It is important to understand the nuances of employment law in the United Arab Emirates before setting up a business, or seconding employees to the country. There are various time consuming processes which must be followed so getting the ball rolling early can save you from facing difficulties further down the line. In particular, the new legal requirement for job offer letters to be issued prior to a foreign employee entering the UAE needs to be considered at an early stage.
Relationship between employment and visa
For any foreign nationals (non- GCC nationals) the right to reside and work in the UAE is directly linked to their employment and the issuance of a residency visa under the sponsorship of a UAE employer and a valid work permit. A written employment contract between a UAE entity and the employee must be produced to the relevant authorities before an individual’s residence visa and work permit are issued. This direct employment relationship will be governed by UAE law and recognised by the relevant authorities in the UAE.
This direct employment relationship can lead to complications for employees who are being seconded out to the UAE on a short to medium term basis, as it entitles them to certain rights under the UAE labour law. Most notably, after one year’s service in the UAE, employees become entitled under the UAE labour law to an end of service gratuity payment or pension, which is payable upon termination of their employment with the UAE entity. These rights should be fully understood and arrangements agreed upon prior to the employee moving out to the UAE. For example, while end of service gratuity is mandatory under the UAE labour law, it is possible to obtain a waiver where the seconded employee will continue to receive pension contributions of at least equivalent value in their home jurisdiction and provided the required formalities are completed at the time of entering into the UAE employment arrangement. There are also other areas of potential conflict where the seconded employee’s existing employment contract continues to run in parallel with the required UAE employment contract and such matters will need to be dealt with in a secondment agreement or similar.
Location of employment
It is important to give thought to the location of employment at an early stage, both to ensure business needs are properly addresses and to understand which employment legislation and governmental authorities will be relevant.
The UAE is divided into seven emirates (the largest being Abu Dhabi and Dubai), which are further divided into “on-shore” and “off-shore” areas. The “off-shore” areas are free zones, which allow, amongst other things, 100% foreign ownership and tax relief. Whilst some of the free zones have their own employment law regulations, the majority are subject to the federal labour laws. The main exception to this is the two financial free zones, the Dubai International Financial Centre and the Abu Dhabi General Market, which are separate common law jurisdictions within the UAE and have their own governing employment laws federal labour laws do not apply other than the Penal Code).
The relevant authorities for employees will be the free zone authority in respect of off-shore/free zones, or the Ministry of Human Resources and Emiratization (“MHRE”, previously the Ministry of Labour) for on-shore companies. These authorities will be responsible for issuing the relevant residency visas and work permits and such visas and work permits will only permit the employee to work from that particular area (i.e. employees with visas and work permits issued by the MHRE will not be permitted to work for another employer or within a free zone and vice versa). As such, particular care must be taken in respect of employees working across multiple offices in the UAE; the relevant authorities are known to conduct “spot checks” to ensure that employees working in an office hold the correct work permit for that location.
Job Offer Letters
Regulations governing the issuance of job offer letters prior to an employee entering an employment contract were issued in 2015, but have only recently been required in practice by the authorities. For on-shore companies, the MHRE requires a job offer letter to be signed by both parties and approved by the MHRE prior to the employee signing a full employment contract. This sets out the key provisions of employment, as well as providing an annex detailing key rights of the employee. An employment contract cannot be filed with the MHRE unless a corresponding job offer (with matching terms) has been approved.
Our understanding is that the concept of the job offer letters is to prevent companies “luring” employees to the UAE on false pretences, and then offering them employment on substantially less favourable terms upon their arrival in the UAE. Whilst an employee can arrive in the UAE before the job offer letter is filed and approved, we would recommend starting this process beforehand to avoid any complications once an employee is already in situ.
An employment contract for each employee is required to be filed with the relevant authority prior to issuance of an employee’s residency visa and work permit. Most authorities will insist on their standard form employment contract, which are generally three page “fill in the blanks” employment contracts, the form of which cannot be amended. Certain free zone authorities (such as the Dubai Creative Clusters Authority and the Dubai Multi Commodities Centre) permit employment contracts in other forms, provided these are accompanied by a written statement that they are in accordance with applicable local labour laws.
Given the limited scope of this employment contract, is it common practice to have an additional long form contract, which can include additional provisions such as employee benefits, overtime payment, restrictive covenants and garden leave. As this employment contract is not filed with the authorities, there is more flexibility on the drafting, though it should be noted that if any of the provisions are not in accordance with the applicable labour laws, these will not be enforceable in the UAE. For seconded employees, a long form secondment agreement will need to also address any conflicts with any existing home country employment agreement for the period while they are working in the UAE.
The above gives a very general overview of some of the key considerations when hiring or seconding employees to the UAE. Specific advice should be sought in respect of the secondment of employees, as the requirements in the UAE will be dependent on the specific circumstances.
This Law-Now is the first in a three part series, where we will also be looking at the management of the employment relationship and the termination of employees.