What will happen to your employment contract post-February 2023?

28 Jul, 2022
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Ahmed Elnaggar

Founder, The Jurist, Managing Partner at Elnaggar & Partners, Founder and President at Emirates Legal Network

We regularly receive inquiries and questions from employees in the UAE complaining about having conflicts with their HR departments or their employers who are trying to push them to sign new employment agreements or to insert new articles that would change something substantial in their employment relationship. In most cases, these changes are regarding having more responsibility, working more hours or days, fewer holidays, a reduction in salaries, and in other cases, enforcing more restrictions on the employees to not compete with the employer’s competitors and other confidentiality and non-disclosure terms that were not proposed at the start of the employment relationship. This, of course, is a significant curtail that may change the relationship between the employee and the employer forever!

For this reason, we expect a lot of such inquiries in the coming few months, at least until February 2023, because of the simple fact that there is new labour law in force. All companies in the UAE are obliged to update their labour contracts with their employees by or before the 1st of February 2023.

“There is a new labour law in force and all employers in the UAE are obliged to update their agreements with their employees by the 1st of February 2023”

With the growing economic landscape in the UAE, there is a growing need to protect employees’ interests in the workplace. The new rules introduced by the Ministry of Human Resources and Emiratization governing the employment relationship empower workers and minimize potential industrial disputes. These rules intend to protect employees’ rights and promote UAE’s competitive commercial environment by attracting and retaining foreign talent.

The new labour law (No. 33 of 2021) puts in place protections against discrimination, provides clarity on the rules surrounding termination, and introduces various flexible working options.

Previously, only full-time work was recognized. Part-time work was recently introduced legally in 2019, and remote working was only recognized by law as a result of the pandemic. However, the current position allows for 12 types of working permits and 6 flexible working models to choose from. This move is beneficial for many groups of people, such as students who undertake employment, since work permits were unable to be issued to juveniles; especially due to the introduction of options for employees to shift to a condensed work model of 40 hours a week.

This legislative framework marks the largest overhaul of the laws regarding employment relationships since the announcement of the previous legislation in 1980. The 2021 legislation is applicable to all organizations within the UAE, except for those within the DIFC (Dubai International Financial Centre) and ADGM (Abu Dhabi Global Market).

A notable change made by the new labor law is the elimination of unlimited contracts, which have been replaced by fixed-term contracts for a period of up to 3 years.

Upon the expiry of employment fixed-term contracts, they will be renewable for an unlimited amount of time. Employers must enforce this change in their workforce by 1st February 2023, and there is no limit to the number of fixed-term contracts that the employer can enter. Similarly, when calculating an employee’s end-of-service benefits, extensions/renewals of a fixed-term contract will contribute to their continuous service period, even if the contract has not been formally renewed (but particularly when both parties still perform their obligations under the original contract as though nothing has changed).

A potential concern and a few conflicts may happen when employees receive their new, fixed-term contracts, but with additional terms that are different from their original, unlimited contracts.

Workers and employers alike must ensure mutual understanding of terms when entering a new limited-term contract, and employees must be careful to ensure that they are not signing onto any unfavorable terms in their new contract.For employees on unlimited term contracts, the provisions of the 2021 Federal Law will automatically apply to all employment relationships after the 1st of February, which means that the following rules would apply to employees’ termination, notice periods, and calculation of end-of-service gratuity.

A failure to abide by all changes by the 1st of February will result in a penalty to the employer, with a maximum fine of AED 1,000,000.

Notice periods under the new law have been modified when either party wishes to terminate the contract. A month’s notice is required by the worker if they join another employer within the UAE, and 14 days’ notice if the employee leaves the UAE altogether. If an employer decides to dismiss a worker, they must give 14 days’ notice. In this case, the employee will be permitted one day of unpaid leave per week to search for a new job.

The contractual minimum notice period still remains at 30 days as per the 1980 law, and the new maximum notice period introduced in 2021 has been capped at 3 months. However, if either party terminates the relationship without abiding by the notice period rules, they are legally bound to pay the other party compensation.

In accordance with Article 43, the party in breach of this clause is obligated to compensate the other party the equivalent of the wages for the notice period (or the remainder of the notice period).

The payment of end-of-service gratuity has also been altered by the new regulations. As compared to the 1980 law, which states a reduction in gratuity to be paid to employees who resign; under the 2021 law, resigning employees are entitled to a full end-of-service gratuity payment (if they have completed a full year of service). Under the 2021 provision, if an employee has worked continuously for 1-5 years, they will be entitled to 21 days’ salary for each year of work. If an employee has worked over 5 years, they will be entitled to a gratuity of 30 days’ salary for each year of work following the first 5 years. However, the total gratuity should not exceed the total salary of two years.

The calculation for end-of-service gratuity only applies to foreign, full-time workers. There are provisions detailed in further Implementing Regulations of the Law that outline end-of-service benefits for workers in flexible arrangements, such as part-time/job-sharing modes of work.

Another key aspect of this law is the implementation of leaves of absence from the workplace. Annual leave entitlements remain the same from the previous position, stating that employees are entitled to a minimum of 2 days per month during the first year of service, and 30 calendar days from the second year of service. Contrary to the previous position of the carrying forward of unused leave or payment in lieu of the expiry of unused days off, the 2021 law states that employees must use all applicable annual leave since it will not carry forward or ‘roll over to the next calendar year. Despite this, workers and employers can reach a mutual agreement for any payments made in lieu of annual leave only when the employment is terminated, which will be made at the basic salary rate.

Disciplinary sanctions are clarified in the new regulations as well. As a general rule, organizations with over 50 employees should clarify (and make available to employees) rules and internal policies on the regulation of work, including penalties, promotions, and procedures for termination. If employees breach any obligations imposed by the 2021 Decree, employers are permitted to impose disciplinary sanctions, such as a written warning or notice, deduction of 5 days’ wage, or a suspension for less than 14 days. However, employers are not permitted to impose more than one sanction for a single violation of the regulation.

Organizations with over 50 employees should clarify (and make available to employees) rules and internal policies on the regulation of work, including penalties, promotions, and procedures for termination.

In summary, if you are a business owner or an entrepreneur who has one or more employees, you must get yourself and your human resources department acquainted with the new labour law regulations, and ensure your organization is following it by updating your employment agreements. If you may need any help to understand, clarify, or require assistance to update and review your employment contracts, or your organization’s internal policies and regulations of work, and the best way to communicate the changes to your employees, feel free to contact Elnaggar & Partners for such assistance.

 

Ahmed Elnaggar

Managing Partner 
Elnaggar & Partners

 

Bhavika Hotwani

Legal Consultant
Elnaggar & Partners

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