Changes to DIFC Employment Law

Analysis of the Proposed Changes to the DIFC Employment Law

The Dubai International Financial Center (DIFC) is one of the many free-zones in the UAE. Each of the seven Emirates of UAE created their free-zones with the aim of increasing international business by offering 100% ownership to expatriates and single window administration. Except for the UAE Penal Code, the free-zones are usually governed by rules and regulations which are specific to a particular free-zone.  Other laws like the Federal Civil Law only apply if the free-zone regulations are silent or insufficient on the specific topic.

Dubai International Financial Centre

One of the most advanced free-zone in terms of the law, DIFC has specific contract laws, laws regulation of company formation and insolvency, real estate regulations, rules of interpretation, and its own arbitration center and court system including a Court of Appeal. The laws in DIFC, unlike the laws in “on-shore” UAE, are based on the common law principles.

The DIFC is not regulated by the UAE Federal Labour Law No.8 of 1980 (as amended), which applies to all employment relations in UAE and its free-zones. DIFC employment regulations are covered under Law No 4 of 2005 (as amended by DIFC Law No.3 of 2012) (the “Current Law”).

DIFC however, expressed its intentions to replace the existing law with a new employment law and with this regard published a Consultation Paper with a draft of the new DIFC Employment Law (proposed DIFC Law No.6 of 2018) (the “Proposed Law”) inviting analysis from the public with regard to the changes it proposes.

Purpose

The primary aim of the Proposed Law is to bring the DIFC employment laws more in line with the Labour Laws of UAE. It aims to balance the needs of both employers and employees in the DIFC by providing a framework of minimum standards of employment and fair treatment.

Key Changes

• Application:

The law will apply to:

1. Both short and part-time employees;
2. Those who can demonstrate a close connection to the DIFC jurisdiction, which is subject to the determination by the Court;
3. Those who have agreed under the Employment Contract to be subject to the Proposed law; and
4.  Employees working in DIFC pursuant to a secondment (temporary transfer of an employee).

Reason: The Current Law, specifically under Article 4(2) in many instances proved to be problematic. It stipulated that the law shall mandatorily apply to contract of employment of Employees ordinarily working in or from the DIFC. Instances of these circumstances were also provided in the guide, such as:

1. Shift workers in retail outlets in the DIFC who may also work for their Employers outside DIFC.
2. Employees employed elsewhere in the world but gets seconded to the branch in DIFC under the same contract.

• Probation

Though there is no stipulation with regard to probation within the Proposed Law as to the length of the probation; if a probationary period has been agreed upon between the employee and employee, it needs to be reflected within the employment contract. Further, minimum notice periods shall not apply during the subsistence of the probation period.

• Duties of Employees

Article 56(1) of the Proposed Law lays down the employee’s duties to the employer, including:

1. Serving the employer faithfully
2. Complying with the employer’s reasonable instructions;
3. In performing their duties, exercise reasonable skill and care; and
4. Non-disclosure of confidential information of the employer.

• Penalties

Article 18 under the Current Law has a number of restrictions and requirements placed on the Employers but without any corresponding provisions relating to fine, penalty or other remedies to ensure compliance.  Application of Article 18 caused harsh consequences like an employer unintentionally miscalculating a payment due on termination which could trigger the penalty clause under the Existing Law which could have devastating consequences like causing the restructuring of business or close of operations.

In order to redress this shortcoming, the Proposed Law under Article 9 introduces a new regime for fines and penalties for contraventions under the Law. The Article specifically stipulates that allowing DIFCA to impose fines or penalties will not limit the rights of employers or employees to enforce their rights, privileges, remedies, actions or claims under the Proposed Law or any other relevant law. Schedule 3 to the Proposed Law contains the suggested fines for contraventions.

• Family Friendly Benefits and Rights

Article 38 of the Proposed Law provides for paternity leave extending up to 5 days to male employees to whom a child is born or adopts a child under the age of five years;

Article 56 extends the right to time off for antenatal care to male employees to attend medical examinations of pregnant wives or attending adoption proceedings.

• Sick Pay

Under Article 34 of the Current Law, all 60 leaves provided to the employee during a 12-month period are fully paid by the employer. This was not in line with the Federal Law which provided for 15 days of fully paid leaves and 30days at half pay.

Article 34 of the Proposed Law will introduce the following limitations in respect of the Sick Leave Pay are minimum standards:

1. The first 10 days of leave taken in a period of 12 months shall be fully paid;
2. The next twenty days of leave taken within the same period subject to payment of half an employee’s salary;
3. Any additional leaves taken shall be unpaid.

However, the employer has the flexibility to contract more favorable terms where required.

• Discrimination

Under Article 58 of the Current Law the grounds for discrimination is limited to:

1. sex;
2. race;
3. marital status;
4. nationality;
5. mental or physical disability; or
6. religion.

There is also no provision regarding remedies under the Current law for complaints with regards to discrimination rendering the law without any effect.

Article 59 of the Proposed Law proposes the following key changes:

1. Age and pregnancy have been added as a new category of discrimination;
2. Any claim for discrimination must be initiated within a period of 6 months from the date of the complained act;
3. Where the complaint involves several concurrent acts, the 6 months’ period will start from the end of the period during which the acts occurred.
4. Employees can request information from the employer for ascertaining and support of whether they have been subject to any discriminatory practices. If the employer fails to comply with the request, the employee may approach the DIFC courts for a remedy in the form of an order compelling the employer to provide such information.
5. Courts under the Proposed Law will have the power to propose, declare, recommend to the employer regards his conduct and take necessary actions to avoid its reoccurrence. The court may also award compensation of an amount equal to the employee’s annual wages. If the employer fails to follow the recommendations by the Court, the Court can award damages that are equal to two times the annual wages of the employee concerned.

• Dismissal (For Cause & Constructive)

Current Law:  Employers and employees have the right to terminate for a cause where the other party’s conduct warrant for such termination and it also passes the test of reasonableness.

Proposed Law: Will introduce a test to determine the reasonableness of the termination including whether the employee or employer acted reasonably in the given circumstances and in accordance with equity, in consideration of the merits of the case.

The Proposed Law will thus introduce the concept of constructive dismissal in which the Court has the discretion to award an employee up to 1 year’s including allowance but excluding commissions, bonuses and other payments which are discretionary or do not form a part of the employment contract or are non-recurring.

• Gratuity in Case of Termination With Cause

 According to the current law, if the employee was terminated for a cause, they are not entitled to receive any gratuity pay.

The Propose Law mandates that the employer pay gratuity even in such circumstances, which may be waived for contributions in alternation saving schemes upon retirement. The law also lays that that while calculating the gratuity pay, it shall be based on an employee’s annual basic salary which shall not be lower than 50% of the employee’s salary inclusive of the allowance but excludes commissions, bonus or any such discretionary or non-recurring payment payments.

• Whistleblowing

The Current Law does not have any provisions for the protection for whistle-blowers. The Proposed Law, however, includes references to whistle-blower protections included in the proposed DIFC Companies Law in which they shall be protected from:

1. Civil or contractual liability for disclosures made;
2. Dismissal or subject to any other action which is likely to cause detriment to that individual.
3. Breach of these provisions can lead to the fine of up to USD 30,000

• Provisions regarding Fines

The Current Law is unable to apply fines or penalties on the employer for his contraventions. The Proposed Law empowers the DIFC Authority to impose sanctions for breaches including penalties which have been set out in Schedule 3 of the Proposed Law. For instance, if the employer does not pay the salary within 7 days from the period of pay, he would attract a fine of USD 2,000, payable to the DIFC authority.

• Other Provisions

Payment Lieu Notice Period: The Proposed Law also permits the employer to make a payment in lieu of the notice period, which if paid, the employer can require the employee not to work for any other third party.

Waiver of Rights: An employee under the Proposed Law can waive his or her rights and settle the dispute by entering into a settlement agreement. Unless the employee sought independent legal advice before signing the agreement, the Court has the power to set aside the agreement if it found the terms of such agreement to be unreasonable.

 Immigration Provisions: The employer is responsible to obtain and maintain, on his own costs, the requisite documentation of sponsorship and cannot recoup the costs or expenses incurred from the employee in this relation. He is also not permitted to retain the passport of the employee. Visas must be canceled within 30 days from the date of termination of employment.

Vicarious Liability: The Proposed Law also sets a test to determine the vicarious liability of an employee for the acts of his employees, questioning whether the employee’s act was sufficiently within the scope of this authority and whether the employer took sufficient preventive measures to prevent the commission of the act.