Memorandum. General Overview Employment Law/ United Arab Emirates

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1 Memorandum General Overview Employment Law/ United Arab Emirates

2 1. General 1. Brief Introduction Employment relationships in the private sector in the UAE are subject to UAE Federal Law No 8 of 1980 on the Regulation of Labour Relations in the Private Sector (as amended) (UAE Labour Law), save that employees working in the Dubai International Financial Centre (DIFC) are subject to the DIFC Law No 4 of 2005 (DIFC Employment Law). In addition to the DIFC, other free trade zones have been established in the UAE in order to encourage direct foreign investment. These other free zones have issued their own employment regulations in some cases, although (unlike the position in the DIFC) these must be read in conjunction with the UAE Labour Law. The UAE Labour Law has been supplemented over the years by Cabinet Resolutions and Ministerial Resolutions issued by the Ministry of Labour. In addition, individual emirates have also issued emirate-wide regulations on a limited basis (for example, there is a pension law for UAE nationals which is unique to the Emirate of Abu Dhabi). To date, the legislation has provided a broad brush nominal framework for the employment relationship with labour courts adopting an employee friendly approach to enforcement. However, with the establishment of free trade zones and the government drive to diversify the economy through its establishment of government owned entities, the regulatory regime in terms of enforcement and applicable legislation has become increasingly complex. dthis coupled with a drive to promote the employment of nationals in the private sector, means that employment is set to be increasingly regulated. As noted above, employees working in the DIFC are subject to a separate employment law. The DIFC was established through a constitutional amendment to create a free zone in which no UAE federal commercial laws apply. The DIFC is a common law jurisdiction with its own set of commercial laws and court system. 2. Employment Contracts 1. Minimum Requirements Employees based onshore in the UAE (i.e. not it a free zone) are required to enter into a prescribed form, dual-language employment contract that is registered with the Ministry of Labour. It deals with basic entitlements such as salary and allowances and holiday, and specifies whether the employment is for a fixed or unlimited term. This forms the operative employment contract for UAE law purposes, although most employers require employees to enter into an additional, company-form employment contract. This often resembles employment contracts used in other jurisdictions, and can contain additional provisions (such as confidentiality and post-termination restrictions) that are enforceable against an employee as long as they do not 1

3 conflict with other provisions in the Ministry of Labour employment contract that are of more benefit to the employee. Other free zones (such as the Jebel Ali and Dubai Airport free zones) have specific dual-language employment contracts similar to the Ministry of Labour Contract that employers are required to enter into and submit to the relevant free zone authority as part of the visa sponsorship and labour authorization regimes for expatriate employees in the UAE. Employers in the DIFC need not enter into a prescribed form employment contact, but must submit a written employment contract to the DIFC Authority for every employee. The written employment contract must cover a range of minimum information, including wages, date of commencement of employment, holiday leave and pay and whether the employment is for a fixed or unlimited term. As a general rule, both the UAE Labour Law and the DIFC Employment Law set out a set of 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. 2. Fixed/Unlimited terms Contracts may be for either fixed or unlimited terms. The maximum duration for an unlimited term contract is 4 years, after which the employment is automatically converted into an unlimited term contract with minimum notice provisions. Generally speaking, it is not possible to have hybrid contracts, featuring a fixed term but with notice of termination provisions. Such contracts will generally be deemed to be for a fixed-term. If an employer terminates a fixed term contract ahead of the end of the specified termination date, they are obliged to pay compensation to the employee equivalent to 3 months remuneration, or for the remainder of the term of the contract, whichever is the lesser amount. Contracts in the DIFC may be for fixed or unlimited terms. 3. Notice Period The minimum notice period for an unlimited term contract (outside of the DIFC) is 30 days. An initial probation period for a maximum of six months can be imposed by the employer, during which the employer may terminate employment without notice or payment in lieu of notice, severance pay or liability for arbitrary dismissal. In the DIFC there are minimum notice periods based upon length of service, but these can be replaced by alternative provisions by agreement between the parties. 2

4 3. Authorisations for Foreign Employees 1. Requirement for Foreign Employees to Work Every employee must be registered with the Ministry of Labour or the free zone authority depending on where the employer is established. Government owned entities are only registered with the Department of Immigration but depending on how they are established, they are still subject to the jurisdiction of the Ministry of Labour. If the employee is not a national of a Gulf Cooperation Council member state then he or she must also be registered with the Department of Immigration within the Ministry of Interior. Employees will also need to be sponsored by the employer (in a free zone, the technical sponsor is the free zone authority itself) for work permit and residency visa purposes; with such sponsorship being employer specific. In order to obtain sponsorship employees must submit attested educational and professional qualifications, as well as undergo medical examinations for contagious diseases. There are restrictions on an employee s ability to move from one sponsor to another (i.e. to effectively move jobs) and various factors come into play including length of service, earning levels and educational qualifications. 2. Emiratisation: Employment of UAE Nationals An employer is under a duty to consider UAE nationals for all vacancies prior to engaging a foreign national. However, there is no labour market test as such providing for minimum advertising periods or interviewing requirements. Certain roles, including HR managers, secretaries and Government Liaison Officers are reserved for UAE nationals. Specific sectors including retail, insurance and banking are subject to quota requirements to employ UAE nationals of 2%, 5% and 4% of their workforces year on year, respectively. The UAE government is increasingly offering subsidies and funds to private sector employees to employ UAE nationals and subjecting public tendering and contracts to the company s achievement of percentage targets for the employment of UAE nationals as a total part of the workforce. These emiratisation requirements do not apply in the free zones. The DIFC Employment Law permits positive discrimination in favour of UAE nationals. UAE nationals are protected from termination of employment in the private sector and employers who fall under the Ministry of Labour jurisdiction must obtain the Ministry s consent before dismissing a UAE national employee. 3. 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 required trade licence can render an 3

5 employer liable to penalties for engaging individuals without proper sponsorship and also have personal repercussions for the individual. 4. Working Conditions 1. Minimum Working Conditions Under the Labour Law, employees are entitled to at least a 1 hour break once every five hours. Employers are obliged to provide warnings, protective equipment and training on the specific health and safety dangers applicable at their work premises. Employers are obliged to maintain workplaces with adequate lighting, drinking water, ventilation and toilets. Under DIFC Employment law, employees are entitled to a rest break of one hour at least once every six hours, to uninterrupted rest of 11 hours in every 24 hour period, and to rest of not less than 24 hours once every seven day period. The DIFC Employment Law similarly required employers to have in place adequate systems and procedures to minimize risk to employee health and safety, and to provide adequate working conditions. In addition, the DIFC Employment Law includes an express obligation on the employer to provide and maintain a workplace that is free from harassment, and is safe and without risks to the employee s health. 2. Salary 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 in UAE Dirhams 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 most recently, the Jebel Ali Free Zone has adopted the system, and others may follow suit. 3. Maximum Working Week The UAE Labour Law provides for a maximum working week of 48 hours, 8 hours a day; with Friday being the weekly day of rest. The DIFC Employment Law does not set out the maximum normal working hours per day, although the maximum weekly working hours must not exceed 48 hours in any seven day period, unless the employer had first obtained the employee s consent in writing. 4. Overtime Under UAE Labour Law, employees who are not in managerial positions (meaning someone with 4

6 supervisory authority over other employees) are entitled to overtime pay. Overtime is normally restricted to 2 hours a day meaning an employee should not be asked to work for more than 10 hours a day. During Ramadan, working hours are reduced to 6 hours a day for all employees. Overtime is paid in accordance with statutory rates set to whether overtime is completed on a normal working day, during night time, a Friday or other normal rest day, or on a public holiday. The DIFC Employment Law does not provide for statutory overtime. 5. Leave The minimum entitlement to paid annual leave is 30 calendar days a year, with an employee only becoming entitled to accrue leave once he or she has completed the probationary period. Under the DIFC Employment Law, minimum holiday entitlement is 20 working days for an employee employed for 3 months or more. The minimum entitlement to sick leave is 90 calendar days a year, with full pay for 15 days, half pay for 30 days and nil pay for 45 days. An employee only becomes entitled to sick pay three months following the successful completion of the probationary period. Under DIFC Employment Law, sick leave is 90 days on full pay. Finally, once during the employment, an employee can take 30 days unpaid leave to perform Haj. 5. Rights of Employees in Case of a Transfer of Undertaking There are no automatic transfer rights of employees from one employer to another (whether 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), either in the UAE or DIFC. Because of the nature of employee sponsorship for UAE residency and labour purposes by a specific employing company, the movement of employees between companies can only occur pursuant to a process of termination and rehire. Issues such as continuity of service, end of service gratuity and accrued but unused holiday roll over can be addressed by side agreement with the transferring employees (and should be carefully drafted and documented). 6. Termination of Employment Contracts 1. Individual Dismissals and Severance Payment The UAE Labour Law does not set out a list of reasons permitting an employer to terminate an employee s employment. An employer is therefore able to terminate employment on notice; the minimum being 30 days written notice. On termination an employee (whether in the DIFC or in the rest of the UAE) is entitled to end of service gratuity which is a form of severance pay calculated on the final salary and linked to length of service. An employee whose employment is terminated other than for misconduct or poor performance 5

7 may claim arbitrary dismissal, the maximum compensation for which is three months remuneration in addition to notice and end of service gratuity. The DIFC Employment Law does not provide for an entitlement to claim unfair dismissal. However, both the employer and the employee are entitled to terminate employment without notice (and without severance payments where the employer is at fault) for cause. This is defined as circumstances where the conduct of one party warrants termination and where a reasonable employer or employee would have terminated the employment. 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. 2. Redundancy Neither the UAE Labour Law nor the DIFC Employment Law provide for a concept of redundancy. The UAE courts have recognized an employer s right to reorganize its business and restructure resulting in elimination of roles. However, a high burden of proof is applied and the employer s business decision scrutinized closely. 7. Trade Unions The UAE Penal Code (Law No. 3 of 1987, as amended) makes it a criminal offence for anyone to found, join or participate in a Trade Union or to participate in a labour strike. In 2013 hundreds of construction workers were deported from the UAE because of conducting an illegal strike. However, the UAE Labour Law contains a workforce disputes procedure under which employees may collectively submit a written complaint to the Ministry of Labour which will appoint a labour committee to investigate the complaint and conciliate between the employees and the employer. 8. Employee Representation There is no legally recognised form of employee representation in the UAE, except for the collective labour disputes provisions of the Labour Law, outlined above. 6

8 9. Social Security 1. Legal Framework, State Pensions and Social Security Schemes 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. Upon commencement of employment, an employer should register the employment of UAE nationals (or that of other GCC nationalities Saudi Arabia, Qatar, Bahrain, Kuwait and Oman) with the General Pension and Social Security Authority (GPSSA). The GPSSA will confirm to the employer and the employee the contributions to be made into the scheme. As GCC countries operate reciprocal state pension arrangements, employers of GCC nationals in the UAE are required to make payments to the GPSSA in accordance with the employee s home state pension laws. The GPSSA in turn passes these payments onto the employee s home state pension authority. In addition, employers in the Emirate of Abu Dhabi are subject to the Abu Dhabi Pensions Law, whereas employers in the rest of the UAE (including Dubai) are subject to the UAE Federal Pensions Law. These laws affect the required level of pension contributions, which vary depending on whether the employer is based in Abu Dhabi or one of the 6 other Emirates of the UAE. In Abu Dhabi, as a percentage of an employer s monthly salary, the employer is required to contribute 15%, the employee 5% and the Government of Abu Dhabi a further 6%. These contributions are payable on salaries up to a maximum monthly salary of AED 60,000. Salary in excess of this level is counted towards a statutory end of service gratuity award in line with the Labour Law. In the rest of the UAE, the requirement is for employers to contribute 12.5%, the employee 5% and the UAE Federal Government a further 2.5%. The maximum salary level for pension contributions is AED 50,000 per month; salary in excess of this level is counted towards a statutory end of service gratuity award in line with the Labour Law. 2. Maternity Leave 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 3 months maternity leave, 45 days paid on full pay and 45 days at half pay. 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 3 months has the right to claim leave according to the same provisions as those for maternity leave. Abbreviations used in this Guide AED UAE Dirhams DIFC Dubai International Financial Centre GCC Arabian Gulf Cooperation Council countries - includes UAE, Saudi Arabia, Qatar, Bahrain, Kuwait and Oman GPSSA General Pension and Social Security Authority UAE United Arab Emirates 7

9 Clyde & Co United Kingdom Clyde & Co is a global law firm with a pioneering heritage and a resolute focus on its core sectors of aviation, energy, infrastructure, insurance, marine, and trade. With over 1,400 lawyers operating from 35 offices and associated offices in six continents, the firm advises corporates, financial institutions, private individuals, and governments. The firm has a reputation for its work in emerging markets, being the largest international firm in the Middle East and with a rapidly expanding network across Asia, Latin America and Africa. This memorandum has been provided by: Clyde & Co LLP The St. Botolph Building 138 Houndsditch London, EC3A 7AG 8

10 Contact Us For more information about L&E Global, or an initial consultation, please contact one of our member firms or our corporate office. We look forward to speaking with you. L&E GLOBAL Avenue Louise 221 B-1050, Brussels Belgium Stephan Swinkels, Executive Director This publication may not deal with every topic within its scope nor cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice with regard to any specific case. Nothing stated in this document should be treated as an authoritative statement of the law on any particular aspect or in any specific case. Action should not be taken on this document alone. For specific advice on any particular feature you should seek advice from the L&E Global representative stated in this memorandum. This document is based on the law as of

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