Significant changes to UAE labour law

On 16 November 2021, significant changes were announced to employment law in the UAE with the introduction of the new UAE Labour Law (Federal Decree Law No. 33 of 2021) (New Law), which will come in force on 2 February 2022. The New Law will replace UAE Federal Labour Law (Law No. 8 of 1980) (as amended).

The New Law is the first substantial update to UAE labour laws since the implementation of UAE Federal Labour Law (Law No. 8 of 1980) and applies to all employees and employers in the private sector. There are only two current exceptions to the overarching application of the New Law. The first is in the Dubai International Financial Centre, which is a separate jurisdiction with its own employment legislation and the second exception is the Abu Dhabi Global Market, which also has its own employment legislation.

In a statement surrounding the announcement of the New Law, the UAE Ministry of Human Resources and Emiratisation stated that it “seeks to enhance the elasticity, resilience and sustainability of the labour market nationwide, as well as ensure protection of workers' rights. It places worker welfare and wellbeing at its core, and accordingly, a host of measures have been provided therein to ensure a safe, healthy, and business-conducive environment for all employees in the private sector.”

We summarise some of the significant changes introduced by the New Law as follows.

Fixed-term contracts

One of the most significant amendments introduced by the New Law is the requirement for all employees to be employed on fixed-term contracts. The New Law defines a fixed-term contract as one not exceeding three years, with the permissibility for it to be renewed for a similar or lesser duration. If the contract is not renewed or extended upon its expiry but the parties continue to operate as though the contract is still in effect nonetheless, the contract would be deemed to be renewed under the same terms and conditions as set out in the preceding version of the contract. The renewal or extension of the contract will count towards the employee’s continuous service of employment with the employer.

Significantly, the New Law stipulates that unlimited-term employment contracts are to be converted into fixed-term employment contracts within one year from the date the New Law comes into force. The implementation of this amendment will be an important consideration for all employers across the UAE.

Flexibility in paying employees in any currency

Under the current law, an employee’s salary must be paid in UAE dirhams into a UAE bank account. The New Law stipulates that UAE employers will have flexibility in paying employees in any currency, subject to the agreement between the parties in the employment contract. It is unclear how this will work in practice for those employers registered with the Ministry of Human Resources and Emiratisation (ie onshore and some free zone employers) that are required to make salary payments through the Wage Protection System (which transfers the money via a clearing system maintained by the Central Bank and onwards to employees’ bank account). We anticipate that the Executive Regulations to be issued after the announcement of the New Law will clarify the position.

Part-time and flexible working arrangements

The New Law has introduced new working arrangements and makes provision for part-time work, temporary work and flexible working arrangements. The aim of these amendments is to provide flexibility in the UAE labour market and assist companies when making decisions in response to market changes and/or business requirements. Further, the New Law stipulates that an employee may work remotely, whether inside or outside the UAE, providing that the employee has obtained the employer’s consent.

This shift towards a more flexible labour market is presumably attributable in part to changes in working practices triggered by the coronavirus pandemic which has affected many private sector employers and employees.

Discrimination, bullying and harassment

Importantly, the New Law has introduced anti-discrimination provisions to fight against discrimination based on race, colour, sex, religion, national origin, ethnic origin or disability, and provides employees with protection against inequality of treatment or opportunities in the workplace based on the aforementioned characteristics. The New Law also provides employees with protection against sexual harassment, bullying and any form of verbal, physical or psychological violence in the workplace.

There are no exact penalties under the New Law in the event of a finding of discrimination, bullying or sexual harassment in the workforce, however, an employer may be liable to fines of between AED 5,000 to AED 1,000,000 for violation of the provisions of the New Law and its Executive Regulations and implementing resolutions.

End of service gratuity

Expatriate employees in the UAE are entitled to end of service gratuity upon termination of employment. Under the current law, end of service gratuity is calculated at 21 calendar days’ basic pay for each year of the first five years of service and 30 calendar days’ basic pay for each additional year of service. The New Law stipulates that end of service gratuity is to be calculated based on working days. This is a significant change to the current position, and it remains to be seen if the Ministry of Human Resources and Emiratisation will issue further clarification on this point.

Under the current law, there are two types of employment contracts: fixed-term contracts and unlimited-term contracts. As highlighted in this article, under the New Law, all employees will be required to enter into fixed-term employment contracts for a maximum period of three years.

The current position is that, an employee on a fixed-term contract is not entitled to end of service gratuity if they resign before the expiry of the fixed-term contract within the first five years of service. Once the employee has acquired five years of service, they would be entitled to full gratuity. Conversely, if an employee under an unlimited-term contract resigns within the first five years of service, there is a sliding scale reduction in their end of service gratuity. For example, if they resign between one and three years of service, their gratuity is reduced by two thirds. If they resign with between three and five years of service, their gratuity is reduced by one third. Following completion of five years of service, full gratuity would be payable. 

In the New Law, there is no provision for end of service gratuity reductions in the event an employee resigns which suggests that resigning employees are entitled to the full end of service gratuity payment, provided that they have completed at least one year of continuous service with their employer.

Maternity leave

Under the current law, a woman with one year’s continuous service with her employer is entitled to 45 calendar days’ maternity leave with full pay. A woman with less than one year's service is entitled to 45 calendar days at half pay.

Under the New Law, maternity leave entitlement has been increased to 60 calendar days, paid as follows:

• the first 45 days at full pay, and
• the remaining 15 days at half pay.

In contrast to the current law, the full maternity pay is not subject to the employee having completed one year of continuous service with her employer. Further, the New Law provides that in circumstances where the employee delivers a sick child or a child with special needs whose health condition requires continuous support, the employee shall be entitled to an additional 30 days’ leave with full pay commencing from the expiry of the maternity leave. This additional 30 days’ paid leave can be further extended by another 30 days, albeit this extension would be unpaid.

Compassionate leave

A new right to compassionate leave has been introduced in the New Law which grants employees up to five days paid leave in the unfortunate event of a death in the family.

Non-compete restrictions

The New Law mirrors the current law in that it permits employers to incorporate non-compete restrictive covenants in employment contracts, provided that the restrictions are reasonable (in respect of duration, geographical scope and restricted business) and reasonably necessary to protect the employer's legitimate business interest. This protects businesses from the risk of employees leaving to take up alternative employment with a competing business and taking confidential information obtained during the course of their employment with the previous employer.

The New Law explicitly introduces a maximum restrictive period of two years from the termination date.

Probation period

The New Law also stipulates that the probation period must not be more than six months in duration and, interestingly, introduces a notice period requirement for both the employer and employee during this time.

The New Law states that 14 days’ notice must be provided by the employer to terminate an employee’s employment during the probation period. Conversely, employees who want to change jobs during the probation period must give their employer one month’s notice or 14 days’ notice in the event they want to leave the country. In circumstances where the employee wishes to move to another employer in the UAE during the probation period (as opposed to resigning to leave the UAE altogether), the new employer is required to compensate the first employer for the recruitment related costs incurred by the first employer, unless agreed otherwise. If the employee resigns during the probation period and leaves the UAE but subsequently returns within three months of their departure for the purposes of taking up alternative employment in the UAE, the new employer will be liable to compensate the previous employer for the employee’s recruitment costs it had incurred, unless agreed otherwise.

Summary

The New Law introduces a raft of measures designed to modernise employment legislation across the UAE in the face of ever-changing working practices. The legislation will require all employers and employees to take action to ensure compliance with the new rules. We would be happy to advise and assist you and your HR teams when considering the impact of these changes.

To discuss any of the issues raised in this article and/or to discuss the changes introduced by the New Law in more detail, please contact Kristina Broci.