UAE Employment Essentials for Employers, Entrepreneurs and Investors

I.           
Introduction

UAE Federal Law
No. 8/1980 as amended (the "Labor Law") governs all employment matters apart
from government employees, agricultural and domestic employees, and employees working
in the Dubai International Financial Centre ("DIFC") and the Abu Dhabi Global
Market ("ADGM"). Both the DIFC and ADGM are economic free zones that are
separate jurisdictions and have their own employment laws to which the Labor
Law does not apply. All other free zones located within the UAE have their
respective employment rules and regulations that are in accordance with the Labor
Law.

The general rule
regarding work and residing in the UAE requires a non-citizen to be sponsored
with an applicable visa. Sponsorship for work or residency purposes can be
provided by:

  • one's employer
  • one's spouse who is legally employed or
  • self-sponsorship via setting up in a
    free zone company

The sponsorship
process requires several approvals from various government entities to ensure
the prospective employee is not a security risk, is free from certain communicable
diseases, and has the requisite skills for the proposed employment position.
The various entities involved in the process includes approvals from:

  • Department of Naturalization and
    Residency ("DNR")
  • Health Authority
  • Ministry of Human Resources and
    Emiratization ("MOHRE")
  • Emirates Identity Authority ("EIDA")
  • Police – Criminal Investigation
    Department ("CID")

Upon completion
of the process, the person will obtain a work permit, residency visa, health card
and Emirates identification card. The entire process takes between two and four
weeks to complete from the date the prospective employee enters the UAE. Once
sponsored, an employee may sponsor his family if he/she earns a minimum monthly
salary.

Employment
contracts are of two types, either limited term (a set start and end date) or
an unlimited contract which continues until either party provides the other
with the required notice period. The main difference between the two kinds of
contracts concern consequences of terminating the employment relationship by
either party.  

Compensation is
made of two parts, 50% basic salary and 50% allowances.
Allowances include amounts for housing, schooling and transportation
etc. The basic salary is the amount upon which the end of service gratuity ("ESG")
is calculated. Note: There is no provision in the Labor Law to provide pensions
for non-citizens of the UAE.  However: An
employer is required by law to register its Emirati employees with the National
Pension Plan and contribute to the fund at set rates. Although an employer may
have a pension program in place for its seconded employees, the Labor Law will
still apply, as they are employees of the local UAE entity. It is important to have
an agreement in place which addresses any benefits or conflicts with the
employment terms in the home jurisdiction to ensure that, at the end of the
employment period in the UAE, the Labor Law requirements are met.

The Labor Law
does not require a probationary period term in the contracts. It is
discretionary, however, and can only occur one time during employment, and can
be no longer than 6 months.

I.           
Addressing Areas of Concern

Common areas of
concern involve issues regarding:

a.    Continuity
of employment of employment – relocating employee from overseas to local entity;

b.    share
sale transfers;

c.    asset
business purchases;

d.    discipline;

e.    termination
of the employment relationship;

f.     calculation
of the end of service entitlements and

g.    restrictive
covenants

h.   dispute
resolution

 

a.   Continuity
of employment

This situation
involves an overseas employer who is sending employees from its overseas
company to live and work in the UAE in a locally established entity. The latter
may be a branch of the overseas company, or a wholly new entity which is
incorporated within the UAE and retains a relationship or affiliation with the
overseas company. An employer has two options. 
The first option is that the overseas company can continue the
employment relationship between the employee and itself during the relocation
period.  Thus, the employee is employed
by the home overseas entity and the local entity.  The second option is that the employer may
terminate the employment relationship with the overseas company, settle all
existing labor entitlements, and start a new employer/employee relationship
with the local entity in the UAE. The local entity in all instances must comply
with the Labor Law and ensure employee has valid residency visa and work
permit.

It is usually at
the end of employment that cross-border employment issues arise. Employees may
try to bring a claim against both the overseas company and local company for
arbitrary dismissal (i.e., dismissal without a valid reason) and for end of
service entitlements. Employees may attempt to bring a claim in another
jurisdiction if the employment rights and entitlements in that country are more
favorable than those in the UAE. It is prudent to review the legal relationship
between the overseas company and the local entity, as it may impact the
continuity of employment between the overseas company and employee following
the employee's transfer to the local UAE entity. In all cases, the employer
must ensure the employment terms comply with the Labor Law.

b.   Share
sale transfers

In both share sale transfers
and asset or business purchases, due diligence of the target business is
essential regarding the employees and employment issues within the target. All
employees must have valid work permits and residency visa sponsorship through a
locally established entity.  Note: GCC
nationals do not require UAE residency visas, but still require a valid work
permit. Review for any pension plans and end of service entitlement issues for
UAE nationals and ensure proper registration, and employer past payments, into
the UAE Federal Pension plan.

There is no consultation
process required in the UAE to impact either share sale transfers or asset
purchase transactions, but potential creditors must be notified. Also, there
are no trade unions or employee representative bodies in the UAE that must
weigh in on these transactions. In a share sale transfer the individual
employment contracts remain in place and no consent is required from the
employee. It is a straight forward transaction.

c.    Asset
purchases

In an asset purchase, there
is a change of ownership of an asset.  The
employees will be working for a new employer and will need new employment
contracts in the name of the new employer. There is no transfer or undertaking
regulation, but, in an asset purchase, it is necessary to terminate all
existing employment contracts and enter into new ones. Given that this is a
termination of employment, a notice of 30 days and payment of the employees end
of service entitlements, inclusive of the ESG, is required from the transferor
(existing employer). However, in these situations, the employee may be given
the option of payment of the end of service entitlements or continuation of
service rollover to the new owner (employer) in a new employment contract.

It is common practice to
include in the business transfer agreement an indemnity from the transferee to
the transferor on employment claims and request each employee to sign a letter
of continuity, confirming their employment will transfer to the transferee as
if it were continuous and they do not have any claim against the
transferor.  In addition to new
employment contracts and end of service entitlements continuity (or payout) the
transferee employees will need new work permits, new residency visas with the
new sponsor. The new sponsor pays all fees when submitting all documents for
each transferring employee through MHROE, arranging medicals, stamping of work
residency visa in the passport and issuance of a medical insurance card.

d.   Discipline

Employers may impose disciplinary
measures on non-performing employees, including warnings, fines, suspensions or
dismissals. A fair and reasonable process must be followed. The Labor Law
requires that a minimum due process procedure must be followed prior to
imposing disciplinary measures. The process mandates that an employer must: a)
timely notify the employee in writing of the allegation against him/her; b) provide
the employee an opportunity to make a statement and defend him or herself; c) investigate
the allegation and defense; and d) record this process in the employee's file,
with the findings and actions listed at the bottom of the report. Any
disciplinary policy must be easily accessible and communicated to all employees
and may be part of the employee handbook or a separate policy.

e.   Termination
of employment

Ending the
employment relationship in either a limited or unlimited contact is immediate
if the employee has committed a "for cause" action set out in Article 120 of
the Labor Law.  Cause for instant termination
under Article 120: a) causing a substantial loss to the employer (provided this
is reported to the MOHRE within 48 hours); b) disobeying clearly delineated
safety instructions; c) appearing at work intoxicated or under the influence of
illegal drugs; d) assaulting an employee at work premises; e) assuming a false
identity or nationality or submitting forged documents; f) defaulting on basic
duties under the employment contract despite being notified  in writing that he will be dismissed; g) conviction
of a crime involving honor or public morals; h) absence from work without a
valid excuse for more than 20 nonconsecutive days in a single year; and i)
revealing any confidential information of the firm for which he works.

For those
employees on an unlimited contract and those on a renewed limited contract, the
employee may end the employment by providing 30 days written notice to
employer.

An employer may
also terminate the unlimited and renewed limited term contract by providing 30
days written notice period and a valid reason to the employee. Where a valid reason
for termination is not provided, the employee may seek compensation up to three
months salary by filing a labor complaint in the Labor Court.

Where a person is
working under an initial limited contract, he/she will pay compensation to the
employer if he/she ends the employment prior to the end date. Similarly, if an
employer ends an initial limited term contract before its end date the employer
will owe employee compensation for the early termination.

f.    End
of service entitlements

The end of service entitlements owed
to the employee when the employment is terminated (unless terminated for cause
under Article 120, as discussed above) includes payment in cash representing:

  • salary to date of termination
  • notice period
  • accrued but unused annual leave
  • bonus or commission (where applicable)
  • return air ticket or its value (where
    applicable)
  • end of service gratuity (based upon a
    fixed formula depending on years of service)
  • minus any amounts owed employer.

g.   Restrictive
Covenants

Restrictive covenants are
permissible in an employment contract that seek to prevent employees from
engaging in unfair business activities following termination of their
employment. Such covenants include:

  • Non-competition: Prevents employees
    from joining a competitor;
  • Non-solicitation: Prevents employee
    from soliciting existing clients; and
  • Non-poaching: Prevents employee from
    recruiting or poaching ex colleagues.

These covenant terms must
be reasonable in length of time, area of restriction and activity or activities
that are being limited. An employer must prove actual damages caused by the
former employee's breach of the restrictive covenant to prevail in court.

There is an ongoing duty
for employees not to disclose confidential information to a third-party and is
a crime under the UAE Penal Code. Where the disclosure is released via an
electronic portal it is treated as a cyber-crime, which is also covered under
applicable UAE law.

h.   Dispute
Resolution

All employment contracts
must be registered with the MOHRE and the Labor Court has jurisdiction over all
labor claims. The statute of limitations to file a case is one year from the
date of which any entitlement under the Labor Law became due. Initially, all
complaints must be filed with the Labor Office for a single conciliatory
meeting with the parties and MOHRE representative. If unsuccessful, the parties
have the right to file a complaint in the Labor Court.

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