Thoughts on the new DIFC Employment Law

Guiding Principle

From 28 August 2019 onwards, a new DIFC Employment Law (DIFC Law No. 2 of 2019 / the “New Employment Law”) will come into effect in the DIFC, which replaces the existing DIFC Law No. 4 of 2005 (the “Old Employment Law”).

The aim of this article is not providing a detailed analysis of all changes that the New Employment Law will introduce, which various other parties have done already.
Instead, this article reviews the changes that will be applicable and aims to give an outlook on the impact these changes will have on employers.

A.  Introduction

At first glance, the changes introduced by the New Employment Law seem to be a mixed bag of positive and potentially not so positive changes.

B.  Positive Changes

Overall, the New Employment Law appears to have become more modern in some aspects and also more employee friendly.
For example, the introduction of paternity leave is a welcome development, which brings the New Employment Law more in-line with many modern employment laws around the globe.
Another welcome introduction is the clarification that each employee’s basic salary must not be less than 50% of the annual wage.
While it really should go without saying that the actual salary part of the salary should (far) outweigh the “allowance” part of the salary, the absence of clear regulations to that effect has led to abuse where, in some cases, employers tried to get away with setting the basic salary at no more than around 20% of the total salary amount.
This is certainly beneficial (for the employer) when calculating the employees’ gratuity entitlements (which are calculated based on the basic salary), but, at the same time, begs the question what gratuity entitlements are good for if the basis of their calculation depends on the employer’s goodwill in the first place.

C.  Debatable Changes

In the current economic climate in the UAE, a few of the changes in the new Employment Law appear debatable, however.
While at least in principle it is good news that the New Employment Law takes a tougher stance on discrimination, holding an employer liable for any discrimination taking place in the company strikes as a little harsh.
This is even more true if non-compliance is penalised with compensation being payable of up to a full year’s worth of (gross) salary of the allegedly discriminated employee.

Yes, the employer is given the chance to prove that it has taken steps to avoid such discrimination taking place, but what would such steps be? Posting signboards throughout the office stating that discrimination is not tolerated?
I have not come across a company that would have actively encouraged discriminating behaviour.
At the same time, however, the provisions in the UAE Labour Law dealing with arbitrary dismissal are heavily “overused” in a sense that nowadays virtually each and every termination of an employee is considered arbitrary.
Are we looking at a future where employers in the DIFC will be held liable even for perceived “discriminations” taking place at the workplace they provide?

I see a substantial risk of employees hoping for a big payday and believe that it remains to be seen whether the New Employment Law will actually lead to less discrimination or to employers employing less people in DIFC instead.
In addition, the new Employment Law introduces a whole range of new penalties and fines, ranging from US$ 2,000 to US$ 10,000 per breach.
While it goes without saying that acts of non-compliance must be sanctionable, the question remains whether fines are really the only, or best, way of guaranteeing compliance.
Systems that focus on issuing financial penalties instead of preventing wrongdoing tend to degenerate into income generators instead of upkeeping peace.

D.  Conclusion

The new Employment Law comes with a number of welcome improvements. It does include a range of novel provisions, however, how the courts will interpret it will need to be monitored closely. Provisions against discrimination and penalties are nothing bad per se.
The New Employment Law opens the door for such matters being abused to the detriment of employers in DIFC, however. It might be worth bearing in mind that companies are the backbone of any economy and require a favourable business environment to flourish.
It will be up to the courts to interpret the new Employment Law carefully in order to not burden employers in DIFC unduly.

Author: Dr. Michael Krämer

Senior Lawyer