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United Arab Emirates > Legal Developments > Law firm and leading lawyer rankings

Editorial

USE IT OR LOSE IT – ANNUAL LEAVE – EVERYTHING YOU NEED TO KNOW

November 2013 - Employment. Legal Developments by Hadef & Partners.

More articles by this firm.

Reece Leggett helps employers and employees understand their rights and obligations.  In brief this article addresses the law surrounding annual leave. In particular it discusses:

 

·         an employee's minimum leave entitlement;

 

·         situations where accrued leave can be carried forward to another year or encashed; and

 

·         how accrued but unused leave is treated at the end of an employee's period of service.

 

Both employers and employees need to understand their rights and obligations when it comes to annual leave. In most cases employees will use up their annual leave allowance during the course of the year.  However situations arise where an employee is unable or chooses not to take accrued annual leave. This may be because an employer requires an employee to work through a holiday to complete an urgent project, or alternatively an employee may try to accumulate annual leave (by not taking it) over a long period in anticipation for a larger payout when they leave.  Employers and employees must be careful as these actions may inadvertently not comply the law, or result in the leave entitlement being lost without recourse or recompense.

 

 

Minimum entitlement to annual leave

 

Employees working in the UAE are entitled to a minimum of 30 days annual leave. Article 75 of the Federal Law No. 8 of 1980 (as amended) (Labour Law) provides:

 

The employee must be granted an annual leave during each year of service which may not be less than:

 

1.    Two days per month in respect of any employee with more than six months and less than one year of service.

 

2.    Thirty days per annum in respect of any employee whose period of service exceeds one year.

 

In the event of termination of an employee's service he shall be entitled to an annual leave for fractions of the last year of service.

 

When an employee takes accrued annual leave, the Labour Law provides that the employer is required to pay the employee's basic salary plus housing allowance, although common practice is to pay the employee's full remuneration during this period.

 

It is generally accepted that the 30 days refer to "calendar days", therefore weekend days or days of public holiday occurring within a period of annual leave do not have the effect of reducing the number of leave days taken. For employers using "working" days (as opposed to calendar days) in their employment contracts, the corresponding minimum is 22 working days and employment contracts should reflect this.

 

Article 76 of the Labour Law provides that an employer may fix the date of commencement of annual leave (which is common in organisations such as schools and universities), and can divide leave into two (but not more than two) periods.

 

Carrying accrued annual leave forward to the following year

 

Situations can arise where an employee is unable to take any or all of their annual leave within a particular year.  This may be at the request of the employer because of an important work assignment for which the employee is critical. In this circumstance, if annual leave cannot be taken in one year, it may be carried forward to the following year.

 

However, the Labour Law clearly states that an employer cannot require an employee to work during their annual leave more than once in two consecutive years. This puts the duty on the employer to provide suitable opportunity for employees to take any leave that has been carried over.

 

Furthermore, employees should be wary of "volunteering" to work through without using their accrued annual leave, as leave accrued but unused cannot be carried forward for more than two years. After this period, any unused leave effectively "expires" (although leave carried forward in one year will be the first to be used when leave is taken in the next year).

 

Encashing accrued annual leave rather than carrying it forward

 

If an employee is required to work during all or part of his annual leave, and the leave is not carried forward, Article 78 of the Labour Law provides that the employer must pay the employee the following:

 

·         Remuneration for the period he is required to work. This should be paid at a rate of full salary (basic salary plus allowances); and

 

·         Remuneration for the leave days not carried forward. This should be paid at a rate of basic salary (no allowances).

 

Therefore the employee is entitled to the normal pay he would have received since he worked (rather than taking his annual leave) and in addition, because his leave is not carried forward, payment of annual leave at a rate of basic salary only.

 

A possible explanation why unused and not carried forward leave is paid out at the rate of "basic salary" is that it provides an incentive to employees to take and use annual leave, as by encashing it they receive a reduced amount (remuneration without allowances).

 

Furthermore, "allowances" are not intended to equate with ordinary remuneration, they are to be used for their specified purposes (e.g. accommodation allowance for accommodation rental; transport allowance for the purchase/ hiring of a suitable motor vehicle). Since the employee will have already received any contractual allowances (to pay for accommodation or vehicle rental) for the period worked, the encashed annual leave is limited to basic salary only.

 

Paying accrued annual leave at the end of an employee's period of service

 

Article 79 of the Labour Law provides that, following the notice period after an employee has been terminated or resigns, an employee is entitled to remuneration in respect of any days of accrued annual leave not taken. This is calculated "on the basis of the remuneration that he earned on the date on which the leave became due", which is the remuneration rate applicable at the end of his (or her) period of service.

 

Note the difference between the calculation of payment of an employee's encashed leave versus an employee's accrued but unused annual leave at the end of their service. Whilst encashed leave is paid at a rate of basic salary, accrued but unused annual leave at the end of service is paid at a rate of full salary. This is because in the first situation, the employee has chosen not to take their annual leave and instead encashed it, whereas in the latter the employee no longer has the opportunity to take their accrued annual leave (at the end of their service). The employee's inability to take accrued leave is why payment is at full salary.

 

There are ways for an employer to reduce the amount of accrued but unused leave at the end of an employee's period of service. If an employee is put on notice (or if he (or she) tenders their resignation) and is placed on "garden leave", the employer can require that the individual takes their accrued annual leave during their notice period (see Article 76). Naturally, this will depend on the length of the notice period and the extent of the employee's accrued annual leave entitlement. In any event, this can be a useful tool for the purposes of reducing the employee's accrued leave entitlements and hence the sum payable at the end of service. It may be noted that while the employee is "on leave" during their notice period, they cannot be required to attend work.

 

It is also important to remember that during an employee's notice period, leave continues to accrue. 

 

Annual leave and sick leave

 

It is likely that an employee's annual leave will continue to accrue when the individual is on sick leave. Whilst it may not have any noticeable impact if an employee is only away for a few days, it may be seen as unfair for an employer to have an employee accumulate annual leave if the individual is away for several months.

 

Another question arises if the relationship between sick leave and annual leave is examined. What is the position when an employee falls sick whilst on annual leave? Can the employee take sick leave instead of annual leave (provided he has the requisite medical certificate), thereby saving annual leave for another day?

 

Conclusion

 

The Labour Law sets out detailed and prescriptive rules in relation to annual leave and the employee's right to it. These rules are designed to encourage employers to provide employees with an opportunity to take leave, and for employees to make the most of this opportunity by taking annual leave during the year. Whilst there may be exceptional circumstances where this cannot occur, these should only be in exceptional cases. Otherwise, employers and employees trying to play with the rules may lose out further down the track.

Author: Reece Leggett

 

r.leggett@hadefpartners.com

This article, including any advice, commentary or recommendation therein, is provided on a complimentary basis, without consideration of any specific objective, circumstance or need. It reflects views of the writer which may differ from those of the firm. Having read this article, any person taking action, or refraining from taking action, does so at their sole risk.

 

For more information on Hadef & Partners please visit our website www.hadefpartners.com