DIFC: Consultation issued regarding changes to the Employment Law

In February 2021, the DIFC Authority issued a Consultation Paper (the "Paper") proposing various key changes to the DIFC Employment Law No. 2 of 2019 (as amended) (the "Employment Law") and the DIFC Employment Regulations 2020 (the "Regulations"), primarily around changes to clarify the Qualifying Scheme regime. A "Qualifying Scheme" is an employee money purchase scheme which complies with the Regulations and it replaced end of service gratuity in the DIFC from 1 February 2020.

Changes to the Qualifying Scheme regime under the Regulations

The key proposed changes to the Regulations include (among others):

• Certificates of Compliance will only be issued to Qualifying Schemes established in the DIFC (i.e. and not to any Qualifying Scheme established in any other jurisdiction) and the concept of a scheme established in a "Recognised Jurisdiction" for the purposes of applying for an exemption for making payments into a Qualifying Scheme (such as DEWS) will be removed;

• the definition of "Scheme" will be updated in line with the DFSA's definition (i.e. to add reference to superannuation, gratuity or similar arrangements);

• the addition of 12 month grace periods for employers to ensure that their Schemes comply with the Regulations (once, and if, in force); and

• the addition of administrative fees being levied on employers of:

  • USD 500 for the issuance of each Certificate of Compliance (but note there is also a proposed deletion of the requirement for employers to apply annually for a Certificate of Compliance); and

  • USD 300 for the issuance of each Exemption Certificate.

Key amendments to the Employment Law

The Paper proposes (among others) the following key changes in order to rectify what the DIFC Authority has termed "anomalies" or "oversights" under the Employment Law:

• an amendment to the definitions of:

  • "Additional Payment" to remove the potential for employers to use a loophole to reduce the "Basic Wage" of employees to a nominal amount (or nothing) to avoid or reduce gratuity payments / core benefits payable to employees;

  • "Exempted Employee" to add that an Equity Partner (i.e. an employee that owns a partnership or membership interest or shares in its employer) is only an Exempted Employee to the extent that such Equity Partner that makes drawings or receives profit distributions or dividends from the employer or one of its affiliates;

• the clarification that employees may bring claims against their employers during but not later than 6 months post-termination of their employment rather than only post-termination;

• the adding of limitations on the period that employees can claim unlawful deductions but with exceptions in relation to claims for salary deductions or payments made by the employee to the employer for claims relating to maternity pay, pay for time off for ante-natal care and adoption proceedings, paternity pay, sick pay, and Gratuity Payments or Core Benefits;

• for fixed-term employment contracts of 6 months or less, the maximum probation period for such employees cannot be more than half of the duration of the contract;

• the clarification that the statutory number of accrued but untaken annual leave that can be carried forward into the next holiday year is a minimum of 5 days, to clarify that employers and employees can agree to carry forward more than that amount if preferred (with the DIFC Authority noting that certain employers have "incorrectly interpreted" the Employment Law as allowing a maximum of 5 days to be carried over);

• confirmation that male employees on paternity leave will continue to accrue annual leave during that period of paternity leave (in line with the accrual of annual leave during maternity leave for female employees);

• removal of certain employer health and safety duties for employees working from home (i.e. to account for the increase in employees working from home due to the COVID-19 pandemic and the requirement for employers to provide certain protections in the workplace which are no longer relevant for home-working, such as minimising risks relating to fire hazards and providing drinking water); and

• the aggregation of fixed-term contract terms and secondment periods when calculating continuity of service periods (relevant for the calculation of gratuity payments).

Conclusion

If implemented, the proposals set out in the Paper will provide helpful clarifications in relation to the matters outlined above, removing ambiguity and uncertainty around interpretation of key features of the Employment Law and Regulations. It is also clear that the DIFC Authority is prepared to amend the Employment Law to ensure that the law keeps up with working practices, particularly with respect to the fact that more DIFC employees now working from home.

Anyone with an interest, or currently doing business, in the DIFC should be aware of the proposed changes and, if applicable, submit any comments on the Paper to the DIFC Authority by the deadline of 28 March 2021. A link to the Paper and table to add comments view is available here: Consultation Papers | Dubai International Financial Centre (DIFC)

For any queries relating to this (including our assistance in submitting comments on the Paper to the DIFC Authority) and other general DIFC or UAE employment related matters, please do not hesitate to contact David McDonald.