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Legal Basics Every Employer Should Know in the U.A.E.

Legal Basics Every Employer Should Know in the U.A.E.

Zawya

21 September 2014

By: Ludmila Yamalova, Managing Partner, HPL Yamalova & Plewka DMCC

As is the case in most countries, employment issues in the U.A.E. have certain unique characteristics, reflective of the country’s social fabric, cultural values and economic considerations.  It is, therefore, imperative that foreign companies and individuals setting up businesses and hiring employees in the U.A.E. understand the relevant laws and their impact on business.  If the employment framework is not structured properly from the outset and if the laws are not followed, the repercussions on businesses can be severe.

Yet, many foreign companies setting up in the U.A.E. seem to either underestimate the importance of employment issues or take for granted that the employment laws are similar to those of their own countries.  This especially happens with branches of foreign companies who transfer employees from other jurisdictions.  Little due diligence is conducted and little importance is given to understanding U.A.E. local aspects of the employment relationship.  Most companies do not realize the repercussions until it is too late.

In general terms, in the U.A.E., the employer-employee relationship is subject to a series of laws.  The main law is U.A.E. Federal Law No. 8 of 1980 re: Regulation of Labour Relations (as amended) (Labour Law).  This is the governing and overarching law, establishing the minimum protection for employee rights.  Some economic zones also have their own employment rules and regulations.  These rules, however, must not contradict the Labour Law and can only add benefits to employees and not take away from those provided for by the Labour Law.  Additionally, Abu Dhabi and more recently Dubai have introduced health insurance law, making it mandatory for companies to provide employees with health insurance.  The U.A.E. immigration law, with its many orders and decrees, also closely plays into the employment sphere (Immigration Law).  Among other things, it sets up employment visa regulations and penalties for violating them.  Certain provisions of the U.A.E. Cyber Law are relevant too, as they set rules for use and penalties for misuse of digital information and technology, which permeate every employment relationship.  Finally, the U.A.E. Penal Code, Law No. 3 of 1987 (as amended) (Penal Code), governs a significant part of the employer-employee relationship as it pertains to employee’s misconduct that can be considered criminal.  This includes, for example, theft of company’s information, breach of trust, disclosure of confidential information and the like.

Noteworthy, companies located in the Dubai International Financial Centre (DIFC) are subject to the DIFC’s own employment laws and DIFC Court’s jurisdiction.  Also, government employees are subject to a different employment law, which offers further benefits and protection to those provided for in the Labour Law.  Similarly, the Labour Law does not apply to domestic workers and labourers, who are otherwise governed by specialized laws.

With regards to the specific employment issues that all companies must bear in mind, there are a few core principles.  These core principles are also at the heart of most employment conflicts and disputes.

Requirement of Employment Visa

One of the essential principles of the U.A.E. employment law is that anyone who works in the U.A.E. must have an employment visa.  Furthermore, as a general rule, employees must only work for the company who sponsors their visa.  There are a few exceptions to this rule, such as part-time employees, students and female spouses.

Companies who engage individuals who either do not have an employment visa or hold a wrong visa can be subject to heavy penalties, as set by the Immigration Law.  For example, a company employing someone on a tourist visa or on someone else’s visa will be subject to AED 50,000.00 for each employee.  For repeated offenses, the company’s trade license can be suspended and ultimately cancelled.  For employees, on the other hand, the penalties can and often do result in monetary penalties, jail sentence and ultimately deportation for life.

Sponsorship Concept of Employment Relationship

Another characteristic of the employment relationship in the U.A.E. is the concept of sponsorship.  The company becomes a sponsor for the employee.  This means that the company is ultimately responsible for that employee as long as s/he remains in the country and on the company’s visa.  This sponsorship relationship is not to be underestimated, as it deeply permeates the relationship between the parties.

The company may be held responsible for that employee’s actions even if they were committed out of scope of the employee’s responsibilities.  The company is required to ensure that, at the end of the relationship, the employee has a ticket to exit the country and that s/he ultimately leaves the country or transfers to someone else’s sponsorship.  Also, in the unfortunate event of employee’s death, the company is responsible for the repatriation of remains.  Furthermore, in some cases, the company may also be held accountable for the employee’s debt, such as medical bills, if the employee cannot settle those bills and must leave the country.

Mutuality of Rights and Obligations

Under the employment relationship both parties have respective rights and obligations to each other.  Employers are required to pay employees timely, provide employees with certain working conditions, vacation, holidays and sick days.  For example, the maximum working hours shall be 48 hours, except for certain professions and management designations.  During the month of Ramadan, working hours must be reduced.  Employers are also required to provide a special once-in-a-lifetime pilgrimage leave.

Employees, on the other hand, must perform their obligations to the company and follow the laws.  But to terminate employees for their failure to perform, without paying benefits that they would otherwise be entitled to under the law, requires clearly documented and timely record.

Employment at Will

Despite common perception, the relationship between companies and employees in the U.A.E. is one at will.  This means that no one can force employees to work against their will.  And similarly, no one can force companies to employ someone against their will.  Irrespective of the terms and conditions of the underlying employment contract, an employee can leave a company and a company can terminate employees at any time.

The matter becomes one of compensation.  If an employee leaves prematurely a limited-term contract, s/he has to pay the company 1.5 month of salary and forego end of service benefits.  If an employer terminates an employee either prematurely and/or without cause, it may be liable to pay the employee up to three (3) months of compensation as arbitrary dismissal, along with the standard end of service benefits and other outstanding payments.

Validity and Enforceability of Employment Contracts

Employment relationships are primarily based on the government issued contract, irrespective of the particular economic zone.  Nevertheless, most companies also have their own employment contracts, varying in form and substance.  Sometimes these contracts are all together separate employment agreements.  Other times, they outline additional benefits for employees.  Commission, bonus, confidentiality and non-competition agreements are some such examples.

As a general rule, the government documents will always prevail and serve as governing instruments in the event of dispute.  The validity and enforceability of the private agreements heavily depends on how those agreements are structured and presented.  Any agreements that take away rights or benefits to which employees would be entitled under the Labour Law will be held invalid.  Similarly, any private agreements that are either too broad or unreasonable will also be held invalid.

Termination of Employment Relationship

One of the most contested issues in the employment relationship in the U.A.E. is one of termination and, in particular, as it relates to compensation.  Compensation, in turn, is determined by whether termination is premature and/or for cause.  Establishing the nature of termination falls heavily on the requirement and form of notice.

There are two types of notices.  One notice refers to the notice of termination.  The minimum termination notice under the Labour Law is one month.  The other form of notice is termination for cause.  To be valid, the termination for cause notice must be served pursuant to Article 120 of the Labour Law.  Article 120 refers to the employee’s misconduct and sets out requirements for the company to document and notify employees accordingly.

Under the Article 120 notice, the company can terminate the employee without any further notice and, potentially, without having to pay any other dues.    In the event, however, a company terminates an employee prematurely and does not serve proper Article 120 notice, it may be held liable for arbitrary dismissal.  Compensation for arbitrary dismissal, in turn, can be based on up to 3 months of gross salary.  In practice, judges, almost as a matter of course, award the maximum three months of gross salary.

When termination is at the end of the employment contract, no notice is required and no additional payments, other than outstanding dues and end of service benefits.

End of Service Benefits

One of the other specific traits of the U.A.E. Labour law is the concept of the end of services benefits.  Its objective is to compensate employees for their services to the company, commeasurable with their length of service, and provide employees with interim income until either their next employ or exit out of the U.A.E.

Employees become entitled to end of service benefits after 1 year of continuous service.  For the first 5 years of service, an employee is granted 21 days of basic salary for each year of service.  After the fifth year of service, the end of service benefits are 30 days for each additional year of service.

In an unlimited contract, when an employee resigns, s/he is entitled to 1/3 of the end of service benefits for the first 3 years of service.  Between 3 and 5 years of service, the entitlement goes up to 2/3.  After 5 years of service, the employee is entitled to the full end of service benefits even upon resignation.  In a limited contract, if an employee resigns before the expiration of the agreement, s/he is not entitled to the end of service benefits.

Depending on how the employment contract is structured and how the payments to the employees are made, courts may include commissions, bonuses and raises into the basic salary, for the purpose of calculating end of service benefits.

Other Forms of Compensation

Companies may also be required to pay other benefits to employees, some established by law and others by contract.  By law, for example, companies in Abu Dhabi are required, and in Dubai will soon be required, to provide employees with health insurance.  Companies are also required to pay for employees’ visa costs and Emirates ID.  There is also a requirement of a ticket home, at the end of term and in the event the employee wishes to leave the country.  There is, however, no requirement for an annual ticket home.

Contractually, some companies pay their employees bonuses and commissions.  Others choose to pay for transportation, accommodation and school fees.  If any such additional benefits are offered it is imperative that they are properly addressed in the employment documents and with certain procedures in mind, so as to avoid unnecessary and excessive liabilities.

Resolution of Employment Disputes

The resolution of employment disputes is subject to exclusive jurisdiction of the Labour Court.  This excludes DIFC companies, who are subject to the DIFC Small Courts Tribunal.  Companies who are located in free zones must first go through mediation before their cases can be referred to the Labour Court.

The Labour Court is an efficient and competent judicial forum, with the objective of swift and effective dispute resolution.  In many cases judges tend to want to protect employees, insofar as they are often the aggrieved party.  Yet, the Courts are generally objective and tend to just apply the law.  As such, parties should not shy away from filing a dispute with the Labour Court when they reach an impasse.

Conclusion

In summary, all companies in the U.A.E. who hire employees would benefit greatly from understanding the relevant employment and related laws.  Structuring their employment relationship properly will minimize unnecessary damages and liabilities and ensure a successful and long-lasting relationship.