New UAE Labour Law coming into force on 2 February 2022

The Ministry of Human Resources & Emiratisation (“MOHRE”) has announced an overhaul to the labour laws in the UAE. The new UAE Labour Law (Federal Decree Law No. 33 of 2021) (“New Law”), which will come into effect as of 2 February 2022 (“Effective Date”), seeks to address changes in the work environment, align UAE labour relations with international best practices, and recognise the need for atypical and/or flexible working structures. The New Law will replace Federal Law No. 8 of 1980, as amended (“Current Law”) in its entirety, and it is the most significant amendment to UAE labour legislation since the Current Law’s enactment.

The New Law sets out several key changes that are summarised below, along with a comparison to the Current Law:

(Unless defined in this summary, the capitalised terms below have the meanings given to them under the Current Law, as applicable.)

1. Part Time and Flexible Working Arrangements

Current Law:

Part-time and flexible working arrangements are not expressly addressed in the existing legislation, however:

• Ministerial Decree Number 31 of 2019 concerning the Introduction of Part Time Employment Contracts made clear that part-time working arrangements were permissible (despite the fact that the Current Law was not updated to address this); and
• A series of resolutions implemented in 2020 in response to the COVID-19 pandemic introduced the concept of remote working.

New Law:

A number of new alternative flexible and atypical employment arrangements have now been introduced:

• Part-time work: part-time employees are expressly recognised and will be entitled to vacation leave on a pro-rated basis.
• Temporary work: applicable where time or a project objective is a determining factor in the length of the employment period. This would appear to be a similar arrangement as provided by fixed term contracts under the Current Law.
• Flexible work: where working hours and/or days of work alter depending on the employer’s workload and economic and operational variables of the employer.

It remains to be seen what will be required of employers to implement these alternative employment arrangements and how, if at all, end of service entitlements will be affected for part-time, temporary and flexible workers. The law stipulates that “Executive Regulations of the New Law” will define the mechanism for regulating end of service benefits for expatriate workers other than full- time employees, which have not been released.

Separately, whilst there are no specific guidelines concerning remote / home working arrangements, it acknowledges that an employee may work remotely (whether from inside or outside the country) with the approval of the employer. This is a welcome development and reflective of the working environment in light of the COVID-19 pandemic.

2. Three Year Fixed Term Contracts

Current Law:

Two forms of contract currently exist:

• Unlimited term contracts, which continue in full force and effect unless and until terminated; and
• Fixed term contracts, which terminate at the end of the agreed term unless renewed by the parties.

New Law:

All employees will be required to enter into fixed term employment contracts for a maximum period of three years. On expiry of the term, the employment contract can be renewed or extended for similar or shorter periods (on multiple occasions). If the contract is neither renewed nor extended, but the parties continue to operate as though the contract is still in effect, the contract is deemed as renewed on the same terms and conditions as were set out in the most recent version. Any extension or renewal will automatically count towards an employee’s continuous service (for the purposes of end of service gratuity or otherwise).

For employees currently on unlimited term contracts, the provisions of the New Law will automatically apply following the Effective Date. Employers are required to convert existing unlimited term contracts into fixed term contracts within one year from the Effective Date (i.e. by 1 February 2023).

Where employees are currently employed under an unlimited term contract, either party may terminate the contract for a legitimate reason (see “Contract Termination” section below regarding what may constitute a ‘legitimate reason’), subject to the following minimum notice provisions:

• 30 days if the employee’s period of service is less than 5 years
• 60 days if the employee’s period of service is more than 5 years; and
• 90 days if the period of service is more than 10 years.

3. Contract Termination

Current Law:

At present, employment may only be legitimately terminated:

• Without notice, for the reasons expressly set out in Articles 88 and 120. Where an employee is terminated under Article 120, they forfeit any entitlement to end of service gratuity;
• With notice, for a “valid” reason. In practice, this is interpreted as being reasons attributable to an employee’s performance or conduct.;
• By mutual agreement; or
• In the case of fixed term contracts, upon the expiry of the agreed term.

New Law:

Despite the use of the term “fixed”, the new legislation provides that fixed term contracts can be terminated on notice during the course of the term for a “legitimate reason”, provided that the period of written notice under the contract of employment is provided (minimum of 30 days’, maximum 90 days).  The term “legitimate reason” is not defined, and therefore it remains to be seen how the Labour Courts will interpret what constitutes a justifiable grounds for dismissal.

In the event that the employee does not serve or the employer does not wish the employee to serve the notice period, the party terminating the contract must pay the other compensation equal to the amount of the employee’s salary for the notice period (or remaining part thereof). Where the employer terminates the contract, an employee is permitted one day of unpaid leave per week in order to search for a new job.

Termination with notice for reasons other than those related to an employee’s performance or conduct is now permitted. Most notably, the concept of redundancy is now expressly recognised as a valid reason for termination if the employer is bankrupt or insolvent, or there are any economic or exceptional reasons. Furthermore, termination is unambiguously permitted in the event of company closure, or where the employee’s work permit cannot be renewed (provided that the non-renewal is not attributable to any fault on the part of the employer).

Although the grounds for summary dismissal are mirrored from the existing legislation, there have been some notable additional grounds, where an employee:

• abuses their position for profit or personal gain; or
• commences work for another employer without complying with the applicable rules and procedures.

Of significance, where an employee is terminated summarily, they will now be entitled to their end of service gratuity (which is previously forfeited in such circumstances under the Current Law).

The circumstances in which an employee may leave employment immediately and without notice have also been amended, and the following new grounds have been included:

• Where there is serious danger in the workplace that threatens the safety or health of the employee, provided than the employer was aware of the risk and took no action to eliminate the danger; and
• Where an employee is assigned to perform work (without their consent) that is fundamentally different from their job description as per the employment contract.

4. End of Service Gratuity

Current Law:

End of service gratuity entitlement is reduced where an employee resigns before completing five years of service. Specifically where an employee resigns:

• from an unlimited term contract having competed more than one year but less than three years of service, end of service gratuity is reduced by two thirds; where the period of service is more than three but less than five years of service, end of service gratuity is reduced by one third; and
• from a fixed term contract, before completing five full years of service, no end of service gratuity is payable.

Further, arrangements under which an employer pays contributions into a pension or other savings scheme in lieu of paying end of service gratuity are permissible if (i) the payments made by the employer are at least as favourable as the employee’s end of service gratuity entitlement, and (ii) the employee has elected to accept the fund benefits in lieu of end of service gratuity.

New Law:

End of service gratuity reduction provisions for resigning employees are absent therefore resigning employees are entitled to a full end of service gratuity payment (provided that they have completed at least one full year of service).

Likewise, provisions regarding alternative pension / savings schemes are not mirrored and it remains to be seen whether MOHRE will recognise such arrangements – particularly where an arrangement is already in effect come the Effective Date.

5. Payment of End of Service Entitlements

Current Law:

No provisions or time frames under the existing law to pay employees’ end of service entitlements.

New Law:

All end of service entitlements must be paid within 14 days from the termination date.  Failure to comply may result in a fine of between AED 5,000 and AED 1,000,000 (with a possible multiplier effect for the number of employees affected by the breach). However, no compensation is payable to the employee in the event that this time frame is not complied with.

6. Compensation for Unlawful Termination

Current Law:

Currently, the courts may award compensation for “arbitrary” dismissal being a dismissal that is “unrelated to the work” of the employee. In practice, this is interpreted as being any reason not attributable to the employee’s poor performance or conduct.

New Law:

The concept of “arbitrary dismissal” has been removed. Instead, the law provides that an employee’s termination is unlawful (i) if the termination was as a result of the employee filing a serious complaint against the employer (akin to the concept of victimisation in other jurisdictions); or (ii) the employee filed a case against the employer which is successfully upheld. Where termination is found to be unlawful in accordance with these grounds, the Labour Courts may oblige an employer to pay compensation of up to three months’ total remuneration (basic salary and allowances), in addition to all other contractual and statutory entitlements. In awarding compensation, the court will have consideration to the amount of damage sustained by the employee, length of service and type of worked performed.

It remains to be seen whether compensation will also be available to employees who are terminated for reasons other than those expressly set out under the new legislation.

7. Probation Period

Current Law:

Probation may be up to a maximum of six months and employment can be terminated without notice during such probationary periods, without any notable consequences.

New Law:

A minimum notice period of 14 days for employers wishing to terminate an employee whilst on probation has been introduced. The maximum period of probation remains six months.

Where an employee resigns from employment during their probationary period, the law introduces various obligations. Where the resignation:

• is to join another employer in the UAE, the employee must provide a minimum of one months’ notice and the new employer is obligated to compensate the current employer for the employee’s recruitment costs incurred (unless agreed otherwise).
• is to leave the UAE, the employee must provide 14 days’ notice. However, if the employee returns to the UAE for the purposes of employment within three months of their departure, the new employer will be liable to compensate the previous employer for the employee’s recruitment costs they had previously incurred (unless agreed otherwise).

Notably, in the event an employee fails to adhere to the provisions as set out under the New Law, they will be subject to a labour ban of a year from the date they leave the country (subject to exemptions from the MOHRE).

8. Discrimination and Equal Pay

Current Law:

The law makes provision for equal pay for men and women for the same work and included protection for discrimination in the event of dismissal due to an employee’s pregnancy or maternity leave.

New Law:

The law provides protection for employees from discrimination in the workplace and specifically, prohibits discrimination on the grounds of race, colour, sex, religion, national origin, social origin and disability that would impair equal opportunities for an employee or prejudice an employee from gaining employment and continuing such employment. Whilst maternity and/or pregnancy are not listed as a protected characteristic, employers are prohibited from terminating an employee (or threatening to terminate an employee) due to the fact she is pregnant or on maternity leave.

Additionally, the law provides that there should be equal pay for men and women for the same work.

Whilst there are no specific penalties attributed to discrimination and/or sexual harassment, an employer may be liable for fines ranging between AED 5,000 and AED 1,000,000 for breaches of the law (with a possible multiplier effect for the number of employees affected by the breach).

9. Bullying and Sexual Harassment

Current Law:

No existing provisions under the existing law relating to bullying or sexual harassment.

New Law:

Protection for employees against bullying and sexual harassment in the workplace has been introduced. Specifically, sexual harassment, bullying, verbal, physical or psychological violence towards an employee are prohibited by their employer, supervisor, colleagues or those working with them. In addition, an employer is prohibited from coercing or threatening an employee to undertake work or provide services against their will.

Whilst there are no specific penalties attributed to bullying or sexual harassment, an employer may be liable for fines ranging between AED 5,000 and AED 1,000,000 for breaches of the law (with a possible multiplier effect for the number of employees affected by the breach).

10. Maternity, Parental and Additional Leave

Current Law:

The existing maternity leave provisions provide 45 calendar days at full pay and, on expiry, employees are entitled to a further 100 days of consecutive or intermittent maternity “sick” leave if they are suffering from a condition related to pregnancy or delivery that prevents them from resuming work. Further, employees returning from maternity leave are entitled to two additional breaks per day (not exceeding one hour in aggregate) for nursing, until the child attains 18 months of age.

No provisions under the existing law pertaining to compassionate leave or study leave.

New Law:

Maternity leave has been increased to 60 calendar days, the first 45 days are fully paid, with the remaining 15 days at half pay. Maternity pay is not reduced in the event that the employee has not completed one full year of employment at the time of availing maternity leave. Maternity leave also applies in circumstances where an employee miscarries after 6 months of carrying, still births and/or upon the death of an infant after birth.  An additional 30 calendar days of maternity leave (with full pay), for employees who give birth to a disabled or sick child whose health conditions require a “constant companion” is available which can be further extended for an additional 30 days (unpaid). An employee’s entitlement to nursing breaks are reduced from 18 months to six months from the date of delivery. Likewise, although the provisions pertaining to maternity “sick” leave remain, entitlement is reduced to 45 (consecutive or intermittent) days.

In addition to the amendments to maternity leave, a number of new leave categories have been introduced, namely:

• Compassionate leave: five days in the event of the death of an employee’s husband or wife, and three days in the event of the death of an employee’s mother, father, son, brother, sister, grandson, grandfather or grandmother.
• Parental Leave: five days (for both male and female employees) which must be utilised within six months of the child’s birth (as introduced under Federal Decree Law No. 6 of 2020).
• Study leave: 10 days per year, for an employee (with more than two years’ service) who is affiliated or regularly studying with an approved UAE education institution, to sit exams.

11. Currency of Salary Payments

Current Law:

Employees’ salaries must be paid in UAE dirhams, into a UAE bank account.

New Law:

Salaries may now be paid in a currency other than UAE dirhams, where agreed in the employment contract. It remains to be seen how this will work in practice for employers who are required to make salary payments through the Wage Protection System.

12. Non-Competition Restrictions

Current Law:

Restrictive covenants are permissible, provided that they are reasonably limited in terms of time, geographical location, and the type of work. In practice, the courts have appeared reluctant to consider restrictive periods exceeding six months as being reasonable (unless the employer is able to link a longer restrictive period to a legitimate risk to the business).

New Law:

The inclusion of non-competition restrictions in an employment contract is permitted provided that the provisions are limited in time/duration, place/geographical scope and to the extent necessary to protect the legitimate business interests of the employer. However, the law specifically introduces a maximum restrictive period of two years from the termination date. Where employment is terminated by the employer, and the termination is not in accordance with the law, any restrictive covenants are automatically nullified.

13. Annual Leave Roll Over

Current Law:

The forfeiture of annual leave is prohibited and unused leave will either be automatically carried forward to the following leave year, or must otherwise by paid out in lieu.

New Law:

Unless advised otherwise by an employer employees must utilise their annual leave in the applicable annual leave year.

Employees are entitled to a payment in lieu of unused leave upon the termination of employment calculated on the basis of an employees’ basic salary only.

It is important for all UAE companies (both onshore and within the free zones (with the exception of the DIFC and ADGM)) to review their contracts (which in many cases will involve putting in place new employment contracts), employee handbooks and any other employment policies and procedures to ensure consistency with the New Law. We look forward to working with you to ensure that you are fully compliant as at the go-live date on 2 February 2022. Please let us know whether you wish to up a meeting or call to discuss further.

[Article written by Victoria Smylie, Associate (v.smylie@tamimi.com) and Jennifer Leader Green, Senior Associate (j.leader@tamimi.com), Employment & Incentives]