This Practice Note takes into consideration the legal obligations and practical implications that a foreign employer needs to be aware of when hiring a local or foreign employee in the United Arab Emirates, excluding the Dubai International Financial Centre and the Abu Dhabi Global Market freezones.
Tag: Labour and Employment
Amendments to the Labour Law – employers, en garde!
On 29 July 2024, the UAE enacted Federal Decree Law 9 of 2024 (the Amendment) introducing some significant changes to Federal Decree Law 33 of 2021 (the Labour Law), UAE’s principal legislation on employment. The Amendment replaces Article 54 of the Labour Law pertaining to individual labour disputes, and, Article 60 of the same law which sets out the penalties applicable for certain violations by employers. The Amendment comes into force on 31 August 2024.
The key amendments are as follows:
Article 54 (individual labour disputes)
- The time bar for labour disputes is now two years from the date of termination of employment- i.e., a labour dispute may be filed within two years from the date of termination of employment.
- Final appeal in small claims matters (i.e., claims below AED 50,000) is now before the Court of First Instance, and not before the Court of Appeal.
Article 60 (penalties)
Enhanced penalties for violations.
The penalties applicable to employers under this provision for certain violations have been substantially enhanced under the Amendment. The previous penalty ceiling of AED 200,000, for these violations, has been raised to AED 1 million under the Amendment. Accordingly, employers should take note that once the Amendment becomes effective, they may be exposed to penalties ranging between AED 100,000 and AED 1 million for the following violations:
a)Employing an employee without obtaining a work permit;
b) Recruiting an employee and not providing work;
c) Misusing work permits for purposes other than those for which they were issued;
d) Closing an establishment or suspending its activities without settling workers’ rights or entitlements; and
e) Employing a minor in violation of the Labour Law.
Penalty for engaging in fictitious employment.
Significantly, the Amendment also imposes an identical penalty (between AED 100,000 and AED 1 million) for fictitious recruitment of employees. The Amendment specifies that this penalty is multiplied depending on the number of employees who are employed fictitiously.
The Amendment also provides that the Ministry of Human Resources and Emiratisation may institute criminal proceedings against employers for fictitious recruitment of employees.
This stringent fine is intended to deter employers and employees from subverting government policies and public benefit measures, such as the Emiratisation programme.
The award-winning dispute resolution team at Afridi & Angell has significant expertise in UAE employment law and are well positioned to advise on employment disputes and risk mitigation. ■
Termination of employment in the UAE – can an employer terminate an employee’s employment at will?
Under the employment law that was previously in force in the UAE, employers were not permitted to terminate an employee’s employment (even with notice) absent a “legitimate reason” and if “the reason for such termination has no connection with work”. In other words, the concept of termination “at will” was not recognised as an enforceable right in the context of an employer-employee relationship.
This inBrief will examine whether the new labour law (Federal Decree 33/2021) (the New Law) which replaced the 1980 Federal Law (the Old Law) has changed this position, and how the Abu Dhabi and Dubai Courts have interpreted the relevant provisions on termination of employment with notice.
What does the New Law say about termination with notice?
The relevant provision for termination with notice is contained in Article 43 (1) of the New Law, and provides that either party may terminate the employment contract, with notice, for any “legitimate reason”. This position is no different to what was in place in Article 117 of the Old Law. Significantly, both the Old Law and the New Law require termination to be for a “legitimate reason” [لاي سبب مشروع]. Neither the Old Law nor the New Law provide a definition for what constitutes a “legitimate reason”. Some guidance was available in Article 122 of the Old Law which provided that a termination of employment of an employee would be deemed “arbitrary” if the reason for termination had no connection with the work of the employee. However, there was no definite interpretation of what a “legitimate reason” could entail, which was a point of concern for both employers and legal practitioners.
What about arbitrary termination of employment?
There appears to have been a significant departure as to what constitutes arbitrary termination of an employee’s employment under the New Law. A comparison of the relevant provisions is set out below:
| Article 122 of the Old Law | Article 47 (1) of the New Law |
|---|---|
|
The termination of service of a worker by an employer shall be considered to be arbitrary if the reason for such termination has no connection with work. In particular, the termination shall be considered arbitrary if it is caused by the worker submitting a serious complaint to the competent authorities or making a claim against the employer which is proved to be correct. |
The termination of the worker’s service by the employer shall be illegal if such termination is due to his filing a serious complaint with the ministry or filing a lawsuit against the employer that has been proven to be valid. |
Under the Old Law, termination of employment was considered arbitrary if “the reason for such termination has no connection with work”. What might have been deemed as arbitrary termination therefore was potentially broad in scope, and could conceivably be for any reason that was not work-related. This was reinforced by the wording of the Old Law providing: “[i]n particular, the termination shall be considered arbitrary if it is caused by the worker submitting a serious complaint to the competent authorities or making a claim against the employer which is proved to be correct” (emphasis added).
In contrast, the mirroring provision in the New Law appears to indicate a departure from the position under the Old Law. The most notable departure is the absence of the language that the termination of employment would be considered arbitrary if “the reason for such termination has no connection with work”. Instead, the New Law restricts circumstances where termination of employment would be considered arbitrary to only “if such termination is due to his filing a serious complaint with the ministry or filing a lawsuit against the employer that has proven to be valid.” Importantly, the New Law has done away with the concept that any termination that is unrelated to the employee’s work will be deemed arbitrary.
Therefore, any discretion available to a judge under the Old Law in assessing whether or not the termination was work-related or arbitrary appears to have been removed by the New Law. It would seem that the drafters might have made a conscious attempt to limit the circumstances that would be deemed arbitrary dismissal by confining its application only to instances where an employee is terminated for filing a complaint with the Ministry of Human Resources and Emiratisation (MoHRE), or for filing a lawsuit against the employer.
How have the courts interpreted this?
The courts seem to have addressed the question of what can amount to arbitrary termination. In a recent decision of the Dubai Court of First Instance, the court referred to a “settled” position in law, as follows:
It is also settled in the precedents of the Dubai Court of Cassation that as per the provisions of Article 47 of Federal Decree-Law 33 of 2021 termination of an employee’s service by an employer is unlawful if the termination of the employee’s service is due to filing of a serious complaint to the Ministry or filing of a valid claim (lawsuit) against the employer. This means that the termination of the employment contract by an employer is considered termination without lawful reason if it aims at harming the employee due to submission of a serious complaint to the Ministry of Human Resources and Emiratisation or filing of a valid claim (lawsuit) against the employer. (Emphasis added)
The Court also cited with approval a judgement given by the Abu Dhabi Court of Cassation in late 2022 where the Abu Dhabi Court determined that the effect of the new provisions was to restrict what is deemed arbitrary dismissal or unlawful termination only to the two instances specified in Article 47 (1). The Court also found in that case that if arbitrary termination had been established by an employee, an employee would be entitled to compensation regardless of whether or not notice of termination was given.
In this case, the court cited an extract of a judgment of the Abu Dhabi Court of Cassation delivered in late 2022. The judgment of the Abu Dhabi Court of Cassation is important for two reasons. One, it recognised the intention of the drafters of the labour law to restrict arbitrary dismissal or unlawful termination to two instances specified in Article 47 (1). Second, it held that where either of the two circumstances are concerned, employees will be entitled to compensation even where the employer had given notice of termination. The relevant extract of this judgment referred to by the Dubai Court of First Instance is as follows:
The legislators, in the new law on regulating labour relations, restricted employees’ entitlement to fair compensation for arbitrary termination to two cases only, first, where the employer’s termination of the employee’s employment was due to the employee filing a serious complaint and termination was a result of the complaint. The court of first instance shall assess the seriousness of the complaint and whether a settlement took place or whether it was referred to court. The second is where termination was a result of the employee filing a case against the employee, of any type, provided its validity is proved from a procedural aspect without waiting for the outcome thereof. The employee shall be entitled to compensation in both cases even if the employer abides by the obligation to give notice.
Significantly, the Dubai Court of First Instance, in this case, also opined that “[i]t is also settled that whoever claims that unlawful termination has occurred shall bear the burden of proving his claim, considering that he is claiming contrary to the general rule which provides that each use of a right is a legitimate use unless evidence to the contrary is established.”
Based on the above, it would appear that a claim for unlawful termination has now been restricted to a great extent as the courts have taken the position that termination can only be considered arbitrary where either of the two circumstances stipulated in Article 47 of the labour law are applicable. Furthermore, the burden of proof will be on the employee claiming unlawful termination.
What about the requirement for a “legitimate reason” under Article 43 (1)?
Unfortunately, the Dubai Court of First Instance did not provide any guidance on what constitutes a “legitimate reason” for termination with notice. However, the Dubai Court of First Instance made the following observation:
In relation to the prayer for notice pay, the labour law has stipulated provisions on termination of employment contracts in order to achieve a balance between the interests of the parties, by granting both the employee and the employer the right to terminate the contract subject to certain controls. Article 43 (1) of the labour law provides that either party to an employment contract may terminate the contract for any legitimate reason, provided the other party is notified in writing and provided the notice period is not less than 30 days and not more than 90 days. Article 43 (3) provides that the party that does not abide by the notice period shall pay to the other party the notice pay as compensation, even if the absence of notice does not cause damage to the other party. The compensation shall be equal to the employee’s salary for the full notice period or the remaining period thereof. (Emphasis added)
The reference to “certain controls” in the judgment could allude to the requirement that a termination should have a “legitimate reason” or, alternatively, the duty to give notice (or both). However, where Article 43 (3) specifically stipulates a sanction for failing to comply with the notice requirement, there is nothing in the New Law that mandates any penalty where a termination is not for a “legitimate reason”. This indicates that the legislature has placed more emphasis on the notice obligation, and less emphasis on the requirement for a “legitimate reason”.
What does this mean for employers and employees?
It would still be unsafe to conclude that the UAE has adopted the concept of “employment-at-will”. In certain jurisdictions, employers are able to terminate employees without cause, but that is not the case under the New Law. Employers are still required to base any termination on a “legitimate reason” and to give due notice in terms of the law and the contract of employment. However, it is clear that the New Law has brought about a greater balance to the employer-employee relationship as far as termination of employment is concerned. The labour law places a high burden on employers as far as termination without notice is concerned. But, when it comes to termination with notice, the position appears to be far less onerous for employers now. ■
Amendment to the UAE Federal Labour Law
Article 54 of the Labour Law (Federal Decree-Law 20 of 2023 on the regulations of labour relations, as amended) dealing with employment disputes has been amended to give greater powers to the Ministry of Human Resource and Emiratisation (the Ministry). The amended provision shall come into effect from 1 January 2024.
Authority to issue a decision
Under the Labour Law, in case of an employment dispute, before filing a case before the Court of First Instance, the employer or the employee is required to file an application to the Ministry. The Ministry is required to examine the application and take appropriate actions it deems necessary to amicably settle the dispute between the parties.
In case the parties fail to amicably settle a dispute, while earlier the Ministry was required to refer the matter to the courts (i.e., the Court of First Instance), now the Ministry has been given powers to decide a dispute with a final decision:
i. if the claim amount in the dispute is less than AED 50,000; or
ii. where a dispute relates to failure by either party to comply with an amicable settlement decision previously issued by the Ministry (irrespective of the claim amount).
The party in whose favour the Ministry has issued its decision can directly proceed with execution (a mechanism for enforcement of a decision) of the said decision as per the rules of execution under the UAE Civil Procedure Law.
The requirement to file an application to the Ministry is not applicable to free zone companies (employers) and its employees wherein an aggrieved party is required by the relevant free zone authority’s rules to first approach the free zone authority instead of the Ministry. Although a free zone employer/employee is still required to approach the Ministry in order to obtain a referral letter to the court (stating that the employee can file a case before the court), the Ministry does not look into the substance of the dispute and its role is just to issue the referral letter. It will be interesting to see if the applicability of these provisions will also be extended to apply to disputes between free zone companies (employers) and its employees.
Right to file the claim before the Court of Appeal
Within 15 working days from the date of notification of the Ministry’s decision, either party may file a case directly before the Court of Appeal (and not the Court of First Instance). The Court of Appeal shall set a date for hearing within three working days and issue its decision within 15 working days from the date of starting the proceedings before the Court of Appeal. The decision of the Court of Appeal shall be final.
If proceedings have commenced before the Court of Appeal, there will be a stay on the execution of the decision issued by the Ministry.
Failure to Amicably Settle a Dispute or Claim Amount of more than AED 50,000
If the parties fail to amicably settle a dispute (within the timeframe provided under the law) and if the claim amount in the dispute is more than AED 50,000, the Ministry shall refer the dispute to the competent court (i.e., the Court of First Instance) together with a memorandum which shall include a summary of the dispute, the arguments of the parties and the Ministry’s recommendation. Within three working days from the date of receipt of the application from the aggrieved party, the competent court is required to set a date for the hearing and promptly decide on the dispute.
These are welcome amendments to the Labour Law which will result in quick resolution of disputes where the claim amount is low and will reduce the workload of the UAE Court of First Instance. ■
UAE: New End of Service Benefits Scheme for Employees in the Private Sector
The UAE Cabinet recently approved a scheme for the establishment of savings and investment funds for employees primarily in the private sector (including free zones). This scheme is an alternative to the current system of payment of end-of-service benefits (gratuity) to an employee at the end of his employment.
Participation in the scheme will be optional for employers. Under this scheme, the participating employer will be required to make a monthly contribution to the selected fund.
The funds will be supervised by the UAE Securities and Commodities Authority in coordination with the Ministry of Human Resources and Emiratization.
The scheme is likely to have three investments options: (i) risk-free investment option (which will maintain the capital), (ii) low, medium or high risk-based investment options; and (iii) sharia-complaint investment option.
An employee will be entitled to receive his savings (contributions made by the employer) and returns on investments (as per the investment option selected) at the end of his employment. If employment has been terminated, it is likely that an employee will have the option to continue with the fund (without additional contribution from the previous employer) by not withdrawing his savings and returns.
Participating employers will not be required to pay end-of-service gratuity to the employees at the end of their employment. However, other benefits such as return ticket/air fare, payment of unused annual leaves and other contractual benefits will still be required to be paid by the employers at the end of an employee’s employment.
Additionally, employers are currently not required to make a provision in their accounting books for their end-of-service benefits liability. End-of-service benefits are only due and payable to an employee at the end of his employment. In case an employer is in financial difficulties, such an employer is often unable to make payment of the end of service benefits to its employees. However, under the new scheme, employers will be required to make monthly contribution. Even if an employer is facing financial difficulties, if the said employer has already made monthly contributions, at least certain part of the end-of-service benefits of its employees will be protected.
There is currently no similar scheme in the UAE except for the pension scheme that is only applicable to GCC national employees and the DIFC Employee Workplace Savings Scheme (DEWS).
Detailed legislation regarding the scheme and its implementation is expected in due course. ■
Evolving Landscape for Whistleblower Protection in the UAE
Whistleblowing or simply put, the act of drawing attention to or complaining about perceived wrongdoing, misconduct, unethical activity within one’s organisation has been a topic of great relevance in the last few years. While there is no federal law relating to whistleblowing in the UAE, there have been significant legal developments in this area.
The Dubai Law No. 4/2016 on Dubai Economic Security Centre which applies to all entities licensed in Dubai and the freezones established the Dubai Economic Security Centre (DESC). The DESC is tasked to fight corruption, crimes of fraud, bribery, embezzlement, damage to public property, forgery, counterfeiting, money laundering, financing terrorism and monitor financial violations and markets. This law defines a whistleblower as a person who notifies or cooperates with the DESC about any matter that may prejudice the economic security of Dubai. DESC is required to ensure confidentiality and provide the necessary protection to the whistleblower from retaliation or discrimination. However, this law has not seen much practical implementation and is yet to be tested.
In this inBrief, we look at whistleblowing policies that have been adopted by three freezones in the UAE: the Dubai Multi Commodity Centre, the Dubai International Financial Centre, and the Abu Dhabi Global Markets.
Dubai Multi Commodity Centre (DMCC)
Subsequent to the establishment of the DESC, the DMCC, one of Dubai’s most prominent freezones, also issued a whistleblowing guidance note for its members on 10 November 2019. The DMCC has defined whistleblowing very widely to include any concern regarding actual or potential illegal activity, or unacceptable or undesirable behavior of public concern which may have reputational impact including financial malpractice, fraud, failure to comply with a legal obligation, human rights abuses, dangers to health and safety or the environment, etc. The guidance extends to (i) employees and former employees; (ii) consultants; (iii) accredited members of DMCC clubs; (iv) owners, residents and visitors to DMCC free zone; and (v) owners’ associations and management companies.
Any such complaint must be made to the dedicated email ID of DMCC Authority and may be made anonymously. It also contains principles relating to confidentiality and protection if such complaint is made in good faith and with reasonable suspicion.
Dubai International Financial Centre
The Dubai Financial Services Authority (DFSA) published its own Whistleblowing Regime in April 2022 that applies to a registered auditor, a DFSA Authorised Person (an entity licensed to undertake financial services in the DIFC), or a Designated Non-Financial Business or Profession (which includes real estate developers, dealers in precious metals, law firms, accounting firms, company service providers or a singly family office). All these entities need to put in place appropriate and effective policies and procedures to facilitate the reporting and assessment of regulatory concerns. The whistleblowers may make a complaint to its organisation or directly to the DFSA. Legal protections are available to the whistleblowers only when the disclosure relates to a reasonable suspicion that the organisation has contravened any law or is engaged in money laundering, fraud or any other financial crime provided that the disclosure is made in good faith. These provisions have been given legal effect by making adequate amendments to the DIFC Regulatory Law 2004.
The Abu Dhabi Global Markets (ADGM)
The ADGM, the other financial freezone in the UAE aside from the DIFC, is the latest entrant to this regulatory space. The ADGM issued Guiding Principles on Whistleblowing in December 2022 and, unlike the DIFC, the ADGM has issued a non-binding Guidance which is proposed to complement its regulatory framework and act as guidance for all ADGM entities when designing and implementing a whistleblowing infrastructure. It is worth noting that the ADGM Authority and its financial regulator, the Financial Services Regulatory Authority, also provide infrastructure (on their websites) to make such complaints directly to the authorities. However, it is advised (but not mandated) that the complainant tries contacting the relevant entity directly in the first instance as this can often lead to a swift and efficient resolution of the issue.
The ADGM Guidance is very comprehensive and sets out the following principles:
1. Guiding Definition of Whistleblowing: ADGM encourages entities to use a broad definition of whistleblowing which could include references to fraud, money laundering, corruption, breaches of legal or regulatory requirements, unethical conduct and/or acts to cover up wrongdoing. It should be clear that whistleblowing is distinct from an employee grievance or a customer complaint.
2. Non-Retaliation: A whistleblowing framework should at all times adequately protect whistleblowers from any and all forms of retaliation or disadvantage arising from their whistleblowing. The policy of non-retaliation should be credible and convincing.
3. Confidentiality and Due Process: ADGM entities should have controls in place to prevent unauthorised access to whistleblowing reports or any information that might inadvertently or inappropriately reveal the identity of a whistleblower or the subject of the complaint. Disclosure of information to appropriate external whistleblowing channels – such as a regulator or independent investigator – should be expressly exempt from confidentiality requirements.
4. Reporting in Good Faith: Protection to whistleblowers is only afforded if the report is made in good faith, i.e. based on an honestly held belief that the information offered at the time of disclosure is true. While a genuine misunderstanding should still be protected, deliberate false disclosures or those made exclusively in self-interest do not meet this criterion.
5. Components of a Whistleblowing Framework: No one-size-fits-all approach. Each entity has the flexibility to decide its own policy and reporting requirements depending on its size, business, risk profile and complexity. Independent assessment and investigation should be supported with appropriate training and awareness sessions for staff and managers.
6. Culture: The Guidance insists on a ‘tone from the top’ approach and emphasises that a robust whistleblowing approach is ineffective if not supported in practice. It highlights issues such as under resourcing, low responsiveness, inadequate investigation and poor confidentiality as roadblocks and insists that the entity culture should be such that whistleblowers feel safe to raise issues, and that there are credible channels they are aware of and can use.
The ADGM Guidance adds to the regulatory regime applicable across UAE and provides entities with several key issues that they must consider while drafting their internal whistleblowing policies. Similar to the DIFC, it can be expected that the existence of an effective whistleblowing policy, and measures taken by an entity to enforce it, may be considered as a relevant factor while determining any penalties or sanctions imposed by the ADGM against such an entity. This would imply that an ADGM entity should take adequate measures to formulate and maintain its internal policies in line with the Guidance. ■
Hiring an employee in the UAE – key considerations to be mindful of
The United Arab Emirates (UAE), a sought-after destination by foreign businesses for establishing their regional offices, consists of multiple jurisdictions for incorporation/establishment of entities. Each Emirate of the UAE has its own licensing authority and, additionally, there are more than 40 free zones in the UAE. Each Emirate and each free zone can be regarded as a separate jurisdiction for the incorporation and establishment of entities.
Federal Decree-Law 33 of 2021 on Regulation of Labour Relations (as amended) (the new Labour Law), which repealed and replaced Federal Law 8 of 1980 concerning the Regulation of Labour Relations (as amended) (the old Labour Law), applies to all jurisdictions within the UAE except for the Dubai International Financial Centre (DIFC) free zone and Abu Dhabi Global Markets (ADGM) free zone, both of which have their own employment laws.
In this inBrief, we discuss certain fundamental points which are commonly raised by employers headquartered outside of the UAE and with little familiarity with the new Labour Law. Although commonalities exist in all jurisdictions, points covered in this inBrief apply to entities established in the UAE excluding the DIFC and the ADGM.
UAE Residency Visa and Work Permits
The majority of the workforce in the UAE is comprised of foreign nationals (excluding Gulf Cooperative Council (GCC) countries nationals) who are sponsored by their employers. To sponsor an employee, a UAE employer will arrange residency visas and work permits for such foreign national employees. Subject to complying with certain procedural requirements and passing a routine health and security check, UAE residency visas and work permits are readily issued by the appropriate UAE authorities.
Use of Standard Form of Employment Contract
Most jurisdictions within the UAE require the use of standard form of employment contracts. For entities operating in mainland UAE (outside of the free zone areas), the UAE Ministry of Human Resources & Emiratisation (MOHRE) has published a standard form employment contract. Similarly, Jebel Ali Free Zone Authority (JAFZA) (the authority which regulates Jebel Ali Free Zone) and a number of other free zones have issued standard forms of employment contracts.
The standard form employment contracts are invariably basic documents covering the minimum provisions required for an employment contract. Therefore, it is common for an employer and an employee (such as senior employees) to enter into a more sophisticated contract covering additional points not covered in the standard form contract or providing greater detail on standard provisions than what is typically included in the standard form contract.
Term of Employment Contracts
Under the old Labour Law, it was permissible to enter into either limited term employment contracts or unlimited term employment contracts. However, under the new Labour Law, the concept of unlimited term employment contracts has been removed. There is no limit on the minimum or maximum number of years of a term. It is permissible to renew an employment contract for similar or shorter periods as agreed between the parties.
Probation Period
The probation period of an employee can be a maximum of six months. Under the old Labour Law, either party could terminate an employment contract during probation period without notice. Under the new Labour Law, however, notice of termination of employment is required to be served and notice period will vary depending on the circumstances.
Salary and End of Service Gratuity
Salary is generally divided in two components, basic salary and allowances. Allowances can be further divided into different types of allowances and can be any amount the employer chooses and are not required to be the actual amounts incurred by the employee. For example, the monthly housing allowance is not required to be equal to the actual monthly rent of an employee.
Employees are entitled to an end-of-service gratuity (a benefit which an employer is required to pay at the end of an employee’s service) which is calculated on the basis of basic salary. The higher the basic salary, the higher will be the end-of-service gratuity. It is common to split the monthly basic salary and allowances to, say, 40-60, 50-50 or 60-40 ratios. An employer has discretion to keep a further lower basic salary and offer higher allowances.
Once agreed in an employment contract, the employer will not be able to unilaterally reduce or adjust the basic salary and allowances to the detriment of an employee.
Pension contributions are mandatory for employees from GCC countries. End of service gratuity is not required to be paid to employees from GCC countries.
Termination at Will
The Labour Law does not provide for termination of employment at will. The Labour Law provides for grounds on which an employment contract may be terminated by either party. In case of wrongful termination of an employment contract by an employer, the UAE courts may award compensation to an employee which is capped at a maximum of three months of current salary[1].
Governing Law and Dispute Resolution
All employment contracts must be governed by the laws of the UAE and be subject to UAE local courts. In case of a dispute, irrespective of the provisions of an employment contract, UAE courts will have jurisdiction and will apply the laws of the UAE. An employment dispute cannot be subject to resolution through arbitration.
Reliefs of Injunction and Specific Performance
The UAE courts generally do not grant remedies of injunction and specific performance. In case an employee, in breach of his non-compete obligations, joins a competitor of his previous employer, the previous employer will need to file a case before the UAE courts and prove and claim damages (which is often difficult) from the employee.
A detailed inBrief on the new Labour Law can be accessed here. ■
***
[1] Other provisions may apply for termination of employment of UAE nationals.
Video inBrief: Unemployment Insurance Scheme in the UAE
In this video inBrief, Saurbh Kothari, partner, breaks down the mandatory unemployment insurance scheme in the United Arab Emirates.
Disclaimer: Afridi & Angell’s video inBriefs provide a brief overview and commentary on recent legal announcements and developments. Comments and opinions contained in the video and description are general information only. They should not be regarded or relied upon as legal advice.
UAE Unemployment Insurance Law
In September 2022, the UAE introduced an insurance scheme pursuant to Federal Decree No. 13 of 2022 concerning unemployment insurance. This law was followed by Cabinet Decision No. 97 of 2022 concerning the mechanisms and controls for implementing the unemployment insurance scheme, and Ministerial Resolution No. 604 of 2022 concerning the unemployment insurance scheme (together with the Federal Decree, the Unemployment Insurance Law).
Applicability of the Unemployment Insurance Law
The Unemployment Insurance Law came into effect on 1 January 2023. It applies to all employees in the private sector and the UAE Federal government sector. However, certain categories are exempt from the applicability of the Unemployment Insurance Law, such as: investors (i.e., individuals who own their companies and work at such companies), domestic workers, workers under temporary contracts, etc.
As of now, the Unemployment Insurance Law is not applicable to employees of free zone companies.
Is it mandatory to subscribe to the insurance scheme?
It is mandatory for an employee (unless the employee is under one of the exempt categories) to subscribe to the unemployment insurance scheme.
What are employers’ obligations under the Unemployment Insurance Law?
There is no obligation on an employer to register its employees. However, employers are expected to encourage and direct their employees to subscribe to the scheme.
How much an employee is required to contribute?
Insurance premiums are calculated based on the basic salary of employees. Contribution of not more than UAE Dirhams 5 per month for employees earning a monthly basic salary not exceeding UAE Dirhams 16,000 (the Category 1) and contribution of not more than UAE Dirhams 10 per month for employees earning a monthly basic salary exceeding UAE Dirhams 16,000 (the Category 2), will be required to be paid.
Insurance payout
The insurance payout will be on monthly basis and will be equal to 60 per cent of an employee’s monthly basic salary subject to a maximum of UAE Dirhams 10,000 per month for the Category 1 employee and UAE Dirhams 20,000 for the Category 2 employee.
The insurance payout will be for a maximum period of three months for each claim.
Criteria for claiming compensation
The following criteria are required to be met by an employee to claim compensation:
(i) employee must have been insured for not less than a consecutive 12-month period;
(ii) premiums must be paid by the employee as per the payment schedule;
(iii) employee should not have voluntarily resigned;
(iv) employee’s employment should not have been terminated for disciplinary reasons;
(v) employee must be in UAE at the time of making a claim;
(vi) insurance claim should be submitted within 30 days from the date of termination of the employment or the decision from a UAE court;
(vii) employee should not have an existing complaint of interruption from work; and
(viii) claim for compensation should not be made through deception or fraud and place of establishment should not be fictitious.
Penalties for non-compliance
An employee who fails to subscribe to the insurance scheme will be fined UAE Dirhams 400. An employee who fails to make payment of the insurance premium for more than three months from the due date will be fined UAE Dirhams 200.
If an employee fails to pay the fine for three months from the due date, then the fine will be deducted from the employee’s wages through the Wage Protection System, end of service gratuity, or any alternative system.
Further, an employee will not be eligible for a new work permit until all due fines have been paid within the specified timelines.
Timelines for subscription
All current employees who fail to enroll themselves under the scheme by 30 June 2023 will be fined as per the aforementioned penalties. Employees who are starting employment after 1 January 2023, are required to enroll themselves within four months from the date based on the criterion mentioned in the Unemployment Insurance Law. ■
Video inBrief: New Emiratisation targets in the UAE
In this video inBrief, Abdus Samad, partner, discusses the new Emiratisation targets required by business in the UAE by January 2023.
Disclaimer: Afridi & Angell’s video inBriefs provide a brief overview and commentary on recent legal announcements and developments. Comments and opinions contained in the video and description are general information only. They should not be regarded or relied upon as legal advice.