www.lw.com Employment Issues in the United Arab Emirates

www.lw.com Employment Issues in the United Arab Emirates October 2009

The purpose of this memorandum is to summarise employment issues arising in the United Arab Emirates (UAE). There are UAE federal employment laws and also some specific employment laws that apply to particular Free Zones, such as the DIFC in Dubai. Immigration Issues Prior to commencing any work in the UAE, all non-uae nationals will require an employment visa. To obtain an employment visa, the employee should be sponsored by an establishment which is licensed and registered with the Federal Ministry of Labour and Social Affairs (Ministry of Labour). Once the employment visa is obtained, a copy should be sent to the employee and the original lodged at the airport before the employee arrives in the country. As part of the immigration process for obtaining an employment visa, the employee will need to undergo a medical test for HIV and tuberculosis. A residency visa is usually tied to the employment visa application and will allow the employee the right to reside and work within the UAE for the duration of his/ her employment only. The work permit and residency visa are usually granted for a renewable period of three years. There are significant penalties for both the employer and employee if these immigration procedures are ignored. Applicable Labour Law Labour matters in the UAE are governed by Federal Law No. 8 of 1980 Regulating Labour Relations (the Labour Law). The Labour Law applies to employees working in the UAE (except for certain Free Zone areas), whether they are nationals or non-uae nationals. There are certain categories of individuals that are exempted from the Labour Law including: (a) domestic servants; (b) staff and workers who are employed by the federal government; and (c) members of the armed forces and police. The Labour Law provides for minimum standards which cannot be contracted out of for employing employees in the UAE The UAE has designated a number of Free Zone areas to provide exemption from many UAE laws and to encourage foreign investment. Different laws apply in some of the Free Zones such as the Dubai International Financial Center (DIFC) or the Dubai Healthcare City (DHC). The applicable employment laws for the DIFC and DHC are summarised later in this memorandum. Please note, unless specifically stated otherwise, the rest of the memorandum discusses provisions of the Labour Law. Latham & Watkins Employment Issues in the United Arab Emirates 1

Emiratisation Emiratisation is a programme which was introduced in 2004 by the UAE government in order to encourage employment for its citizens in both the public and private sectors. The aim is to reduce the UAE s dependence on foreign workers and to ensure that UAE citizens benefit from the economic growth in the country. Similar programmes are being pursued by other Gulf Cooperation Council countries including Oman, Bahrain, Qatar and Saudi Arabia. The Labour Law provides that UAE nationals should take priority over any other nationalities when seeking jobs (followed by other Arab nationals). This means that in theory the Ministry of Labour will not permit non-uae nationals to be recruited where its records show that there are unemployed nationals that could perform that role. These requirements are not currently applied in the DIFC but may be applied in other Free Zone areas. As part of its Emiratisation programme, the UAE has sought to identify suitable industries in which UAE nationals can work. Banking and insurance were identified as two such industries a few years ago and there are now specific annual quotas for companies operating in these sectors. The National Human Resource Development and Employment Authority (TANMIA) has been established to assist with the Emiratisation programme in the UAE. TANMIA provides career guidance and training to UAE nationals. All employers in the UAE should be registered with TANMIA. The new Labour law (the New Labour Law) which is discussed later in this memorandum, strengthens the UAE s commitment to Emiratisation and includes specific guidelines for the Ministry of Labour to follow when considering employment visa applications from non-uae nationals. This will include consideration of the number of nationals already working for a company and whether there are any nationals who are qualified to perform the work. It will be a breach of the New Labour Law to replace a UAE employee that has been dismissed or has resigned, with a non-uae national. The New Labour Law provides national quotas for all sectors to be backed-up by fines for companies that employ non-uae nationals where national employees are available to work. Where the employer needs to implement redundancies, non-uae nationals should be the first to be dismissed. Moving Jobs European or US employers might find restrictions in the UAE on employees moving from job to job quite unusual. The UAE has regulations under which an employee can be banned by the Ministry of Labour from working for a new employer for a set period of time. This clearly has practical implications for employers wishing to recruit new employees. 2 Latham & Watkins Employment Issues in the United Arab Emirates

Employment Contracts All employees are entitled to a written contract of employment. The Ministry of Labour has a prescribed form of employment contract, although an employer can choose to use his or her own form, provided it contains certain provisions (as summarised below). All employment contracts must be registered with the Ministry of Labour (in Arabic). The Labour Law envisages two types of employment contracts fixed-term and openended (which is terminable on notice). A fixed term contract must be for a term of four years or less although it can be renewed by mutual consent for a similar or lesser period. Any contract of employment which does not have a termination date will be deemed to be an open-ended contract. The Labour Law provides that the following information must be included in the employment contract: (a) salary; (b) date of employment contract; (c) commencement date of employment term; (d) nature of the employment contract (whether fixed or open-ended); (e) job description; (f) term of contract (for fixed-term contracts); and (g) location of employment. Termination of Employment The Labour Law provides for the initial period of employment to be classed as a probationary period. The probationary period can be up to six months and during this period the employer may terminate the employment immediately. After the probationary period, the Labour Law provides for a 30-day minimum notice period provided the employer has an acceptable reason. An acceptable reason is not defined in the Labour Law but is generally considered to be a reason for termination that must relate to the employee s work (which is therefore quite broad). Employers can make a payment in lieu of notice rather than allowing the employee to work out his or her notice period. Article 120 of the Labour Law sets out the circumstances under which an employer can dismiss without notice, payment in lieu of notice or entitlement to end of service gratuity (see page 4). These circumstances include failing to carry out his/her basic duties under the employment contract or being found drunk or intoxicated by drugs during working hours. There are no specific regulations which apply regarding redundancies or lay-offs. Therefore, there are no information or consultation obligations to consider when implementing a redundancy programme. Additional considerations apply to dismissals of UAE nationals. Under Ministerial Decision No. 176 which came into force in February 2009 concerning the dismissal of UAE national employees in the private sector, it is unlawful to dismiss a UAE national: (a) other than for a summary dismissal reason as set out in Article 120 of the Labour Law; (b) if a non-national is performing the role of the national who was dismissed; (c) if the employer failed to file a notice to the Ministry of Labour at least 30 days prior Latham & Watkins Employment Issues in the United Arab Emirates 3

to the effective date of dismissal, or failed to follow any Ministry of Labour instructions relating to the notice of dismissal; or (d) if the UAE national was not paid all of his retirement and end of service entitlements, as specified in the Labour Law. Whilst compensation for arbitrary dismissal is usually capped at 3 months pay, it is not clear whether that compensation cap would apply to the dismissal of an Emirati in violation of Ministerial Decision No. 176 and it is also not clear whether the employer could be ordered to reinstate the dismissed Emirati. One consequence that is known is that the Ministry of Labour would not issue new work permits applied for by the employer until the court had issued its final judgment in the matter. Working hours The maximum working hours for an adult employee is eight hours per day and employees are entitled to a rest break after five consecutive hours of work. The Labour Law provides that overtime hours must not exceed two hours per day (unless the work is to prevent occurrence of a major loss or a serious accident or to remove or mitigate the consequences of such loss or accident). Overtime hours are to be paid at an increased salary of 25 percent or where the employee works overtime between the hours of 9 pm and 4 am, overtime should be paid at an increased salary of 50 percent. If the employee is required to work on a Friday, the employee is entitled to a day off or an increased salary of 50 percent. Employees cannot be required to work for two consecutive Fridays unless their salary is calculated on a daily basis. It is not possible to ask employees to opt-out of these working time obligations although the working time and overtime provisions do not apply to persons holding senior executive managerial supervisory positions, if such persons have the powers of employer over the employees. The Ministry of Labour has categorised such people as: (i) chairpersons of boards of directors and board members; (ii) general managers; (iii) managers of departments; and (iv) individuals working in supervisory posts who have dedicated powers of authority over other employees. Employee benefits/entitlements Vacation Employees are entitled to 30 calendar days of paid vacation after they have been employed for 1 year. This is roughly equivalent to 22 working days. In addition, employees are entitled to official public holidays declared for the sector in which they are working (public or private). Sick Leave Employees are not entitled to paid sick leave during the probation period. After the probation period, employees are entitled to full pay for the first 15 days and half pay for the next 30 days. Employees are required to provide evidence of their sickness by way of an official medical certificate. Maternity Leave Women are entitled to 45 days of paid maternity leave. This is based on full pay if they have one year of service and half pay if they have less than 1 year s service. At the end of this 45-day period, women have a right to take a further 100 days of unpaid leave. There is no entitlement to paternity leave under the Labour Law. 4 Latham & Watkins Employment Issues in the United Arab Emirates

End of Service Gratuity (ESG) Employees who have more than one year s service may be entitled to an ESG payment. An ESG payment is calculated as follows: (i) 21 days salary for each year of the first five years of service; and (ii) 30 days salary for each additional year of service. The maximum ESG entitlement is two years of salary. If the employee resigns they are entitled to a 1/3 of their ESG payment if his or her length of service is between one and three years, 2/3 of their ESG payment if their length of service is between 3 and 5 years and a full ESG payment if his or her length of service is more than five years. There is no entitlement to an ESG payment if the employee is terminated for one of the reasons set out in Article 120 of the Labour Law (as described earlier). Works councils, unions or employee consultation Trade unions and collective bargaining are not currently permitted and there are no statutory provisions relating to works councils or employee consultation. Disputes If an employee has a dispute relating to his or her employment or the termination of his or her employment, this should be raised with the Ministry of Labour who will handle the conciliation process. In the case of wrongful dismissal, the employer may be ordered by the court to pay compensation to the employee of up to three months salary. DIFC Employment Law As stated previously, the DIFC in Dubai has its own independent legal framework and judicial system. The relevant employment law is DIFC Law No. 4 of Year 2005 (the Employment Law). The main differences between the Labour Law and the Employment Law are as follows: (i) probation period and notice period there is no specific probationary period provided for under the Employment Law. The employee and employer are entitled to the following minimum periods of notice: (a) one week if the period of continuous employment is less than three months; (b) one month if the period of continuous employment is three months or more but less than five years; and (c) three months if the period of continuous employment is 5 years or more. The employee and employer can agree to waive the notice period. (ii) Summary dismissal there is no list of circumstances which justify summary dismissal under the Employment Law and the employer is entitled to dismiss immediately for cause. Therefore, this arguably allows the employer greater flexibility than under the Labour Law. (iii) ESG payment the calculation of the ESG payment is the same under the Employment Law. However, this is no provision to reduce the ESG payment if the employee initiates the departure. (iv) working hours an employee s working time shall not exceed 48 hours per week. However, the employer can obtain the employee s consent to opt-out of these working time provisions. Latham & Watkins Employment Issues in the United Arab Emirates 5

(v) vacation vacation entitlement for employees with more than one year s service is 20 working days plus official public holidays for the sector in which they are working (public or private). (vi) maternity leave maternity leave is 90 days (45 days of full pay and thereafter 45 days of half pay) provided the woman has been employed for at least one year preceding the eighth week before the expected week of childbirth. (vii) Sick leave the maximum annual sick leave entitlement is 90 days of full pay. DHC Employment Law For employees working within the DHC, their employment will be sponsored by the DHC. However, the DHC has not yet established its own body of employment law and the provisions of the Labour Law will continue to apply to the employment relationship. Although the employee s employment is sponsored by the DHC, the employee will still need to have an employment contract with their employer (which must be an entity which is established in the DHC). New Labour Law A New Labour Law was published in draft by the Ministry of Labour in February 2007. Along with the issues regarding Emiratisation discussed above, the other key changes are summarised below: a general prohibition on discrimination in the workplace; a requirement to seek the approval of the Ministry of Labour before making redundancies; the ESG payment will be reduced to 15 days of basic salary for each of the first five years of service, increasing to 30 days for each additional year of service; a maximum 48 hour working week. Certain categories will be excluded from this maximum (although this has not yet been clarified); maternity leave will be increased to 100 days. 45 days will be paid and 55 days will be unpaid; there are no draft provisions regarding paternity leave; a retirement age of 60 is proposed. However, it is envisaged that in certain occupations, employees will be able to work beyond the age of 60; and a proposal to permit trade unions to operate. There is no indication at present as to when the New Labour Law will be implemented. NOTE This memorandum is a summary of the key requirements under UAE Labour law as of 1 June 2009. Please note that this information is provided for guidance purposes only and should not be taken as a definitive statement of law. The information provided is only applicable to employers in the private sector. 6 Latham & Watkins Employment Issues in the United Arab Emirates

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