UAE revamps Federal Labour Law No. 8 of 1980 ("Previous Law") for the first time in over 40 years.
Federal Decree Law No. 33 of 2021 concerning the regulation of labour relations (the "New UAE Labour Law") will go into effect on 2 February 2022, undergoing significant changes that may cause employers to rethink their current employment arrangements.
According to the UAE Ministry of Human Resources and Emiratization ("MOHRE"), the New UAE Labour Law reflects the rapidly evolving workplace environment along with technological advancements in a Covid-19 world.
We have set out below key changes in the New UAE Labour Law.
The New Labour Law encompasses both existing and future employment arrangements in the UAE, whether they be onshore or offshore (free zones that lack their own regulations).
Major Move Against Discrimination
Unfortunately, discrimination exists in many workplaces and is ignored by employers demonstrating a lack of human resources structures and a low quality work environment. However, the UAE strongly disagrees with this kind of behavior. The New Labour Law empahises on equality and nondiscrimination in an effort to make the UAE a welcoming and safe country for all nationalities, ages, and genders. Employers, managers, and colleagues are expressly prohibited from committing sexual harassment, bullying, or verbal, physical, or mental abuse against employees. Among the most significant reforms in non-discrimination and equality provision, the New Labour Law explicitly promotes equal pay for equal work regardless of gender.
The federal government now provides 60 days of maternity leave to women, which can be extended to 45 days if necessary (complications after childbirth) with full pay and 15 days with half pay. Both parents can take a five-day parent leave for child care. A woman will be entitled to maternity leave in accordance with the new law no matter if she delivers her child stillborn or alive, but dies.
In the event of the death of an employee's spouse, five days of paid leave are available, and three days are available in the event of the death of a parent, child, sibling, grandparent, or grandchild.
Fixed Term Contracts
UAE employers must implement fixed-term contracts for a period not exceeding three years. Unlimited contracts are no longer permitted. There is no limit to how many times the term can be extended or renewed. Whenever an employee's term is extended or renewed, it is added to their period of continuous service (i.e., when calculating any end of service gratuity). Contracts are automatically renewed on the same terms and conditions when parties do not specifically renew or extend them.
The New Labour Law clarifies the conditions that must be met for non-compete clauses to be enforced including, but not limited to, the condition that non-compete clauses are only enforceable for a maximum of two years after the expiry or termination of an employment contract. To protect the legitimate business interests of an employer, non-compete clauses should also specify the location and type of employment. The statute of limitations for filing a claim for breach of non-compete clauses in employment contracts is one year from the date the breach is discovered.
Working hours and overtime
Employees are protected by UAE laws that prohibit working over five consecutive hours without at least one hour of rest. Employees are also limited to two hours of overtime a day. Employers must compensate employees for overtime work exceeding two hours with a 25 percent increase in wages if the nature of the job requires more than two hours' overtime work. In addition, the New Labour Law caps overtime hours at 144 in any three-week period. If workers are asked to work on a day off, they must receive a one-day leave or an overtime wage equivalent to the regular day pay with a 50 per cent increase.
During the probationary period, both parties have the right to terminate employment with a 14-day notice. The probationary period may not exceed six months.
Notice period is capped at three months with a minimum notice period of 30 days. Generally, employees may resign without notice in two scenarios: (i) if their employers violate their obligations and fail to remedy such violation within 14 days of them notifying MOHRE; and (ii) if the employee has been harassed or attacked and notifies MOHRE within five working days.
Under the New Labour Law, settlement payments must be paid by the employer within 14 days of the termination of the employee’s employment.
As part of the New Labour Law, severance pay is now calculated based on the basic salary of a foreign employee who has completed at least one year of continuous service. A basic salary is stated explicitly to exclude any other allowances or benefits. Severance pay is calculated so that an employee is entitled to 21 days of basic salary for the first five years of service and 30 days of basic salary for each additional year of service when an employer terminates the employment contract. Severance pay cannot exceed two years' salary (the basic salary plus any allowances or benefits).
For violations of the New UAE Labour Law, employers can be fined up to one million dirhams. In cases where more than one employee is affected by these breaches, such fines may be multiplied.
It is expected that executive regulations related to the New Labour Law will be published soon to clarify certain key matters, such as end-of-service calculations. Changes brought about by the New Labour Law should be carefully evaluated and revisited after the Executive Regulations are published. To comply with the New Labour Law, existing employment structures will need to be revised. Employment contracts and employment policies will have to be updated by 1 February 2023, and unlimited term contracts will have to be converted to fixed-term contracts.
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