Changes to the Federal UAE labour and employment laws

We are providing an employer focused webinar presentation on the New Labour Law and its Executive Regulations on Tuesday 14 June 2022 at 3pm UAE time (12pm UK time). The primary purpose of the presentation is to prepare employers to comply with the requirements of the new law which must be met by 1 February 2023. Please register your interest to attend here.

In November 2021, we published an article setting out the top 15 changes to the Federal UAE employment law as a result of Federal Decree Law No. 33 of 2021 Regulating Labour Relations (the New Law). This article updates a number of points from the November 2021 article which are now outdated.

The New Law came into force on 2 February 2022, followed quickly by the publication of Executive Regulations (pursuant to Cabinet Resolution No. 1 of 2022 concerning the Executive Regulations of Federal Decree by Law No. (33) of 2021 Regulating Labour Relations ((the Executive Regulations)). The New Law and Executive Regulations apply to all employers in the UAE with the exception of employers in the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) financial centre free zones.

The scope of the Executive Regulations is somewhat limited but it has provided some clarity around certain areas, which we set out below.

We expect that further regulations will be issued in due course.

Top 10 Points from the Executive Regulations

1. Employee handbook / policies. Companies with 50 or more employees must ensure they implement an employee handbook or policies, covering (as a minimum), the following areas:

   • disciplinary, grievance process and termination procedure;
   • details of its promotion policy, details of any rewards/bonus policy;
   • details of working hours and days, annual leave policy, and health and safety.

2. End of service gratuity (EOSG). While EOSG was not addressed in the Executive Regulations, Federal Law No. 47 of 2021 on the Uniform General Rules of Work in the UAE was published after the New Law. Upon review, it is now clear and accepted practice that the calculation of EOSG should remain on calendar days regardless of when the new contracts are entered into. The reference to working days in the New Law was an error and the proper calculation remains on the basis of calendar days. The New Law also permits employers to apply the old law on EOSG for existing employees still on unlimited contracts until the employees are transferred to fixed term contracts or 1 February 2023 (whichever is sooner). The more generous approach for employees is to apply the New Law and there is no reduction in EOSG gratuity regardless of the reason for termination, but there is no clear guidance on this. The Executive Regulations also describe how EOSG is prorated for part time and job sharing employees.

3. Discrimination and harassment. On the face of it, the New Law gave employees new protections in terms of discrimination and harassment in the workplace. The New Law specifically prohibits discrimination on the grounds of race, colour, sex, religion, national origin, social origin and disability. Maternity and pregnancy are not listed as protected characteristics but employers are prohibited from terminating employment (or threatening to) if an employee is pregnant or on maternity leave. Protection for employees against bullying and sexual harassment in the workplace has also been introduced. The New Law requires that there should be equal pay for men and women for the same work. Employers could be liable for a fine of between AED5,000 to AED1,000,000 for a breach of these provisions (with the risk of a multiple fine for the number of employees impacted by the breach). However, neither the New Law nor the Executive Regulations set out a mechanism for an employee to claim compensation due to suffering discrimination or harassment in the workplace.

4. Additional flexible models of working. In addition to the flexible working arrangements introduced under the New Law (ie the ability to work on a full-time, part-time, temporary or flexible basis), the Executive Regulations have introduced the ability for employees to work remotely, on a job share basis (enabling one or more employees to perform the same role on a shared basis), and on a freelance basis (where the individual would not need to be sponsored by the company in order to provide his / her services to the company). The Executive Regulations also set out how to calculate annual leave for part-time employees. For employers subject to the supervision of the Ministry of Resources and Emiratisation (the Ministry), the Executive Regulations state that the Ministry will provide standard form employment contracts for the various work models. However, to date none have been published by the Ministry.

5. Maximum working hours. The Executive Regulations outline the categories of employees who are exempted from the maximum limit on working hours, these include:

   • chairperson or members of the board of directors;
   • persons holding supervisory positions (with the capacity of an employer);
   • activities of a technical nature which require its performance to be done in successive shifts (provided the average working hours does not exceed 56 hours per week);
   • preparatory of supplementary activities which are required to be performed outside the general working hour determined for work at the establishment"; and
   • workers who are the crew of maritime ships and workers employed at sea.

   These categories of exceptions to the maximum working hours are open to some interpretation. What is not clear from the Executive Regulations is whether these categories of employees are also not entitled to overtime pay (this may well be another oversight).

6. Ability to carry over annual leave days. The New Law appeared to restrict an employee’s ability to carry over their annual leave entitlement from one holiday year to the next. However, this has been changed in the Executive Regulations and employees now have the right to carry over up to half of their accrued but unused annual leave entitlement into the following year, or agree with their employer to receive cash in lieu of the annual leave.

7. Parental leave. The Executive Regulations have introduced a condition around parental leave, so that the employee will have to provide evidence of the birth of his / her child in order to be entitled to take such leave. No further guidance has been given around adoption and whether parental leave extends to a child adopted by an employee.

8. Sick leave. The position around sick leave was largely unchanged by the New Law. However, the Executive Regulations now include a provision whereby an employee will not be entitled to sick leave if the illness results from the employee’s misconduct (whether at work or otherwise), for reasons relating to, for example, drugs or alcohol (subject to medical or other evidence that the sickness was caused by the employee’s misconduct), or the failure to comply with health and safety laws. Given the requirement to prove that the employee caused the illness arising from drugs or alcohol, we expect that the application of this provision may be very limited.

9. Termination due to employer’s bankruptcy / insolvency. An employee’s employment may be terminated where a court judgment has been issued declaring the employer to be bankrupt or insolvent and unable to resume its economic activities. This affirms our earlier analysis that a simple financial loss or ‘cut-back’ would be insufficient to trigger such termination.

10. Restrictive covenants. The Executive Regulations reiterated the conditions to be imposed in relation to non-compete clauses in that it must have a reasonable geographical scope, limited to type of work and cannot be for longer than two years. It expands these requirements stating that where a dispute over the non-compete clause arises, it shall be referred to the courts and it is the employer that bears the burden of proof. There are also stipulated conditions where a worker is exempt from the non-compete clause. The non-complete will not be enforceable:

    • if the employment is terminated during the probation period by either party; or
    • if the employer terminates the employee’s employment at will (that is, ‘termination for convenience’ pursuant to the express notice provisions of the employment contract) or the employer breaches their legal or contractual obligations to the employee; or
    • if the employee or the new employer pays the previous employer an amount not exceeding the equivalent of three months’ salary (although the previous employer should consent to this in writing).

    These are potentially significant limitations in the enforcement of restrictive covenants by employers and it will be interesting to see how this area develops in the courts. The Executive Regulations also set out that further categories of employees who are exempted from non-compete provisions may be published by the Ministry in due course.

There is still much uncertainty around provisions of the New Law. It is widely thought that in due course additional regulations will be brought out in relation to these specific areas which will hopefully provide the much needed clarity it was expected that the Executive Regulations would achieve.

As the New Law is now in force, employers will need to comply with the provisions of both the New Law and the Executive Regulations, and will have until 1 February 2023 in order to ensure they are fully compliant or face fines up to AED 1,000,000 for a single violation or up to AED10,000,000 for repeated violations. All employers in the UAE will need to amend/update their employment contracts and in particular to implement fixed term contracts of up to three years as unlimited term contracts have been abolished. In addition, all employers with over 50 employees will need to implement written policies/a handbook although we recommend that all employers consider implementing such policies in accordance with best practice regardless of the number of employees.

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 and Tara Jamieson.