The new Dubai International Financial Centre (DIFC) employment law (DIFC Law No. 2 of 2019) (New Law) has now been enacted, and will come into force on 28 August 2019 (90 days after the date of enactment).
A draft proposal of the New Law (Draft Law), which intended to create higher employment standards and balance the needs of both employers and employees, had been circulated for consultation in March last year, however the New Law contains a number of important amendments to the Draft Law.
The changes in the New Law represent an evolution and not a revolution, tidying up a number of issues that needed clarification. It includes a raft of measures that could be viewed 'employee-friendly', notably with discrimination protections extended to cover pregnancy, maternity and age. It also now protects employees who make a complaint based on their treatment from victimisation – although it has not created an extended regime for damages, as exists in other jurisdictions. New fathers working in the DIFC will welcome the addition of five days statutory paternity leave, a benefit not enjoyed by male employees in onshore UAE or other main free zones (with the exception of the ADGM). Employees will also no longer lose their gratuity entitlement on a termination for cause. These friendly measures however have been offset by a reduction in sick pay.
Employers will also welcome the inclusion of limitations on the penalties for late payment of remuneration. Under the previous law, employees who could show a late payment as a result for example of a dispute over final payments could claim a full day's pay for every day until the resolution of the issue. This had the capacity to create a windfall if the employer could not subsequently justify withholding an item of remuneration such as a disputed bonus, notice payment or gratuity. The new DIFC employment law seeks to prevent windfall penalties by limiting the application to amounts owed in excess of a week's wages and also suspending the accrual of the penalty while any sum is subject to a court dispute. The employee should also not benefit from deliberately delaying any complaint. Employers should be able then to dismiss for cause without fear of a disproportionate penalty if the dismissal is not subsequently upheld as fair by the DIFC court - damages should ordinarily be limited to the unpaid notice and gratuity in many circumstances.
There are also measures designed to promote flexibility in the workforce with a recognition of secondment arrangements both within the UAE and from outside the UAE. This will allow employers to retain home country entitlements for secondees without a risk of dual employment entitlements in most circumstances (although certain mandatory provisions will still apply).
Employers will therefore need to act promptly to:
- ensure that their policies and contracts are compliant;
- consider whether sick pay will be reduced to statutory minimum (and if consent is needed); and
- ensure that all employees and management are aware of the changes and in particular may be a good time to review policies and training on diversity and dignity at work
We have summarised the key changes below.
Application to part-time employees and secondees
The New Law recognises part-time employees and will apply similar rights and benefits as those that apply to their full time counterparts. Most notably, the New Law advises that maternity, paternity, special and sick leave should be calculated on a pro-rata basis for part-time employees in accordance with the average number of days worked during a working week.
Importantly, secondment arrangements are recognised for the first time in the DIFC and employees will be allowed to be seconded to another employer in the DIFC subject to holding the necessary permissions. Employees who are seconded from outside of the DIFC will also be able to choose a foreign law to govern their contract but certain mandatory provisions of the New Law will still apply.
A statutory maximum probationary period of 6 months has been introduced for employees, provided the total time is explicitly stated in the contract of employment.
Financial penalties for late termination payments
A welcome amendment for employers is the introduction of changes to the late penalty payment provision including a minimum payment threshold when the delay payment is triggered.
Under the current DIFC employment law (DIFC Law No. 4 of 2005) an employer that fails to pay an employee all amounts owed to them within 14 days of termination are subject to a mandatory penalty equal to the employee's daily wage for each day that the employer is in arrears. This is a problematic provision and is considered to be overly burdensome for employers particularly when involved in lengthy disputes with employees.
Under the New Law the penalty will only be applicable if the amount owed to an employee (excluding certain discretionary payments) exceeds the employee's weekly wage.
Importantly, the penalty will also be waived for any period during which where there is a court dispute pending or if the employee's unreasonable conduct is shown to be the material cause of the employer's failure to pay.
The existing discrimination protections are to be extended to include pregnancy, maternity and age.
The New Law also widens the scope of offences to recognise the victimisation of an employee who carries out a protected act such as making an allegation or providing evidence of discriminatory behaviour under the anti-discrimination provisions. The right for an employee to request information with regard to any potential discrimination claims against them has been removed from the Draft Law.
Employers will now find themselves liable for any act of discrimination by an employee in the course of employment unless the employer can show that it took such steps as were reasonably practicable to prevent the employee from carrying out that act or doing anything of that description.
A criticism of the current law has been that it does not contain statutory compensation or other penalties for breach of its discrimination provisions. Under the New Law, compensation of up to an employee's annual wage can be awarded for breach of the discrimination provisions and we expect to see an increase in complaints as a result.
Additional benefits for families
Paternity leave will be recognised in the DIFC, with male employees being entitled to take up to five working days of paid leave, provided that the employee has been continuously employed for more than a year. The new provision will also extend to adopted children of less than five years old. This entitlement will have to be taken within a month from the date of the birth or adoption.
Both female and male employees (whose wives are pregnant) will be entitled to 'reasonable' time off for ante-natal care and adoption proceedings provided they supply the employer with the relevant evidence of their appointment. They will be remunerated at their normal hourly rate.
Additionally a female employee returning to work from maternity leave, whose working day exceeds six hours, shall be entitled to a nursing break of at least one hour per day.
The current statutory sick pay entitlement of 60 days on full salary will be reduced and replaced with the following staggered payment system:
- 100% of the employee's daily wage for the first 10 working days of sickness absence;
- 50% of the employee's daily wage for the following 20 working days of sickness absence; and
- unpaid for the remaining 30 days of sickness absence.
The reduced entitlement is more in line with the 'onshore' labour laws in the UAE.
Notice periods for termination
Whilst the employer and employee can contractually agree to a longer notice period it will not be permissible under the New Law to agree to a period shorter than the statutory minimum.
The minimum notice periods will not apply:
- during an employee's probationary period;
- where it has been expressly agreed that employment will terminate on the expiry of a fixed term employment contract; or
- in respect of terminations for excessive sick leave.
The New Law contains an express entitlement for employers to place their employees on garden leave for all or part of their notice period, and employers can make payment in lieu of notice only if this is expressly agreed between both parties by way of mutual agreement.
This means that employees with five years' service (except in limited circumstances) will be entitled to a minimum of three months' notice and cannot be paid in lieu of notice except by mutual agreement.
End of service gratuity and pension
Employees will now have the option to choose to receive pension contributions into a non-UAE retirement fund or similar scheme in place of their entitlement to a gratuity payment, provided that the contributions being made by an employer are not less than the statutory gratuity payment that the employee would have otherwise been entitled to receive.
Importantly, under the New Law an employee will no longer forfeit their entitlement to gratuity if terminated for 'cause' as defined in the New Law.
The New Law introduces a six month limitation period for all claims, including discrimination claims, in which case a claim must be brought within six months from the date of the alleged discriminatory act or the employer's failure to act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.