The Ministry of Labour (MoL) has recently issued three Ministerial Decrees in an effort to improve current employment conditions in the UAE labour market. Ministerial Decree 764/2015, Ministerial Decree 765/2015 and Ministerial Decree 766/2015 will come into force from 1 January 2016 and will apply to the private sector except those companies and employees registered in the DIFC.

The Ministerial Decrees have been described by His Excellency, the Minister of Labour, as "a major milestone" with the primary objectives of consolidating contractual employment terms, setting conditions for termination of employment, improving labour mobility whilst tightening enforcement and monitoring of labour relations.

In this update, we highlight the important changes which employers will need to be aware of when recruiting employees, renewing or terminating employment contracts and the new employee mobility rules.

Standard Employment Contact

The key provisions of Ministerial Decree 764/2015 specifying the conditions for employment are as follows:

  • a written offer of employment must be made and signed by the employer and foreign national employee prior to the employee entering the UAE for work
  • the written offer of employment must comply with the terms of the MoL's template employment contract
  • the written and signed offer must be submitted to the MoL by the employer when applying for approval to employ any individual
  • a new template employment contract, known as the Standard Employment Contract, is required to be entered between the employer and employee and registered with the MoL
  • additional employment terms require the MoL's approval and must not be in conflict with the Standard Employment Contract terms
  • the Standard Employment Contract is to be used for renewals from 1 January 2016 of employment contracts already in existence before 1 January 2016

Any changes to the terms of the written employment offer will not generally be permitted to the Standard Employment Contract unless those changes are (i) beneficial to the employee; (ii) agreed in writing by the employee; and (iii) are approved by the MoL.

The new requirements mean that the Standard Employment Contract will no longer serve as simply an employment registration document as is currently the prevailing practice. As part of the MoL's desire to step up its monitoring and enforcement role, Ministerial Decree 764/2015 clarifies that supplementary or addendum company specific contracts, if they are to be legally enforceable, will require the MoL's approval.  

It remains to be seen whether the various free zone authorities will adopt the Standard Employment Contract going forward, or whether they will maintain their own existing template contracts, or in some cases, continue to give employers the flexibility to use their own contract formats.

Termination of Employment

Ministerial Decree 765/2015 introduces new rules for the length of a fixed term contract and terminating employment under fixed term and unlimited term contracts. Its key provisions include:

  • reducing the maximum term of a fixed term contract from four years to two years, although renewals are permissible provided they do not exceed two years for each renewal
  • capping the maximum length of a notice period to three months (the minimum notice requirement remains at one month although this will now apply regardless of whether an employee is paid monthly or daily)
  • for contracts which are in force prior to 1 January 2015, a three month notice period will be automatically implied
  • reaffirming the circumstances in which employment may be terminated lawfully, which has been extended to include:
    • mutual early termination of a fixed term contract without the requirement to pay compensation
    •  unilateral early termination with compensation to the other party in the agreed amount, as provided under the contract, subject to a cap of three months' gross salary, and provided the terminating party serves written notice and complies with their contractual obligations during the notice period
    • any party may, in addition, seek legal remedy (such as compensation for arbitrary dismissal) before the labour courts in respect of termination of employment
    • termination in the event of an employer shutting down its business and being inactive for two months (with the caveat that the employee has reported this to the MoL) and has filed a labour complaint.

New work permit mobility regime

Ministerial Decree 766/2015 amends the current regime for granting work permits for employees seeking to move employment. As commented by H.E. the Minister of Labour, the objective of this Ministerial Decree is to provide for increased labour mobility based on the principle that an employment relationship, being a voluntary arrangement, should only continue with the free consent of both the employer and employee.

The key provisions of Ministerial Decree 766/2015 provide that a work permit will be issued to an employee wishing to move employment in any one of the following circumstances:

  • a fixed term contract has expired and is not renewed
  • the employment has been terminated by mutual consent, provided the employee completes a minimum of six months service (unless he is an employee classified by the MoL as having a 1, 2 or 3 skill level1 and exempted from the service requirement)
  • the employment is terminated unilaterally by the employer without cause, provided the employee completes a minimum of six months service (unless he is a skill level 1, 2 or 3 employee)
  • the employment is terminated unilaterally by one party, subject to:
    • a written notice of termination is served on the other party in accordance with the contractual notice period
    • the terminating party continues to comply with their contractual obligations during the notice period, and
    • in the case of an unlimited contract, the employee has completed at least six months service (unless he is a skill 1, 2 or 3 employee), or
    • in the case of a fixed term contract (or renewal) the terminating party pays the agreed contractual compensation for early termination, subject to a cap of three months gross salary
  • the employer has breached its contractual or statutory obligations towards the employee (including but not limited to failing to pay salaries for at least 60 days)
  • the employee has filed a complaint against its employer for lack of work due to the employer's business being inactive/ceased operations, the MoL's Inspection report confirms inactivity for at least two months, and the employee has reported to the MoL during this period
  • a final court judgment has been issued in the employee's favour ordering payment of dues and/or compensation for arbitrary termination.

Education sector 
For those employed in the education sector who wish to change employment during the academic year, an additional requirement has been imposed whereby the prior approval of the relevant government agencies in the education sector is also required before a new work permit will be issued. 

1 Level 1 are holders of Bachelor's degree or higher in specialised occupations and earning a minimum monthly salary of Dhs 12,000; level 2 are diploma holders in technical/supervisory occupations earning a minimum monthly salary of Dhs 7,000; level 3 are secondary school graduates employed in technical positions earning a minimum monthly salary of Dhs 5,000.