Snapshot of What Has Changed

The UAE has published Decree Law No. 33 of 2021 on the Regulation of Labor Relations (the “New Labor Law”), which repeals and replaces the longstanding Federal Law No. 8 of 1980 (the “Old Labor Law”) applicable to the private sector throughout the UAE. The New Labor Law comes into effect on 2 February 2022.

The New Labor Law makes extensive reference to issues that will be addressed in implementing regulations and other directives not yet issued (together, the “Implementing Regulations”). So, the devil will be in the details not yet known.

In addition, on 7 December 2021 the UAE announced that the workweek for the UAE Federal government would be changed effective 1 January 2022 to Monday through Friday, with Friday being a half day and Saturday and Sunday being the weekend. The Abu Dhabi and Dubai governments subsequently announced they would follow the UAE Federal government in this regard, whereas the Emirate of Sharjah has adopted a four-day workweek (Monday – Thursday) for their public sector workforce.  It also has been announced that the governmental authorities will require schools (both public and private) to follow the new public sector workweek with the Saturday - Sunday weekend. Although the New Labor Law does not mandate the adoption of a Saturday - Sunday weekend, we expect many private sector employers to do so.

In addition to the threshold issue of whether voluntarily to adopt a new workweek with a Saturday – Sunday weekend, private sector employers also need to begin planning to address the changes introduced by the New Labor Law. To aid with such planning, we have outlined below some of the more significant changes and issues under the New Labor Law.

Working Week

• As discussed above, the UAE recently announced (i) a new 4 ½ day work week for federal government employees, from Monday to Thursday, with Friday work hours from 7:30 am to 12:00 pm, and (ii) that all schools in the UAE will operate from Monday to Friday.
  
  
• The changes announced for the public sector do not apply to employment in the private sector. The New Labor Law only provides for a weekly paid day of rest of not less than one day.  But, unlike the Old Labor Law, the New Labor Law does not specify that rest day to be Friday, making it easier for private sector employers to shift to a two-day weekend on Saturday and Sunday if they wish.
  
  
• We anticipate that private sector employers will be encouraged to voluntarily amend their working week to shift to a two-day weekend on Saturday and Sunday.

Different Models of Employment

• The following different models of employment are established under the New Labor Law: (i) full-time work; (ii) part-time work; (iii) temporary work; and (iv) flexible work.
  
  
• The Implementing Regulations will determine the conditions and controls of these alternative work models (e.g., application of features of the New Labor Law such as working hours, overtime and end of service gratuity for work models other than full-time).
  
  
• Our comments herein are focused on the full-time work model, the norm in the UAE, unless otherwise indicated.

Fixed Term Employment Contracts Only

• The New Labor Law has abolished the indefinite term employment contract.
  
  
• Employment contracts must be for a fixed term no longer than three years.
  
  
• The employer is obligated to pay the employee all outstanding wages and other dues within 14 days after the expiration of the employment contract term.
  
  
• That said, the employment contract’s fixed term may be extended or renewed, one or more times, for a similar or a shorter period.
  
  
• If the employment relationship is continued by the parties beyond the fixed term, it will be deemed to be automatically extended on the same conditions, including the most recently specific term.

How to Deal with Existing Indefinite Term Contracts

• In general, the New Labor Law will apply to any indefinite term contracts entered into under the Old Labor Law.
  
  
• Employers have until one year from the effective date of the New Labor Law (i.e., until 1 February 2023, subject to extension) to convert any unlimited term contracts to fixed terms in accordance with the New Labor Law.
  
  
• In the meantime, the New Labor Law provides that employers may calculate end of service gratuity in accordance with the provisions relevant to unlimited term contracts under the Old Labor Law.
  
  
• Further, indefinite term contracts entered into before the effective date of the New Labor Law may be terminated by either party for a legitimate reason by serving the other party with (i) 30 days’ written notice if the term of service was less than five years, (ii) 60 days’ written notice if the term of service exceeded five years, and (iii) 90 days’ written notice if the term of service exceeded 10 years.

Probation – Significant Changes

• The probation work period remains at a maximum of six months if agreed in the contract.
  
  
• However, a significant number of changes to the probation period have been introduced under the New Labor Law.
  
  
• In particular, termination without notice is no longer allowed by either party during the probation period.
  
  
• Employers now must provide 14 days’ advance notice to terminate a contract during the probation period.
  
  
• The notice required from the employee to terminate during the probation period varies. If the employee intends to work for another employer in the UAE, 30 days’ advance notice is required and the new employer must reimburse the old employer for recruitment costs unless otherwise agreed. If the employee intends to leave the UAE, 14 days’ advance notice is required and the employee is restricted from returning to work in the UAE within three months.

Situations Where the Employment Contract Comes to an End

• The New Labor Law provides a list of ways that the employment contract comes to an end, including (i) by mutual agreement, (ii) expiration of the contract’s fixed term, or (iii) upon the decision of either party to terminate, subject to the provisions of the New Labor Law related to termination, including the notice period agreed in the contract.

Termination Notice Periods Generally

• Either party may terminate fixed term employment contracts under the New Labor Law for a legitimate reason by giving the other party advance written notice of 30 to 90 days (as agreed in the contract).
  
  
• The notice period must be the same for both parties, unless more favorable to the employee.
  
  
• Payment in lieu of notice remains available under the New Labor Law.
  
  
• Unlike the Old Labor Law, however, the New Labor Law grants the employee one working day per week during the notice period to seek alternative work.

Termination Without Notice

• Termination of the employee without advance notice is recognized in various circumstances specified by the New Labor Law, but only after conducting an investigation, the results of which must be provided to the employee in writing. The termination decision must be issued in writing and justified.
  
  
• If such termination for cause is based on a failure of the employee to perform primary duties, it is now necessary under the New Labor Law for at least two prior written warnings to have been given. This represents additional procedural protections to which employees are entitled under the New Labor Law in respect of “for cause” termination based on poor performance.
  
  
• The New Labor Law also permits the employee to “walk out of” (i.e., abandon) work while reserving all rights and dues in various circumstances, including (i) if the employer requests the employee to perform work that substantially differs from the work agreed in the employment contract without consent of the employee (or in other limited circumstances of necessity or to avoid an accident), or (ii) if the employer breaches its obligations under the employment contract or the New Labor Law, provided that the employee (A) serves the Ministry of Human  Resources and Emiratization (the “Ministry”) a 14-working day advance notice before leaving work, and provided further that (B) the employer fails to rectify such breach despite being notified by the Ministry to do so.

Unlawful Termination

• Termination by the employer shall be deemed unlawful (i.e., arbitrary) if such termination is due to the employee submitting a serious complaint to the Ministry or filing a lawsuit against the employer and such lawsuit is proven to be valid.
  
  
• In the event of such unlawful termination, the employer will be obligated to pay the employee damages as determined by the court, provided that such compensation shall not exceed three months’ wages, and shall be without prejudice to the employee’s right to receive payment in lieu of notice and end of service gratuity.

End of Service Gratuity

• End of service gratuity (i.e., severance pay), a sacrosanct element of the Old Labor Law, remains under the New Labor Law, but with certain changes that require careful consideration.
  
  
• Emirati (and other GCC national) employees are entitled to end of service gratuity pursuant to the UAE pension laws.
  
  
• For expatriate employees who have completed one year of continuous service, end of service gratuity (i.e., severance pay) is 21 working days of basic wages for each year of service for the first five years, and 30 working days of basic wages for each additional year of service, not to exceed two years of wages.
  
  
• Further, the New Labor Law eliminates the reduction to end of service gratuity if an employee terminates the contract (i.e., resigns).
  
  
• Also, the New Labor Law does not specify situations in which employees would be denied their end of service gratuity.
  
  
• The Implementing Regulations are to specify the mechanism for calculating end of service gratuity for employees working under the new alternative work models other than full-time work.
  
  
• The New Labor Law also contemplates other alternative schemes to end of service gratuity, perhaps in due course allowing for savings schemes like some of the financial free zones currently have, subject to further legislation specifying the same.

Working Hours and Overtime

• Restrictions on working hours and overtime also remain under the New Labor Law, with some changes that need to be carefully considered.
  
  
• For full-time employees, the maximum normal working hours remains at eight hours per day or 48 hours in one week, subject to exceptions for certain sectors or categories of employee to be specified in the Implementing Regulations.
  
  
• Similar to the Old Labor Law, overtime under the New Labor Law may not exceed a total of two hours per day (except in accordance with controls to be set forth in the Implementing Regulations).  The New Labor Law provides, however, that in all cases the total working hours may not exceed 144 hours every three weeks.
  
  
• In remote working situations (e.g., work from home), the employer may determine the working hours, presumably in line with the other provisions on normal working hours and overtime.
  
  
• The Implementing Regulations will determine any categories of employees that will be exempt from the provisions relating to working hours and overtime.
  
  
• The Implementing Regulations will also set forth the working hours for employees during the holy month of Ramadan, so it remains to be seen whether normal working hours will be reduced by two hours (and for all employees), or otherwise adjusted from the current position under the Old Labor Law (i.e., daily work reduced by two hours).
  
  
• Another significant change is that overtime under the New Labor Law will be calculated based on the basic wages only, as with end of service gratuity.

 Annual Leave and Holidays

• Although the basic framework of annual leave remains the same under the New Labor Law, there are some adjustments, and matters to be determined by further legislation.
  
  
• Although the New Labor Law introduces a “working days” distinction for some provisions, for annual leave it remains at 30 days for each year of service, and two days for each month if the service period is more than six months but less than one year.
  
  
• Pro rata leave for partial years worked continues to apply under the New Labor Law.
  
  
• Also, employers may approve granting annual leave during any agreed probation period under the New Labor Law.
  
  
• As with the Old Labor Law, it is the employer that is granted the right to determine the dates of annual leave, but under the New Labor Law the employer is required to notify the employee at least 30 days in advance of the dates of annual leave.
  
  
• There are other restrictions applicable to annual leave under the New Labor Law, including limits on precluding annual leave for more than two years, unless the employee desires to carry them forward or to receive cash in lieu.
  
  
• Another significant change under the New Labor Law is that payment for unused leave is calculated based on basic wages only.
  
  
• Employees also are entitled to fully paid leave during public holidays to be announced by Cabinet Resolution, and work during such holidays will entitle employees to a day in lieu or payment in lieu, calculated based on at least 150% of the basic wage.

Additional Leaves Introduced

• In addition to the types of leave provided under the Old Labor Law (i.e., annual leave, maternity leave and sick leave), employees will be entitled to various other types of paid leave under the New Labor Law, including bereavement, paternity, study, and military service (for Emiratis).
  
  
• The New Labor Law also contemplates unpaid leave upon agreement by the Employer.
  
  
• Unlike the Old Labor Law, there is no mention of Haj leave for Muslim employees under the New Labor Law.  It remains to be seen whether this will be addressed in the Implementing Regulations.

Enhanced Maternity Leave

• Maternity leave has been increased under the New Labor Law, from 45 days to 60 days, with the first 45 days being on full pay and the next 15 days on half pay.
  
  
• Among other changes to maternity leave, an additional 30 days with full pay is granted if the child is born ill or of determination (i.e., handicapped), and a further 30 days without pay in such circumstances.

Labor Disputes

• The New Labor Law establishes the procedures for resolution of labor disputes, some of which are similar to the Old Labor Law, some of which are different.
  
  
• Specifically, the concerned party can file an application to the Ministry which must consider the application and take the necessary action to amicably resolve the dispute.
  
  
• If not resolved amicably within the time limits to be established by the Implementing Regulations, the dispute shall be referred to the competent court for resolution.
  
  
• While the dispute is ongoing, the Ministry has the right under the New Labor Law to order the employer to continue to pay the employee’s wages for a period of up to two months if the dispute results in wages ceasing to be paid.
  
  
• As with the Old Labor Law, the New Labor Law establishes a one year limitation period for labor disputes, commencing from the date of entitlement to the right that is the subject matter of the lawsuit.

Equality and Non-Discrimination

• The New Labor Law prohibits discrimination on the basis of race, color, sex, religion, national or social origin or disability.
  
  
• There is a safe harbor for Emiratization policies, however, which shall not be deemed discriminatory under the New Labor Law.
  
  
• The New Labor Law also mandates that female employees be paid the same salary as male employees performing the same or similar work.

No Sexual Harassment, Bullying and Violence

• The New Labor Law expressly prohibits sexual harassment, bullying, or the use of verbal, physical, or psychological abuse against employees by their employers, superiors, and colleagues.

Non-Compete Provisions

• The recognition of non-compete provisions has been retained under the New Labor Law, subject to certain limitations.
  
  
• In particular, such non-compete clauses shall not exceed two years.
  
  
• Further, the non-compete clause shall become void if the employer terminates the employment contract in violation of the provisions of the New Labor Law.

Payment of Wages in any Currency

• Under the New Labor Law, Employers may pay wages in any currency other than UAE Dirhams if agreed in the employment contract, although it remains to be seen how payment in a currency other than UAE Dirhams can be aligned with the current Wage Protection System (“WPS”) requirements in place, or whether those too will change. 

Sanctions

• Similar to the Old Labor Law, the New Labor Law specifies the types of disciplinary sanctions that may be imposed on employees, with certain modifications.
  
  
• Further, the New Labor Law leaves to the Implementing Regulations the controls and procedures for imposing disciplinary sanctions on employees, and their mechanisms for appeal.
  
  
• The New Labor Law also imposes restrictions on permitted deductions employers may make from an employee’s wages.
  
  
• Also, the sanctions that can be levied against employers for non-compliance under the New Labor Law have increased considerably.
  
  
• Criminal liability for non-compliant employers in certain circumstances is retained under the New Labor Law.

Miscellaneous

• The New Labor Law does not apply to free zones with their own labor laws (e.g., the DIFC and the ADGM), nor to domestic workers.
  
  
• The New Labor Law provides for the Implementing Regulations to specify new forms of employment contracts to be used under the New Labor Law.
  
  
• Employers, however, may not revise the terms and conditions of employment contracts valid prior to the issuance of the New Labor Law with the intent of applying the provisions of the New Labor Law unless such amendments are more beneficial to the employees.
  
  
• Arabic is specified in the New Labor Law as the prevailing language to be used in all records, files, data, forms and any other documents provided for in the New Labor Law, its Implementing Regulations and further resolutions issued in implementation thereof.
  
  
• The employer is obligated to use Arabic language in employment contracts, and in issuing labor instructions and circulars addressed to employees, together with another language that is understood by non-Arabic speakers.  In the event of any inconsistency, the Arabic version shall prevail.
  
  
• In addition to the repeal of the Old Labor Law, the New Labor Law provides that decisions, regulations and rules that were in force prior to the effective date of the New Labor Law (i.e.., 2 February 2022) shall continue to apply to the extent that they do not conflict with the provisions of the New Labor Law, until they are replaced in accordance with the New Labor Law.

What Lies Ahead?

• Employers are required to make the necessary changes to their employment contracts and employment policies within one year from the effective date of the New Labor Law (i.e., by 1 February 2023).
  
  
• Although issuance of the Implementing Regulations is needed to provide clarity to many aspects of the New Labor Law, it is advisable for employers to plan ahead.
  
  
• We remain at your service to help you do so.

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