Changes in the UAE Labour Law

Federal Law No. 33 of 2021, the most significant amendment to the UAE labour, came into force on February 1st, 2022. It aims to adapt UAE labour law to the challenges of toady’s world of work. The aim is to align labour relations in the UAE with international best practices, recognize the need for atypical and/or flexible work structures, better protect the employee and increase flexibility in the workplace. The new law will fully replace Federal Law No. 8 of 1980, as amended (the “current law”).

The most important changes are briefly summarized:

A. Part-time and flexible working Arrangements
The new law introduces alternative and flexible employment arrangements:

  • Part-time work
  • Fixed-term employment
  • Flexible work.

How these alternative employment arrangements will have to be implemented by the employer, how the entitlements upon termination of employment will be structured for part-time, temporary and flexible workers remains to be seen. Corresponding implementing provisions of the new law are to determine the mechanism regulating termination benefits for foreign workers who are not full-time employees.

B. Fixed-term 3-year Contract
The new legislation obliges all employers to conclude fixed-term employment contracts of a maximum duration of 3 years with the option to renew or extend the contract after the expiry of the fixed term for the same or a shorter period. If the contract is not expressly renewed or extended, but the parties continue to perform as if the contract still existed, the contract shall be deemed to be renewed on the terms of the last employment contract. Any extension or renewal of an employment contract shall thereby be credited against the employee’s previous length of service, in particular, in order not to adversely affect the amount of severance pay upon termination.

For workers currently employed under a permanent contract, the provisions of the new law will automatically apply from the date of entry into force on 02. February 2022. Employers are obliged to convert existing permanent contracts into fixed-term contracts within one year of the entry into force of the law (i.e. by February 1st, 2023). If workers are currently employed on an open-ended contract, either party may terminate the contract for a justified reason. The following minimum notice periods must be observed:

  • 30 days if the period of service is less than 5 years.
  • 60 days for a period of service of more than 5 years
  • 90 days for a period of service of more than 10 years.

C. Termination of Contract
I. “Just Cause”
Despite the use of the term “fixed-term”, fixed-term contracts may be terminated during the term for “just cause” provided that the notice period specified in the employment contract is observed (minimum 30 days, maximum 90 days). Unless the notice period is complied with, the terminating party must pay the other party compensation equal to the employee’s salary for the notice period (or the remaining part thereof). If the employer gives notice, the employee is entitled to 1 day of unpaid leave per week. Termination with notice for reasons other than those related to the employee’s performance or conduct is now permitted.

II. “Operational Reason”
In addition, dismissal for operational reasons is a recognized reason if the employer cannot continue to employ the employee in the business due to operational requirements.

III. Extraordinary Grounds for the Employer and Consequences
The following have been added to the previous grounds for summary dismissal

  • Abuse of position for profit or personal gain;
  • taking up work for another employer without complying with the applicable regulations.

Of significance is that an employee who is dismissed without notice is now entitled to severance pay upon termination of the employment relationship.

IV. Extraordinary Grounds for the Employee
The circumstances in which an employee may terminate employment immediately and without notice have also been amended to include the following grounds:

  • Existence of a serious risk threatening the safety or health of the employee, provided that the employer was aware of the risk and did not take measures to eliminate the risk;
  • Assignment to work without the worker’s consent that is fundamentally different from the work specified in the employment contract.

D. End of Service Benefit at the end of service
A reduction of the end of service benefit at the end of the employment relationship for departing employees is no longer provided for. Leaving employees with at least 1 year of service are thus entitled to payment of the full severance pay (calculated according to the previous regulations that continue to apply) at the end of the employment relationship.

E. Payment of End of Service Benefit
All claims must be paid within 14 days of the termination date of employment. Failure to do so may result in a fine of between AED 5,000 and AED 1,000,000 being imposed on the employer.

F. Compensation for wrongful Termination of Contract
The concept of “arbitrary dismissal” is no longer provided for. The dismissal of an employee is unlawful if the dismissal is due to the employee havings lodged a serious grievance or complaint against the employer. If the dismissal is found to be unlawful on these grounds, the labour court may order the employer to pay compensation of up to 3 months’ salary (basic salary and allowances) in addition to any other contractual and statutory entitlements.

 G. Probationary period
The minimum notice period is 14 days for employers who wish to terminate an employee during the probationary period. The maximum duration of the probationary period remains 6 months. In the event that an employee resigns during his/her probationary period, the law provides for various obligations:

  • When transferring to another employer, the notice period is at least 1 month; the new employer is obliged to compensate the current employer for the employee’s recruitment costs.
  • Leaving the UAE requires 14 days’ notice; returning within 3 months for the purpose of employment in the UAE results in the new employer’s obligation to reimburse the former employer for the costs incurred in hiring the employee
  • If an employee does not comply with the provisions of the new law, he or she will be banned from working for 1 year from the date of departure (subject to possible exceptions).

H. Discrimination and Equal Pay
The new law protects workers from discrimination in the workplace and specifically prohibits discrimination based on race, colour, sex, religion, national origin, social origin and disability that would impair an employee’s equal opportunity or disadvantage an employee in entering or continuing employment. Violations are punishable by severe penalties.

I. Bullying and sexual harassment
The new Labour Code introduces protection for workers against bullying and sexual harassment in the workplace. In particular, sexual harassment, bullying, verbal, physical or psychological violence against a worker by his/her employer, supervisor, colleagues or co-workers is prohibited. Violations are punishable by heavy fines.

J. Maternity Leave, Parental Leave and Additional Leave
Maternity leave increases to 60 calendar days, with full pay for the first 45 days and half pay for the remaining 15 days. There is no reduction in salary provided the employee has completed one full year of employment at the time of taking maternity leave. Supplementary categories for maternity leave, entitlement to 5 days parental leave and training leave of 10 days per year for employees with more than 2 years of service.

K. Currency of salary payments.
Salaries can now be paid in a currency other than UAE Dirhams if agreed in the employment contract.

L. Non-compete clauses
The inclusion of non-competition clauses in an employment contract is permissible provided that the provisions are limited in time/duration, location/geography and to what is necessary to protect the employer’s legitimate business interests. A maximum lock-up period of 2 years from the date of termination of the employment relationship is expressly provided for. If an employment relationship is terminated by the employer and the termination of the employment relationship is not in compliance with the law, all agreements restricting competition automatically lapse.

M. Transfer of annual leave
The new legal provisions stipulate that unless the employer orders otherwise, workers must take their annual leave in the relevant leave year. Workers are entitled to compensation for leave not taken upon termination of employment, calculated solely on the basis of the worker’s basic salary.

German Translation

Author: Christine Baltzer-Zacharias

Senior Lawyer