Top 15 changes to the Federal UAE Labour and Employment Laws
This article identifies the top 15 differences between the previous UAE labour law and the new law regulating labour relations.
This article identifies the top 15 differences between the previous UAE labour law (Law No 8 of 1980) (the ‘Old Law’) and the new law regulating labour relations (Law No.33 of 2021) (the ‘New Law’).
All private sector employers in the UAE will need to consider drafting and putting in place new employment contracts and also updating written policies or handbooks for their staff that align with the New Law. There is a grace period of one year (until 1 February 2023) for employers to make these changes. Non-compliance is likely to mean that certain current contractual terms or policies are unenforceable or in some circumstances fines of up to AED 1,000,000 may be imposed for breaches of the New Law.
On 15 November 2021, Federal Decree-Law No 33 of 2021 on the Regulation of Labour Relations was issued, which will come into effect from 2 February 2022, and replace the Old Law. The New Law marks the first substantial change to the UAE federal employment and labour law in 40 years. The New Law has the same application as the Old Law and applies to employers and employees in the private sector in the UAE (including free zones) except those based in the financial free zones, the DIFC and ADGM (which have their own employment laws).
The Ministry of Human Resources and Emiratisation (‘MHRE’) has explained that the rationale behind this New Law is to unify the employment force and strengthen employees’ rights. However, the New Law places a strong burden on employers to make a lot of changes to not only their employment contracts and policies or handbooks, but also their employment practices. We set out below the top 15 key changes. However, there are many more changes and we are still waiting for the executive implementing regulations (the ‘Executive Regulations’) to be released which will include much of the detail of how the New Law will operate in practice.
Top 15 Key Changes
Fixed-term employment contracts only, abolishing unlimited term employment contracts. Possibly the most important change is that there will no longer be the option for an ‘unlimited’ employment contract. Employment contracts will be required to be for a fixed duration of no more than three years. After this time they can be renewed or extended on the same conditions for an equal or shorter period of time provided both parties consent. Any contracts that are currently indefinite will need to be converted to a fixed term contract.
Written policies or a handbook. It appears that the New Law will require employers to set out specific employee and employer obligations including a requirement to have written policies or a handbook to govern the working relationship. However, the details of what may be required will be contained in the Executive Regulations. The Executive Regulations are also likely to set out the minimum requirements for a disciplinary process that employers should follow.
End of service gratuity. Important changes have been made to end of service gratuity (‘EOSG’) entitlement for expat employees (GCC nationals remain entitled to a pension instead). EOSG will be calculated on the basis of working days as opposed to calendar days under the New Law. Therefore, expat employees are entitled to the equivalent of 21 working days basic salary for the first five years of employment and 30 working days basic salary for each subsequent year. This will significantly increase the EOSG liability and employers will not have accounted for this liability. We await to see the Executive Regulations as to how this increase in employer liability may be dealt with. The New Law makes clear that employees are entitled to their full EOSG regardless of the reason for termination, even in circumstances where the employee has been terminated without notice for gross misconduct. Previously there was a reduction in EOSG if an employee had been employed for less than five years and they resign and employers could refuse to pay any EOSG if the employee is summarily dismissed.
Flexible models of working. Employees can now ask to work a shorter week with longer days, to work out flexible working arrangements and to work part-time. This is likely as a result of the change in working practices in the UAE and globally brought about by the COVID-19 pandemic. The Executive Regulations that are to be announced in due course will provide more detail on the practicalities of this and include template employment contracts for the flexible working models.
Notice of termination. The New Law provides for minimum notice periods and sets a cap of 90 days’ notice for termination of employment for convenience. In addition, if the employer issues the notice of termination, the employee is entitled to one unpaid day of leave per week to search for a new employment during their notice period. The reasons for termination have also been updated and now include the failure of the employee to satisfy immigration requirements and bankruptcy or permanent closure of the employer. Termination dues must be paid to the employee within 14 days of the date of termination.
Immediate or without notice termination. The reasons for immediate or without notice termination in the New Law remain the same but with slight amendments. In addition, there are a couple of additional reasons for termination without notice which are if the employee commences employment with another employer without adhering to the regulations for transfers of employment and when the employee uses his position for personal gain. Employees can give notice of termination “without notice” only if the employer has breached their contractual obligations and the employee notifies the MHRE 14 days before and the employer fails to comply. The exception to this is in the case of harassment or violence where the employee only needs to notify the MHRE five days before termination of employment.
Overtime. The New Law significantly changes the operation of overtime. Under the Old Law overtime was for a maximum of two hours per day. The New Law provides for total working hours including overtime capped at 144 hours of working time in a three week period. Overtime is calculated on the basis of basic salary only (as opposed to also including allowances). The Executive Regulations will detail the categories of employees who are exempt from overtime.
New types of leave. The New Law provides for different types of leave on top of strengthening annual leave, sick leave and unpaid leave entitlements. Employees can now receive a stipulated number of days for mourning leave, parental leave, study leave and national service leave.
Maternity leave. Paid maternity leave is longer, granting 45 days fully paid and a further 15 days with half pay with no minimum qualifying service requirement (this applies to female employees with stillborn or new-born deaths). Female employees are also entitled to an additional 45 days of unpaid leave if they suffer a pregnancy related illness.
Treatment of employments on probation. Under the Old Law, employees hired on a probationary basis could be dismissed during or at the end of the probation period without notice. The maximum probation period remains six months but under the New Law, an employer will need to give 14 days’ notice to dismiss an employee hired on a probationary basis. Should an employee wish to change jobs during their probation within the UAE, one months’ notice is required, unless they are an expat who is leaving the UAE (that is not moving to an employer in the UAE) where 14 days’ notice must be given. If an employee moves to another employer in the UAE during their probation (or returns to the UAE within three months to work for a new employer) their new employer will be liable to compensate the first employer for recruitment costs that have been incurred. Employees are no longer entitled to paid sick leave during their probation.
Discrimination and harassment. The New Law has strengthened employee rights in relation to equal opportunities and protections, not just for women but for other minority groups. It has also enforced a prohibition on forced labour, harassment, discrimination, violence, bullying and threats at work. The New Law prohibits harassment and physical, verbal and mental abuse against employees. Employers must not discriminate against employees on the basis of race, colour, sex, religion, national origin, ethnic origin or disability. However, the New Law does not set specific compensations or remedies for harassment or discrimination although this may be dealt with in the Executive Regulations.
Restrictive covenants. The statutory requirements of post termination restrictions remains the same except that the New Law sets a cap of two years for non-compete post termination restrictions. For the first time, the New Law expressly sets out that if an employer breaches the New Law on terminating employment then the non-compete will not be enforceable on the employee. This could be a repudiatory breach of contract by the employer due to failing to provide the requisite notice period.
Holidays and annual leave: The minimum annual leave entitlement for employees remains 30 calendar days. However, employees are now required to use their annual leave entitlement during that holiday year. Before, the Old Law gave employees the right to carry over accrued but unused leave from one year to the next. The New Law stipulates that if an employee has accrued but unused annual leave on termination of employment then a payment in lieu will be calculated only on basic salary.
Salary currency. The Old Law stipulated that salary must be paid in UAE dirhams (AED). The New Law allows for any currency to be used, however, the Executive Regulations will hopefully deal with how this will operate in practice especially how it will align with the Wage Protection System which applies to employers regulated by the MHRE (outside the free zones) with requires payment in UAE dirhams. We expect most employers to continue paying salaries in UAE dirhams.
Collective Labour Disputes. The New Law provides for collective labour disputes where a group of employees can submit a complaint to the MHRE. The MHRE can impose sanctions against the employer and to avoid the dispute harming the public interest. Such disputes may be dealt with further in the Executive Regulations.
The New Law is an exciting development and step forward for labour relations in the UAE. However, there will be actions that each and every employer in the UAE will need to take to ensure compliance with the New Law by 1 February 2023. The New Law provides for fines between AED 5,000 to AED 1,000,000 for violations of this Law or the Executive Regulations. Such fines can potentially be multiplied in circumstances where numerous employees are affected.
The most important steps employers will need to take will be to amend their employee’s terms of employment and to update their employee handbook or policies. The New Law brings about changes that touch on almost every aspect of the employment relationship. However, we await the Executive Regulations to fully understand the impact of the New Law.
For any queries relating to this (including our assistance in complying with these obligations) and other general UAE employment related matters, please do not hesitate to contact David McDonald.
