual notice period and awarded compensation to the employee accordingly.

  • No side agreements

A Ministry of Labour official has been quoted as stating that the only employment contract to which the Ministry of Labour will have reference in a labour dispute is the contract which is filed with the Ministry.  The Ministry will not have regard to the terms of any side agreement or "internal" contract of employment between the employee and the employer.  This rule may also be followed if a case is ultimately referred to a UAE court, if the Ministry of Labour is unable to successfully mediate the dispute, on the basis that it is the only labour contract which is recognised in the UAE – although we are not aware of any case precedent on this at present.

Generally, the Ministry expects its standard form contract to be filed and, therefore, in practice, it may be difficult to file a contract which significantly differs from the Ministry of Labour standard form contract.  There is limited space on the form for additional conditions of employment, although the Ministry may accept a supplemental page of conditions, provided that they are reasonable and comply with the Labour Law.

The following are practice points which may be taken from these developments in relation to the form of employment contracts:

  • Terms which are less favourable to the employee than those specified in the UAE Labour Law (and contradictory in that respect to the Labour Law) are not enforceable in the UAE by either party, regardless of the governing law and jurisdiction of the contract;
  • If the parties wish to agree terms which are more beneficial to the employee than those provided under the Labour Law, and/or which are supplemental to the Labour Law, these terms should be incorporated into the contract filed with the Ministry of Labour.  This is the only way in which the contractual terms will be enforceable where the UAE courts have jurisdiction.  For example, the employer may wish to incorporate restrictive covenants into the filed contract to ensure that they may be relied on in relation to conduct in the UAE;
  • If more detailed provisions are preferred and the parties intend them to be enforceable against each other, the parties should consider incorporating them into a supplemental contract which has a foreign governing law and/or an arbitration agreement.  However, this option may give rise to other legal and tax considerations (particularly in the relevant foreign jurisdiction) and so careful consideration needs to be taken of the specific facts and terms of the contract.

Lease registration requirements tightened in Dubai

Over the past year, Dubai has seen a number of changes to implement the mandatory registration of tenancy contracts. Registration of all real estate transactions in Dubai, including lease contracts, has been required by law for a number of years with leases having no effect unless registered. However, until last year, there was no fine or penalty for non-registration with the result that most landlords and tenants chose to avoid payment of registration fees unless a dispute arose between the parties.

In an attempt to enforce the mandatory requirement to register lease transactions and improve collation of tenancy contract data and transparency in rental information, the Dubai Lands Department (DLD) and Real Estate Regulatory Authority (RERA) have continued to implement changes to enforce registration. Fines were first introduced in 2011 on landlords and their agents failing to register under the on-line Ejari system but last week, DLD and RERA announced that from July, businesses will need to evidence registration before a commercial licence will be granted or renewed.

Earlier this year, visa renewals were also linked to proof of tenancy registration and utility companies were told not to connect any utility services unless proof of lease registration is provided. Abu Dhabi has also recently introduced links between evidence of lease registration and the ability to utilise key government services such as visa renewals and utility connections.

The drive to improve transparency of information on real estate transactions is also evident in the new draft Law on the Protection of Real Estate Investors, which has been published for comments until 29 June 2012. The draft law provides additional disclosure and delivery requirements for landowners and developers, requiring certain minimum information to be contained in a new building register such as planning and building permits and third party approvals. The register, along with other key information relating to the property, will be made available for potential investors to view. Minimum information requirements are also imposed on sale contracts, with a requirement for the developer to allow the investor at least 15 days to review the conditions of sale or risk rescission of the contract where the required information has not been provided and a defect in title is revealed, or a misrepresentation made which affects the investor's interests.

Additionally, the draft law contains further protections for off-plan purchasers allowing contract termination and a full refund where the developer has failed to complete the development within certain timeframes, failed to rectify fundamental defects within 12 months after handover, or where material changes are made to the unit specification following sale. There are also provisions restricting funding withdrawal from projects except in specified circumstances previously notified to investors.

Two plots of land in Dubai Investments Park have been designated for foreign ownership allowing non-UAE or GCC Nationals to acquire a long leasehold basis for up to 85 years. However, it is not clear at this stage whether these areas are solely for industrial use; the decree is expected to be published in the Official Gazette soon and will take effect immediately.  

New arbitration law for Saudi Arabia published

The new arbitration law in Saudi Arabia was published in the Official Gazette on 8 June.  It will come into effect 30 days later.  We will be producing a separate e-bulletin on the content of the new law shortly.   O

ther recent legal developments

Dubai mediation centre opens its doors

As reported in our Middle East disputes e-bulletin in October 2009 ("Compulsory ADR to be introduced in Dubai"), one of the recent initiatives of the Dubai government is to encourage parties to resolve disputes through mediation before commencing proceedings before the Dubai courts.   In conjunction with the Dubai Department of Economic Development, the Dubai courts have now opened the doors on a new facility for this initiative in Business Village.

Law No. 16 of 2009 regarding the Amicable Settlement of Disputes Centre (the Centre) provided that no dispute is to be heard before the Dubai courts (where they have jurisdiction) unless it has been presented to the Centre first, where the Chief of Dubai Courts has issued a settlement order.  Subsequently, the Chief of Court issued a decision under which it was made clear that the jurisdiction of the Centre is limited to the following circumstances:

  • disputes where the value of the dispute is AED20,000 or less;
  • disputes on the division of common property; and
  • disputes where the parties have expressly agreed to submit them to the Centre.

In these cases, disputes will automatically be referred to the Centre before referral to the Dubai Courts unless:

  • the dispute must be heard urgently;
  • one of the parties to the dispute is the government; or
  • the dispute relates to labour or family law issues.

Now the Centre is fully operational, commercial parties who agree to the jurisdiction of the Dubai courts may wish to consider incorporating mediation at the Centre into their dispute resolution clause, regardless of the potential size of their dispute.  Mediation can provide a cost effective and efficient way of reaching a settlement of a dispute, by providing a structure for negotiations between the parties, assisted by an independent third party.

Status of the draft UAE Federal Commercial Companies Law

As reported in Middle East exchange for February 2012, in December 2011, the UAE government announced that a draft of a new Commercial Companies Law had been approved by the UAE Cabinet of Ministers.  The UAE Cabinet is the main executive authority of the UAE and is responsible for initiating and approving legislation before submitting it to the Federal National Council and following that to the President of the UAE for promulgation.

The draft law is now with the Federal National Council for consideration.  The Federal National Council (FNC) is a partly elected parliamentary body which has some legislative powers.  The FNC has the power to review all federal laws before they are passed to the President on behalf of the Supreme Council for ratification.  The FNC may propose amendments to the law, although if the amendments are not acceptable to the President or the Supreme Council, the law may ultimately be passed despite the objections of the FNC.  The FNC has stated that it is in discussions about the draft law, and in particular is studying the strategic and economic aspects of applying the new draft law, including its effect on individuals and businesses.  This is likely to have an impact on the timeframe within which the new law will be passed.