New Employment laws in the DIFC

The Dubai International Financial Center (DIFC) is one of the UAE’s many free zones. Free zones are economic areas created by each of the seven UAE Emirates, established to be governed by rules and regulations that are generally different from those governing the “onshore” UAE. More precisely, UAE federal criminal law applies to the free zones while federal civil law (such as the Commercial Companies Law and the Commercial Transactions Law) applies only to matters with respect to which the free zone has not developed its own laws or regulations on. In many respects, the free zones are like foreign countries territorially located within the UAE.

The DIFC is currently the most advanced free zone in terms of the development of its own laws. It has its own contract laws, company formation and insolvency laws, legal rules of interpretation, real estate regulations and its own arbitration centre and court system,including a Court of Appeal. Unlike the UAE, which is a civil law jurisdiction, its laws are entirely based on common law principles.The uniqueness of the DIFC extends to its governance of labour relations. While the vast majority of employment relationships in the UAE and its free zones are regulated by UAE Federal Labour Law No. 8 of 1980 (as amended) (“Federal Labour Law”), within the DIFC the Federal Labour Law is excluded and Law No. 4 of 2005, as amended by DIFC Law No. 3 of 2012 (“Employment Law”), applies to all employment arrangements. It is the purpose of this article is to give an overview of the Employment Law and its practical application. Application of the Employment Law The Employment Law is applicable to those employees working for a corporate entity with a place of business in the DIFC and who are based in, or ordinarily work in, the DIFC. It is also applicable to employees of regulatory agencies within the DIFC, including employees of the Dubai Financial Services Authority, the DIFC’s chief regulating body.

The Employment Law sets out a number of benefits that are considered the minimum to be afforded to employees, these benefits cannot be waived or reduced by contract. If an employment contract stipulates less favourable terms than the minimum rights afforded under the provisions of the Employment Law, then that contractual term is void.


The main changes proposed

The proposal is to expand the scope of protection that applies under the existing DIFC employment law. The draft provisions confirm that the new law would apply to:

  • part-time and short-term employees – the new provisions confirm that part-time and short-term employees will be covered. For part-time employees, the only distinction the new law makes when compared with full-time employees is by pro-rating their leave entitlements.

  • secondees – subject to certain limitations, the DIFCA helps employers to facilitate secondment arrangements within the DIFC. However, this is the first time secondees have been expressly included within the employment regulations. 'Secondee' has been drafted widely to include any agreement or arrangement for the temporary transfer by an employer to its place of business within the DIFC. To ensure that the secondment exemption is not abused, the DIFCA intends to restrict its definition further in secondary regulations.
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    • close connection with the DIFC – individuals determined by the DIFC Court to have a "sufficiently close connection with the DIFC for it to be appropriate for it to deal with any right, remedy, privilege, debt or obligation of that individual" will be protected under the new law. The DIFC often serves as a nexus point for expatriate workers whose work requirements are peripatetic in nature. This change would mean that an individual on an overseas contract but who works only part of the time for a DIFC entity may be able to bring claims under the new law.


    Waiving statutory rights

    Under the planned new law, the default position remains the same - unless the law specifically permits, parties will not be able to contract out of the minimum statutory entitlements.

    However, and in order to resolve a dispute, the draft new law has a carve-out which permits parties to waive their statutory rights by entering into a settlement agreement.

    Employees would be protected insofar as the court would have the discretion to set aside a settlement agreement which it considers to be unreasonable, unless the employee has obtained independent legal advice in advance of signing.

    Penalty

    One of the main drivers for the legislative reform is the provisions under the current law which impose a financial penalty for non-payment of dues within 14 days of the employment termination date. The penalty is levied at the employee's last daily wage for each day the employer is in arrears. There is no cap on the penalty and it has, in some cases, rendered disproportionate results for businesses.

    The penalty is preserved under the draft new law; however, it would be subject to qualifications:

  • the penalty would be triggered only where the outstanding entitlements exceed 5% of the total sum due to the employee.
  • the penalty would be capped at six months' wages.
  • the court would have discretion to waive or reduce the penalty where it considers it reasonable to do so, for example where there is an ongoing dispute in the court or where the employee has caused the delayed payment.
  • The draft new law would give employers an added degree of certainty in terms of their risk exposure when terminating an employee's employment.
  • Discrimination

    The current law already includes anti-discrimination provisions. However, their usefulness in terms of protecting employees is negotiable as the current law does not provide for any remedies in response to a positive finding of discrimination. The proposed new law seeks to go some way to rectify this by enabling the court to address any discriminatory act by:

  • making a declaration as to the rights of the complainant;
  • making a recommendation; and
  • ordering the respondent to pay compensation capped at one year's wages.
  • In addition, employees would be entitled to request information from the employer regarding potential discrimination against them. The draft new law also adds two new protected characteristics – age and pregnancy.
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    Constructive dismissal

    This is one of the more radical proposals. Under the new law as drafted an employee would be able to claim damages capped at one year's salary where they terminate the employment 'for cause'. In other words, this creates a statutory unfair dismissal law but only where the employee resigns; there would remain no unfair dismissal protection where the employer terminates.

    Whistleblowing

    A person who discloses confidential information in good faith and in accordance with DIFC companies law would be protected from:

    • civil or contractual liability; and
    • being dismissed or subject to any detriment.
    • Employers could face a fine of up to $30,000 for a breach of these provisions.

    End of service gratuity

    The current law is aligned with the onshore federal regime insofar as end of service gratuity is concerned; that is, entitlements are forfeited where an employee is terminated for cause.

    Under the draft new law, an employee terminated for gross misconduct would be paid their full gratuity. The rationale being that gratuity serves as an employer's contribution to the expatriate employee's retirement fund and withholding gratuity for behaviour that may constitute grounds for summary dismissal has potential for gross unfairness.

    As the DIFC matures as a jurisdiction, there have been discussions as to whether now is the right time for a pensions law to be introduced into the DIFC to replace gratuity. A Working Pensions Group has been created but there does not seem to be any indication of a pensions law on the near horizon; accordingly, employers should continue to factor gratuity liabilities into their balance sheets.

    Timing and action points

    It is anticipated that the amended law will be implemented in either the first or second quarter of 2019. During the interim period, employers should conduct a risk assessment of what the new law might mean in terms of potential new claims from employees and those already underway in the court.

     

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