UAE: Labour Law Amendments & New Unemployment Insurance

On 2^nd February 2022, Federal Decree-Law No. 33 of 2021 (the “Labour Law”) was brought into force replacing in its entirety Federal Decree Law No. 8 of 1980 (the “Old Law”). The Labour Law implemented a number of changes from the Old Law including the abolition of unlimited term contracts and replacement with fixed-term contracts of a maximum period of three years, which may be renewed for a similar or shorter duration. Seven months later, the Ministry of Human Resources and Emiritisation (“MOHRE”) has announced an amendment to the Labour Law with the issuance of Federal Decree-Law No. 14 of 2022 (the “Labour Law Amendment”), removing the three-year cap on fixed- term contracts.

While strictly speaking this is not a return to unlimited contracts, companies may choose the term of employment contracts at their discretion (e.g. 5 or 10 year terms). The Labour Law stipulates that all companies must transition their employees onto fixed term contracts by the 1 February 2023.

Many companies who have already transitioned their contracts to three year fixed terms have opted to include an auto-renewal clause ensuring that their employment contracts do not expire upon the end of the term. Given that the notice periods remain the same (between 30-90 days as per the Labour Law)  companies may therefore choose to maintain a renewable three year term, or increase the terms of their employment contracts at their discretion.

Unemployment Insurance

In addition to the Labour Law Amendment, the UAE government recently issued Federal Decree Law No. 13 of 2022 Concerning Unemployment Insurance Scheme (the “Scheme”).  The Scheme will be mandatory for all employees in the private and public sectors including UAE nationals, with the exception of (i) investors; (ii) domestic workers; (iii) contractual working or temporary workers; (iv) juveniles under the age of 18; and (v) pension receiving retirees who have joined a new employer (applicable to UAE nationals). The objective of the scheme is to provide the insured with income for a period during unemployment.

As part of the scheme, employees will be eligible to receive compensation upon becoming unemployed, subject to having been insured for 12 consecutive months under the Scheme. All employees will be eligible to receive 60% of their basic salary during unemployment. The subscription fee and maximum compensation is dependent on the category of employee:

1. The first category will apply to employees earning a basic salary of AED 16,000 and under. Employees under this category will pay a subscription to the Scheme of AED 5 per month and their monthly compensation shall be limited to a maximum of AED 10,000.
2. Employees in the second category must earn a basic salary exceeding AED 16,000 and will pay a subscription fee of AED 10 per month with the monthly compensation limited to a maximum of AED 20,000. Eligible employees will receive this compensation for a maximum period of three months or until they find alternative employment (whichever is earlier).

In addition, the Scheme stipulates that the insured may opt into additional benefits with the relevant service provider.

Employees will be able to participate in the Scheme through various subscriptions channels including (i) the Insurance Pool’s website and smart application; (ii) bank ATMs and kiosk machines; (iii) business service centres; (iv) money exchange companies; (v) Du and Etisalat; (vi) by SMS; and (vii) any other channel designated by MOHRE.

The Scheme stipulates that compensation will not be applicable if an employee was dismissed for disciplinary reasons (including gross misconduct) under the Labour Law. In addition, compensation will not be provided to the employee if there has been fraud or deceit involved in the insurance claim (fines and penalties will be issued accordingly).

We are awaiting the specific details which will be issued separately by the Cabinet but understand that the Scheme will commence in 2023.

If you have any queries on this topic please do not hesitate to reach out to us.