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DIFC Employment Law – Overview
DIFC Employment Law – Overview
By Preeti Kanakia Khan of Motei & Associates – Dubai
August 4, 2015

The Dubai International Financial Centre (the DIFC) was established as a dedicated “free zone” area in the heart of Dubai’s commercial district by the Dubai Government essentially to meet the requirements and necessities of the financial services industry with its own separate legislative regime based upon the common law principles and enforced by a court system within the Centre’s premises.

The DIFC was established in 2004 with its own distinguishing features related to the civil and commercial laws which seek to adhere to international standards.  DIFC Employment Law No. 4 of 2005 (“DIFC Employment Law”) sets out all of the obligations and requirements on employers and employees operating within the DIFC.  The amendments to the DIFC Employment Law were introduced pursuant to the implementation of the Employment Amendment Law, DIFC Law No. 3 of 2012 that became effective from 23 December 2012.

The DIFC has drafted its employment law based broadly on international best practices. The changes to the DIFC employment law are essentially a move towards greater clarity and legal certainty for both employers and employees operating in the DIFC. They do not appear to overly favour one side of the employee/employer relationship.  The amendments are significant enough, however, to warrant both parties’ attention.

The labour regulations which govern the relationship between the employer and employee in the UAE free zones vary between each free zone. They must, however, offer the minimum statutory employment rights and obligations that apply to employees working onshore in the UAE, as set out in the UAE Labour Law. The nature and extent of the benefits to the employee depend upon the free zone. In general, however, an employee under a free zone will enjoy greater employment benefits than if he/she were employed onshore in the UAE. An example of this is that none of the free zone authorities will apply to the Ministry of Labour for work bans on behalf of employers. This means that the issue of a work ban does not arise when an employee in any such free zone wishes to take up employment with another company, regardless of whether the company is onshore in the UAE or in a free zone. This affords a free zone employee greater flexibility of movement than an employee employed onshore in the UAE.

The amended DIFC Employment Law is to apply exclusively as between employers established in the DIFC and those of their employees who work within or from the DIFC and affords greater protection to employees by enhancing certain employment rights. Employers operating in the DIFC should consider whether their company policies require amendment in light of these significant changes to the DIFC employment law. These amendments address a variety of areas that govern the employer/employee relationship and seek to clarify some of the rules to enhance some important employee rights. It has amended the law in relation to (among other things) the employee’s right to an employment contract, leave entitlements, end of service gratuity, termination for cause, and discrimination briefly outlined hereunder:

Employment Contracts

Employers must provide every employee with a written contract of employment containing certain prescribed information at the commencement of his/her employment.  Employers must also expressly state in writing which terms of the contract shall be supplemented by the employer’s policies and may be changed at the employer’s discretion from time to time by way of a written notice to the employee.

Pay Statements

Employers are obliged to provide employees with an itemised pay statement at or before each pay day (electronic access will satisfy this obligation).

Pay on termination

Employers are required to pay all wages within 14 days after the employer or employee terminates the employment.  Failure to settle wages (or other amounts owing to the employee) within this extended period will attract a penalty equivalent to the employee’s last daily wage for each calendar day the employer is in arrears.

Vacation Leave

An employer shall give an employee an annual paid vacation leave of twenty (20) working days per annum to be accrued pro rata for employees who have been employed for at least ninety (90) days.  An employee will be entitled to carry forward his accrued but untaken vacation leave (up to a maximum of 20 working days) into the next calendar year for a maximum period of 12 months, after which the unused leave shall expire. There are also time-specific notification requirements obliging both employee and employer to provide written notice, of at least 7 days, specifying the days on which vacation leave is to be taken.

Special Leave

A Muslim employee shall (subject to completion of at least 1 year of continuous employment) be entitled to special leave, not exceeding 30 calendar days (without pay), in which to perform the Hajj pilgrimage.  This special Hajj pilgrimage leave may only be taken once during the employee’s period of service.

Sick Leave

Every employee shall have a paid sick leave entitlement of up to 60 working days.  Where an employee takes more than an aggregate of 60 working days of sick leave in any 12 month period, the employer may terminate the employment immediately with written notice to the employee.  The provisions governing sick leave and pay do not apply if the contract of employment is for one month or less.

Maternity Leave and Pay

Female employees are entitled to a minimum maternity leave of 65 working days, of which the first 33 working days will be at the employee’s normal daily wage and the remaining 32 working days at 50% of the normal daily wage.  Any national holidays falling on a working day within the maternity leave period shall be treated as additional leave, thereby having the net effect of extending the maternity leave by the period of the national holiday. Paid maternity leave applies where an employee will have been continuously employed with an employer for at least 12 months preceding the expected or actual week of childbirth.

Termination for cause

An employer or employee may terminate employment without notice “for cause” in circumstance where the conduct of one party warrants termination and where a reasonable employer or employee would have terminated the employment. However, termination for cause does not apply where an employee has been terminated for having exhausted his (or her) annual maximum sick leave entitlement.

It remains to be seen how this provision will be interpreted by the DIFC courts in practice and in particular, how the DIFC courts will apply the reasonableness test.

End of Service Gratuity

An employee who completes continuous employment of 1 year or more is entitled to an end of service gratuity payment on employment termination at the rate of 21 days’ basic wage for each year of the first 5 years of service, and thereafter, 30 days wage for each additional year of service, provided that the total gratuity amount shall not exceed the wages of two 2 years’ service. The gratuity calculation does not include that portion of an employee’s wage received in kind or as allowance for housing, travel, currency exchange, children’s education, social and entertainment or any other type of allowance, nor shall it include overtime pay.  Moreover, bonus or commission payments are now expressly excluded from the gratuity calculation.

Termination “for cause” will result in an employee automatically forfeiting his/her right to receive a gratuity payment.

UAE and other GCC nationals are not eligible to receive a gratuity payment at the end of their service.   Instead, employers are required to enroll UAE and other GCC nationals into the state pension scheme, in accordance with the applicable federal legislation.

Time off work

An employee who is terminated in accordance with the minimum notice provisions prescribed in the DIFC Employment Law shall be entitled to “reasonable time off” to seek alternative employment.  The length and timing of any such time off shall be at the employer’s discretion, having regard to the company’s legitimate business needs and subject to the employee having been continuously employed for at least 2 years on the date on which the notice is due to expire.  The right to take time off to look for work will not be available if the employee is dismissed “for cause”.

Discrimination

With the aim of harmonising and strengthening the existing equality protection, the law also now contains provisions which substantially re-define discrimination and details what constitutes discrimination in the workplace, and prohibits harassment, and direct and indirect discrimination. An employer must not discriminate against an employee regarding his/her employment or any term or condition of employment on the grounds of the employee’s membership of six protected characteristics: sex, race, disability, marital status, nationality or religion (the protected characteristics).

The law is silent on compensatory measures available to employees that have been discriminated against. However, a breach of the anti-discriminatory provisions may entitle an employee to terminate “for cause”.

Disability

The definition of “disability” has also been significantly re-worded: an employee has a disability for the purposes of the law if he has a mental or physical impairment which has a substantial and long term adverse effect on his ability to carry out his duties in accordance with the employment contract. An impairment has a long term effect if it has lasted at least twelve (12) months or it is likely to last at least twelve (12) months.  If the employer fails to make reasonable adjustments to any physical feature of the workplace that would, if made, enable the employee to otherwise meet the bona fide occupational requirement, this will amount to disability discrimination. Employers will continue to be allowed to positively discriminate in favour of disadvantaged groups, including those that are disadvantaged because of mental or physical disability.

Despite containing specific anti-discrimination provisions in relation to a person’s protected characteristics, the amended law maintains the surprising gap in coverage that existed in the original law in failing to provide for any effective scheme of statutory compensation – be it for future loss of earnings or an award for injury to feelings – for breach of laws prohibiting discrimination.  It is therefore unclear what remedies will be awarded for a successful complaint and arguably employees could be said to notionally enjoy protections which they cannot in fact enforce.

To date, there is no statutory grievance or disciplinary procedures in the DIFC Employment Law, nor are there any compensation limits or specified monetary fines for an employer’s breach of the requirements. It might be possible to extend the interpretation of employment contracts to include implied terms including for example a non-discrimination clause so that a discriminatory act occurring during the employment contract term could also give rise to damages. At present though and in the absence of enabling legislation claims would need to be based in creative decision making by the judges in the courts in the DIFC. One decided and reported case does indicate the possibility in the use of implied terms in future to support claims over and above simple claims limited to the amount of the notice period.

Employment accidents and occupational diseases

Where an employee sustains an injury as a result of an employment accident arising out of or in the course of his employment, or dies as a result of an employment accident or contracts an occupational disease, the employer shall pay compensation to the employee in accordance with the provisions of Schedule 2 of the amended law equal to no less than twenty four (24) months wages calculated on the basis of the last monthly wage the employee was paid before his injury.

Where an employee dies as a result of an accident or illness arising out of or in the course of his employment, the employer shall pay compensation to his named dependants equal to no less than twenty four (24) months wages calculated on the basis of the last monthly wage the employee was paid before his death.

Director of Employment Standards v Small Claims Tribunal

The DIFC Director of Employment Standards’ role has been removed entirely.  This means that all employee complaints should be raised, in the first instance, with the Small Claims Tribunal (the SCT).  The SCT has jurisdiction to hear claims where the amount of the claim or the value of the subject matter of the claim does not exceed AED 200,000; or where the claim pertains to the employment or former employment of a party and all parties to the claim elect in writing that it be heard by the SCT.  Under the SCT rules of procedure, after the filing of a claim, the parties concerned are required to attend a consultation before the SCT Judge whose role is to seek to mediate the dispute and broker a settlement, failing which the matter will be fixed for a hearing.

This will likely result in employees incurring significant costs from the outset. In addition, hearings before the DIFC Court of First Instance (unlike the SCT) are public unless otherwise ordered and therefore not confidential, which may deter employees bringing their cases forward.

 

In summary, the DIFC employment amendment law serves to :

Abolish the requirement to issue an employee with a general summary of the employment law.

Replaces the requirement to issue a written statement of particulars with a requirement to issue a written employment contract.

Enables an employee to carry forward 20 working days of accrued leave into the next leave year for a maximum period of 12 months following which the unused leave would expire.

Reduces paid sick leave entitlement from 90 days to 60 days; with the clarification that this entitlement is to 60 working days.

Clarifies that maternity leave is to 65 working days; 33 on full pay and 32 days on half pay.

Clarifies the anti-discrimination provisions.

Clarifies that end of service gratuity is based on an employee’s basic wage excluding all allowances, commission and bonus, with the daily rate being based on calendar days.

Clarifies that an employee who is a GCC national is not entitled to an end of service gratuity payment but to enrolment with the applicable state pension scheme and appropriate employer contributions into this scheme.

Provides specific statutory compensation for certain work place injuries.

Eliminates the role of Director of Employment Standards.

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