Time is Running Out for UAE Employers – Compliance with New Labor Laws and Recent Policy Developments | Seyfarth Shaw LLP

United Arab Emirates

The United Arab Emirates, or United Arab Emirates, which comprises seven Emirates (i.e. Abu Dhabi, Dubai, Sharjah, Fujairah, Ajman, Um Al-Quwain and Ras Al Khaimah) is an increasingly popular destination for companies. It is known for being a relatively commercial and loosely regulated operating location, as well as allowing expats to be paid tax-free as a major incentive. But with the New labor law, which came into force on February 2, 2022, the UAE has moved closer to the West, with the introduction of increased protections as part of workplace modernization for employers and employees. With just a few months left to comply with the changes brought about by the new law and recent political developments, we highlight key action points and changes.

Note that the new labor law does not apply to Dubai International Financial Center (DIFC) and Abu Dhabi Global Market Free Zones.

Key changes

  • Compulsory fixed-term contracts – three months ahead: Strict requirements have been imposed, which means that all employees must be hired on a fixed term basis by February 2, 2023. Initially, the law provided that these should be capped at three years (revocable with notice). However, this has now been changed to allow the fixed term to not be capped. If employers have already agreed to three-year fixed terms and now want to bind employees longer, they can either wait until expiration to renew or consider changing the contracts to include a longer term.
  • Discrimination – new protections: Discrimination based on race, color, sex, religion, national or ethnic origin or disability is now prohibited. However, this does not apply to emirate policies.
  • Part-time work/Flexible working arrangements: Part-time work is now formally recognised, which means that employers can now legally distribute the rights of part-time employees on a pro rata basis, without running the risk of employees claiming benefits equivalent to those of full-time employees.
  • Notice periods: After completion of the trial period, a minimum notice period of 30 days continues to apply, but notice periods are now subject to a maximum cap of 90 days.
  • Non-skills: Now allowed up to two years with scope limits.
  • Free end of service: From now on payable in all terminations, same resignation and cause.

The United Arab Emirates has set up an unemployment insurance scheme to protect those who lose their jobs (onshore and in free zones). We understand that UAE residents will pay between $11 and $28 per year into an insurance plan and in return may receive up to 60% of their base salary, or up to $5,445 per year. months, if they lose their job for a maximum period of three months following the date of unemployment. The scheme came into effect in October and applies to both expatriates and Emirati nationals.

These changes aim to boost expat confidence that the UAE is a long-term destination, with mandatory fixed-term contracts aimed at demonstrating job security, and changes to the gratuity scheme and benefits. unemployment benefits offering greater financial security, should employees wish to change roles. However, the impact on workplace relations of introducing discrimination legislation is less clear. The new law does not specify the compensation or remedies available to employees if they successfully file a discrimination complaint. It remains to be seen how UAE labor courts will interpret these new rules.

Emiratization – Two months before

On the other hand, while seeking to attract expatriate talent, the UAE government is actively pushing its emiratization drive with the imposition of new quotas. The new emirate requirements will come into effect from January 1, 2023, although they do not apply in free zones. Quotas will work in the private sector as follows:

  • 0-50 qualified employees: one national
  • 51 to 100 qualified employees: two nationals
  • 101 to 150 qualified employees: three nationals
  • 151 qualified employees or more: one national for 50 employees

The goal of the emiratization requirements is to ensure that the private sector workforce comprises at least 10% UAE nationals by 2026. Failure to comply will result in fines of USD 1,634 per month for each UAE national not hired, the fine being increased. annually from 273 USD per month. Besides fines, the UAE government is very active in this area, so it is best for employers to introduce emirate initiatives as soon as possible.

There are separate emirate quotas for the banking and insurance sectors, which will remain at 4% and 5% respectively.

action points

Employers should immediately take the following actions:

  • Update employment contracts so that they are current with the fixed-term requirement and compliant with the new labor law (e.g. gratuities and termination provisions);
  • Carry out a policy review to ensure that policies are in line with the above developments, for example, implementing equal opportunity and anti-bullying and harassment policies and designing an Emiratization strategy long-term ; and
  • Examine their current immigration and sponsorship practices. The UAE government has introduced various types of work permits to accommodate part-time/flexible work arrangements. Employers must ensure that employees operate under the proper license to avoid fines and penalties issued by authorities.

Severance pay in the DIFC Free Zone

A recent case from the DIFC Court of Appeal shows the dangers of not paying an employee’s contractual and statutory termination rights within the 14-day period.

In this case, an employer terminated an employee for cause. He then reduced the severance package owed to him, to compensate for his losses due to his own misconduct – he had siphoned off the company’s profits – as well as for the private plane tickets he had wrongly claimed. and a personal loan. Even though the employee owed his employer more money than he was owed at the time of termination, the DIFC court imposed a penalty payment of $380,000 for non-payment of severance pay within 14 days because these were deemed to be independent and unaffected by the Cause of Termination.

DIFC Employers should manage severance pay carefully, either pay the legal minimum and then sue the employee for reimbursement, or try to agree deductions in writing with the employee.

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