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New UAE Labor Law – Initial Thoughts 

by Charles Laubach

Published: November, 2021

Submission: November, 2021

 



The long-awaited Labor Law has been published in the Federal Official Gazette and is scheduled to take effect on 2 February 2022. The new Law, Federal Decree-Law No. 33 of 2021, replaces the previous 1980 statute in its entirety. The new statute does not constitute a fundamentally different approach to labor relations in the UAE, but it does introduce important reforms.


 


I will discuss a few of these in this note and save a lengthier discussion for a future inBrief. I will focus here on the areas of employment law where disputes are encountered with the greatest frequency.


 


Termination with notice


The 1980 Labor Law accorded differential treatment to contracts of specified term (with a commencement date and an expiration date) and contracts of unspecified term (with only a commencement date). The new Labor Law states that an employment contract must be for a specified term of no longer than three years. Previously, such a contract could not be properly terminated by notice. Termination by notice was available only for unspecified term contracts. No longer. The new Labor Law provides that an employment contract may be terminated by either party for a “legitimate reason” with notice. As before, there is considerable scope for the courts to determine as an issue of fact whether a “legitimate reason” for termination exists in a particular case. Notice of termination must be given in writing. It is not a requirement that the contract set out a notice period, but it is a requirement that the parties follow the notice period set out in the contract, provided that it be no less than 30 days and no more than 90 days.


 


This 90-day cap on the notice period is a new feature. The enforceability of provisions for longer notice periods – common in contracts with senior personnel - is now unclear.


 


This and other issues might be addressed in Executive Regulations to be promulgated by the Ministry of Human Resources and Emiratization.


 


End-of-Service Gratuity


Upon termination of services, an employee who has completed one year of service receives end-of-service gratuity. An employee who does not complete three years or five years of service no longer forfeits a portion of the end-of-service gratuity.


 


Previously, the calculation of end-of-service gratuity was based upon the employee’s salary, but excluding allowances and in-kind payments. Bonuses and commissions were not excluded, and disputes arose over whether these elements of compensation should be included in the figure that was used for calculation of the end-of-service gratuity. The new statute makes it clear that the end-of-service gratuity is based upon the employee’s basic salary. Accordingly, no argument would appear to be available any longer that the figure should include bonuses and commissions.


 


In what appears to be a step in the wrong direction, scope for replacement of the end-of-service gratuity with pensions and savings plans is eliminated. Instead, the Cabinet may by Resolution promulgate systems that would replace the end-of-service gratuity.


 


Overtime


The work week continues to be 8 hours per day and 48 hours per week, with Friday as the weekly day of rest. Crossing either threshold triggers a requirement on the part of the employer to pay additional compensation for overtime. Inconsistencies in calculation of overtime have been eliminated. It is no longer the case that an employee receives overtime based on basic salary in some cases and total salary in others. Instead, overtime compensation is always based upon an employee’s basic salary. Similar anomalies in the calculation of the cash value of unused annual leave have also been eliminated, with basic salary also to be used for that calculation.


 


The rules governing calculation of overtime and the overall caps on overtime have been changed somewhat. The categories of employees that are exempt from the rules on overtime will be detailed in Executive Regulations; it appears that the current exemption for managerial staff will continue until the new Executive Regulations are promulgated.


 


Competition


In a liberal labor market such as the UAE, the hiring away of employees is a feature of the landscape. The 1980 Labor Law stated that an employer could include a clause in the employment contract that would restrict the right of the employee to compete against the employer following termination of services. The enforcement of such clauses was always a separate matter, with the authorities often showing reluctance to prohibit a person from earning a living. Of course, the employer’s central concern is not so much that a former employee may work for a competing employer, but instead that the former employee will make unauthorised use of confidential and proprietary information.


 


The new Labor Law does not really grapple with these issues. It continues the previous language on non-compete clauses, but now limits them to two years’ duration. The narrowing of the restriction might make enforcement more palatable. But it would appear that employers will still have to deal with the reluctance of the local courts to award declaratory and injunctive relief as remedies for threatened breaches of contract. ¦


 



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