With effect from 2 February 2022, the existing UAE labour law, Federal Law no. 8 of 1980 concerning labour relations, (the “1980 Law”) will be repealed and replaced by the new UAE labour law, Federal Decree Law no. 33 of 2021 concerning labour relations, (the “New Labour Law”). The New Labour Law is a revamp of the UAE’s employment regulations. It comprehensively updates the 1980 Law. It brings it more in line with modern workplace requirements and provides both employers and employees with some additional flexibility and aligns with international standards and practices on many counts. How the New Labour Law will be perceived and applied in practice will also depend on the executive regulations (“Executive Regulations”) which are referred to in many sections of the New Labour Law to provide additional guidance and clarity. The Executive Regulations have not been published to date and the date when they will be published is currently unknown.
Some of the key changes introduced by the New Labour Law are:
Discrimination: Protection for employees from discrimination based on (i) race; (ii) colour; (iii) sex; (iv) religion; (v) nationality or social origin; and (vi) disability. Unlike in the DIFC Employment Law and the ADGM Employment Regulations, ‘marital status’ and ‘age’ are not protected grounds under the New Labour Law. Further, there is no definition for ‘disability’ and it remains unclear for time being whether it includes “mental” disability.
Part Time/Flexible Working Arrangements: The New Labour Law distinguishes between different working arrangements, such as full-time, part-time, temporary and flexible work. The Executive Regulations will provide further details on the conditions and obligations on both the employee and employer in relation to the different working arrangements and there is the option to introduce other work models. The so called flexible working model is a completely new category, whereas part-time and temporary working arrangements existed previously under the aegis of Ministerial decisions.
Fixed Term Employment Contracts: The concept of unlimited contracts has been abolished. All employment contracts must be limited term contracts with a maximum term of three years. It is possible to renew the employment contract renew for an equal or shorter term and it is possible that the new standard form contracts provided by the Ministry of Human Resources and Emiratisation will contain some form of notification requirement if a party does not intend to renew the contract upon its expiry. The New Labour Law also specifies that where the parties continue to perform under the original contract without specifically renewing, it shall be deemed to be renewed on the same conditions as set out in the original contract. Every employer is required to amend any existing contracts with its employees by 1 February 2023. This change will result in significant administrative burden on employers to enter into new contracts with all employees (in a form to be determined by the Executive Regulations) prior to 1 February 2023. Companies will also need to review and consider any supplementary employment contracts they may have in place and align them to comply with the requirements of the New Labour Law.
Probation Period: Both employer and employee are required to provide fourteen days written notice in respect of termination of employment during the probation period. However, if an employee intends to join another employer in the UAE during the probation period, then such employee must provide at least one month’s notice and additionally, the new employer will be responsible for covering the current employer’s recruitment costs. This is a new concept and to avoid bypassing the cost covering requirement the new employer will also be responsible for the initial recruitment costs, if an employee terminates the employment during the probationary period in order to leave the UAE but chooses to join a new employer and applies for a new work permit within three months of the date of departure. There is also a potential labour ban for a period of one year where an employee does not comply with the relevant provisions of termination of employment during the probation period. The practicalities and real-world implications are still to be worked out and the Executive Regulations will hopefully provide further clarity as to how these new rules will be applied and enforced.
Non-Compete Clause: The legal contours of imposing post termination restrictions remain largely the same as under the 1980 Law, except that the term of a non-compete clause may not exceed two years. Even though the law limits the restraint period to two years (as against the previous prevalent practice of a maximum of six months), it remains to be seen if the Executive Regulations will provide any further clarity on its enforcement which has always been the main impediment for employers. The New Labour Law makes it clear that if the termination of employment is unlawful, the non-compete restrictions fall away.
Retention of Records: An employer must retain records of employees for at least two years following the end of the employee’s employment. The two-year period is the minimum requirement under the New Labour Law but any higher retention periods specified in other laws like companies law, commercial code or tax laws will prevail in respect of the relevant documentation.
Weekly Rest Days: An employee is entitled to at least one paid day of rest per week and the rest day can be specified in the employment contract or the employer’s HR policies. Friday is no longer the mandatory rest day.
Leaves: The maternity leave entitlement for female employees increases from 45 days to 60 days. During the additional 15 days to the pay is reduced to half the salary only. The law also introduces bereavement leave and parental leave of 5 days and study leave of 10 days for an employee who has completed two years of service.
Disciplinary sanctions: In an interesting development, an employer can suspend an employee with half pay for a period of up to thirty days during the period a disciplinary investigation is underway whereas previously it was not possible to suspend or reduce the pay prior to completion of the investigation. If the outcome of the investigation is that the employee did not commit a violation, the employer must pay the employee the balance that was withheld during the suspension period.
Termination of employment: The termination provisions have been updated and – in line with the introduction of fixed term contracts only – there is a departure from the 1980 Law approach such that fixed term contracts may be terminated prior to the expiry of the term based without the requirement to pay compensation provided there is a ‘legitimate reason’ and the notice is in writing.
The term ‘legitimate reason’ is currently not defined in the New Labour Law. It will be interesting to see whether this will be addressed in the Executive Regulations or whether the courts will interpret this to be linked to performance in line with the current interpretation of ‘fair’ or ‘work related’ dismissal.
Additionally, the concept of payment of compensation on arbitrary dismissal has been curtailed significantly to apply only where the employee is terminated for submitting a complaint to the Ministry of Human Resources and Emiratisation against the employer or filing a lawsuit against the employer. The interplay between the removal of payment of compensation and the introduction to have a ‘legitimate reason’ for termination may present challenging circumstances where employers are desirous of terminating a relationship on performance grounds without any prior warnings or providing for work performance improvement plans.
Article 44 of the New Labour Law is the equivalent of Article 120 of the 1980 Law and includes two additional circumstances in which the employer can summarily terminate, i.e. (i) if the employee misuses his/her position for personal gain and (ii) if the employee joins another establishment without adhering to the provisions set out in the New Labour Law. It is not clear whether any additional steps like reporting to any competent authorities will be required to establish that the employee has misused his/her position.
The New Labour Law includes two specific additional circumstances, which were not previously available wherein the employment term may be prematurely terminated. This appears to be an attempt to include – in a limited way – redundancy or corporate restructuring as a ground for termination of employment. These circumstances are (i) in the case where the entity is permanently closed; or (ii) where the employer becomes insolvent, bankrupt or is unable to continue conducting his business for any economical or extraordinary reasons.
End of service gratuity: The New Labour Law does not specify any reductions to the end of service gratuity. Even in cases where an employment is terminated on account of summary dismissal or an employee resigns, employees (having completed one-year continuous service), are entitled to full end of service gratuity. The New Labour Law also provides that end of service gratuity is calculated based on working days, as opposed to the 1980 Law which calculated end of service gratuity based on calendar days. The Executive Regulations will define the new concept of “working day”. Nevertheless, the move to using the basic salary of a working day rather than the average basic salary of a calendar day may have a financial impact on employers and going forward they may have to revise their provision accruals; even though the New Labour Law does provide that employers may continue calculating the end of service gratuity of unlimited contracts in accordance with the 1980 Law provisions but the position may change once all employees have entered into new fixed term contracts under the New Labour Law and it is possible that the new employment contracts will not take into consideration the 1980 Law provisions. In M&A transactions, the parties will have to consider the potential impact on valuation during price discussions because – depending on how the new employment contracts will be drafted and how it will be implemented by the Ministry of Human Resources and Emiratisation – the accruals could be lower than the actual liability due to the change in the computation mechanism.
In addition to the numerous amendments and new concepts introduced by the New Labour Law, it also codifies certain concepts from judicial precedents and previous Ministerial decrees/resolutions providing greater certainty when it comes to the interpretation of the law and contractually agreed terms. For example, any provisions laid down in any agreement (which could include a supplementary employment contract) that are more beneficial to the employee will prevail, the maximum notice period for termination of employment is ninety days and the notice periods cannot be different for the employer and employee unless beneficial to the employee.
The overhaul of the UAE labour laws and regulations is definitely a step in the right direction. As the 1980 Law the New Labour Law will apply across the UAE (in mainland and in all free zones except the DIFC and the ADGM). It is to be expected that the implementation of the New Labour Law will result in several hiccups initially, especially with the Executive Regulations still being outstanding and the manner of implementation in free zones being currently unknown.