The New DIFC Employment Law – Key Changes

Middle East, UAE

On 30 May 2019, the Dubai International Financial Centre (“DIFC”) enacted a new DIFC Employment Law (Law No 2 of 2019) (the “New DIFC Employment Law”), which repeals and replaces the previous DIFC Employment Law (Law No 3 of 2005) (the Old DIFC Employment Law”). The New DIFC Employment Law will take effect 90 calendar days after it’s date of enactment, on 28 August 2019 (the “Implementation Date”).

This article summarises the key changes implemented by the New DIFC Employment Law, which DIFC employers are advised to incorporate into their respective employment contracts, policies and employee manuals before the Implementation Date.

Scope of Application

The Old DIFC Employment Law applied only to employers and employees of an establishment with a place of business in the DIFC and who were based within, or ordinarily working in, or from the DIFC. However, the scope of the New DIFC Employment Law is wider and includes part-time and short-term employees (for example, it applies to a limited extent to secondees) as well as any employers and employees outside of the DIFC who agree to be subject to its provisions. There is currently no guidance around how this “opt-in” is intended to work and who it is intended to target as “onshore” in the United Arab Emirates (“UAE”) and in the other free zones (other than the DIFC and the Abu Dhabi Global Market) the UAE federal labour law currently applies as a mandatory requirement.

Secondments

Unlike the Old DIFC Employment Law, the New DIFC Employment Law specifically recognises the concept of secondments. It requires employers to provide their secondees with a valid DIFC secondment card which will permit the secondee to work in the DIFC for a period of up to 12 months (longer periods may be approved by the DIFC Authority on an exceptional basis). These arrangements will be helpful both to international companies seconding employees to the DIFC from outside the UAE and to groups within the UAE seconding employees from other UAE group companies to a DIFC entity on a short term basis. Such seconded employees would continue to be bound by the terms of their existing non-DIFC employment agreement with their main employer and would not automatically benefit from all the provisions of the New DIFC Companies Law. For example, the New DIFC Employment law provisions regarding annual leave entitlements, termination (including required notice periods and end of service gratuity entitlement) and paid maternity/paternity/sick leave do not apply to secondees, such matters would be as dealt with under their existing employment contract with their main employer. However, the DIFC secondment employer is still required to comply with obligations in relation to the content of contracts, payment of salary and restrictions on deductions, payroll records and statements, working time requirements (including in relation to public holidays and reduced Ramadan hours for Muslim employees) and obligations in relation to health and safety.

For longer periods of secondment, where an exceptional approval is not granted, it is likely the current arrangements including a full DIFC employment contract will still be required.

Limitation Period

While the Old DIFC Employment Law does not set out a limitation period for employees bringing claims against their employers, the New DIFC Employment Law states that any such claims must be brought before the DIFC Court, within six months from the date of termination of the respective employee’s employment contract. This is shorter than the 12 month period available onshore in the UAE and is something for both employers and employees to be mindful of.

Probation Periods

The New DIFC Employment Law introduces a maximum on the permitted probation period under which an employee may be employed of six months.

Protection of Remuneration

The New DIFC Employment Law introduces a penalty equal to the employee’s daily wage for each day that the employer is in arrears of its payment obligations (excluding payments for any bonuses, grants and/or commissions) to the employee. Such penalty is only applicable when the amount due and not paid, is found by the DIFC Court to be in excess of the Employee’s weekly wage.

Additionally, the DIFC Courts will waive the penalty for any period where there is a dispute pending in court regarding any amounts due to the employee or if the employee’s conduct is the material cause for late/ non-payment from their employer.

Recruitment Costs

Under the New DIFC Employment Law, where an employee terminates their employment contract within six months from the employment start date, an employer may recoup from them any recruitment costs directly incurred in the course of recruiting that employee, provided that the employer has proof of expenditure and that the employment contract specifically provides for such costs and expenses being payable to the employer in such circumstances.

Sick Leave Entitlement

Under the New DIFC Employment Law, the number of sick leave days that an employee may take has been amended from 90 calendar days at full pay to 60 working days on a reducing pay scale. Under the new sick leave entitlements, the employee will only be entitled to full pay for the first 10 working days taken as sick leave, the following 20 working days will be payable at half pay and the last 30 working days will be unpaid sick leave. Before implementing this reduced sick leave pay entitlement into company policies, employers will need to carefully review the terms of existing employment contracts. Since the entitlement set out in the New DIFC Employment Law are the minimum rights, to the extent existing contracts specifically grant employees 90 days paid sick leave, the employer will continue to be bound by that despite the change in the law. However, if the contracts provide for sick leave in accordance with the DIFC employment law as amended or replaced from time to time then there is more flexibility to bring policies in line with the provisions of the new law.

Maternity and Paternity Leave

The New DIFC Employment Law has enhanced the rights of new parents, particularly adoptive parents and new fathers.

Both expecting mothers and fathers are now entitled to take reasonable paid time off to attend antenatal appointments and employees planning to adopt a child are entitled to up to eight paid hours off to attend adoption proceedings.

Paid paternity leave of five working days has also been introduced for male employees who have been employed by the employer for at least one year, such leave is to be taken within one month from the child’s date of birth/adoption. The paid maternity leave entitlement remains approximately the same, although now it is calculated in working days rather than calendar days. Both paid maternity and paternity leave entitlements are now also available for adoptive parents to children less than five years old, whereas previously maternity rights were only available to mothers adopting children less than three months old. In such cases, the date of adoption will be treated under the New DIFC Employment law as the date of childbirth.

In addition, the New DIFC Employment Law has introduced an entitlement to daily nursing breaks totalling at least one hour for a female employee returning from maternity leave where her working day is more than six hours long. This entitlement applies during the first six months following childbirth, unlike the 18 month period available under the onshore UAE Labour Law.

Carrying forward Annual Leave

Under the New DIFC Employment Law, employees now have a right to only carry forward up to five days of unused annual leave into the following year to be taken within 12 months. Under the Old DIFC Employment Law, employers had to ensure the full 20 working days annual leave entitlement was taken within 12 months after the year in which it was accrued. Employers may need to update their policies and practices accordingly.

Anti-Discrimination

The provisions relation to discrimination have been significantly expanded under the New DIFC Employment Law. In addition to the grounds specified in the Old DIFC Employment Law (namely, sex, marital status, race, nationality, religion, mental or physical health), the New DIFC Employment Law also now prohibits discrimination of an employee by the employer on the grounds of age, pregnancy and maternity. Moreover, the New DIFC Employment Law provides that employers may not victimise employees for bringing claims, making allegations or providing evidence against their employer, relating to discrimination.

The employer may also be held liable for an employee’s discriminatory and/or victimising conduct towards a fellow employee unless the employer can show that they took reasonably practicable steps to prevent the offending employee from discriminating/ victimising or attempting to do so.

If an employer is found in breach of the anti-discrimination and/or victimisation provisions under the New DIFC Employment Law, then the Court may:

  1. order the employer to pay compensation to the applicant employee (which may include compensation for injured feelings along with any other compensation) – this may not exceed an amount equivalent to the employee’s annual wage;
  2. make a declaration regarding the rights of the applicant; and/ or
  3. make an appropriate recommendation, such as a recommendation that the employer shall take certain steps to reduce the adverse effect on the applicant, within a specified period.

If the employer fails to comply with the DIFC Court’s appropriate recommendation without a reasonable excuse, the DIFC Court may increase any compensation amount awarded to up to two times the annual wage of the employee or if, no compensation order was made initially, then court may order that the employer pays the employee compensation, not exceeding an amount equal to that employee’s annual wage.

Termination of Employment

Employers and employees may agree on longer notice periods for terminating an employment contract, but not shorter notice periods than those set out in the New DIFC Employment Law, these minimum notice periods remain largely the same although they are now calculated in days rather than weeks/months giving greater certainty. The New DIFC Employment Law also now specifically provides that, during this notice period, employers may require the employee to not attend work or carry out their duties, commonly known as “garden leave”.

Employers may only make payments in lieu of notice if an employee agrees to it in a settlement agreement or if there has been termination by the employee for cause. The New DIFC Employment Law recognises the concept of settlement agreements as a means to terminate the employment contract, or to settle a dispute between the employer and employee. The settlement agreement may entail the employee agreeing to waive their rights and/or be released from obligations under their employment contract and or the New DIFC Employment Law provided that the employee has received independent legal advice from a legal practitioner in relation to the agreement or that the settlement agreement followed court administered mediation proceedings. Employers should ensure that all settlement agreements with employees include a statement from the employee confirming that they have received independent legal advice from a legal practitioner on the terms and effects of the settlement agreement.

Unlike the onshore UAE Labour Law, the New DIFC Employment Law does not include specific provisions relating to constructive and arbitrary dismissal by employers. However, employers are now required to provide all employees with a written statement of reasons for termination within 14 days of an employee’s request for the same, provided such request is made within 30 days after the termination date. Under the Old DIFC Employment Law only an employee with at least one year’s service was entitled to receive such a statement and delivery time periods were not specified.

Under the New DIFC Employment Law, employers are now required to keep employee records for at least 6 years after the date of the relevant employee’s termination of employment.

End of Service Gratuity

The end of service gratuity provisions under New DIFC Employment Law have been updated to include specific reference to the registration of UAE and GCC nationals with the General Pension and Social Security Authority. Other employees continue to become entitled to end of service gratuity upon completion of one years’ service, however this now specifically includes any secondment period the employee may have completed before signing a direct employment contract. Under the Old DIFC Employment Law, employees dismissed for cause were not entitled to receive end of service gratuity, however under the New DIFC Employment law, end of service gratuity is now payable to employees dismissed for cause.

It is common practice for employers in the UAE to attempt to reduce their liability to pay end of service gratuity by splitting an employee’s salary into basic salary and allowances. However, the New DIFC Employment Law provides that end of service gratuity must be calculated on the basis that the employee’s basic wage is at least 50% of their overall annual wage, therefore, this will apply even if less than 50% of an employee’s salary has been designated as basic salary in the employment agreement.

The New DIFC Employment Law also allows employees to receive contributions from their employer in a pension scheme, retirement savings scheme or any similar scheme, within the United Arab Emirates, or abroad, instead of their end of service gratuity payment. However, this must be agreed in writing between the employer and employee and the aggregate contributions may not be less than what that employee would get as an end of service gratuity payment. This is likely to be a developing area of regulation in light of the DIFC’s proposals to overhaul the entire end of service gratuity regime and replace it with a DIFC employer workplace savings scheme. We will continue to monitor developments in this area and issue updates as more information becomes available. In the meantime employers can begin to consider whether any existing group schemes can be extended to DIFC employees if and when the regulation changes or whether they will put in place new savings schemes under third party fiduciary arrangements or take part in any DIFC scheme that is established to replace end of service gratuity.

Fines

Fines for breach or non-compliance of the law have been increased under the New DIFC Employment Law and range from USD 2,000 to USD 10,000 (for employing anyone under the age of 16 which is the new increased minimum age for employment).

Next Steps

Before the Implementation Date, DIFC registered employers should review and update their employment contracts, human resources policies and employee manuals in light of the changes implemented by the New DIFC Employment Law. They will also need to note where employers have higher rights from the Old Employment Law (e.g. in relation to sick leave) embedded in their employment contracts, which will continue to apply unless any amendment is agreed with the employee.

Please get in touch with any member of our team if you require any assistance in reviewing your existing employment agreements and HR policies or any advice on your obligations under the New DIFC Employment Law.

Article co-authored by the CMS Trainee Solicitor Sarah Al Hinai