Employees' rights under new DIFC employment and insolvency laws

Out-Law Analysis | 07 Nov 2019 | 1:27 pm | 1 min. read

The Dubai International Financial Centre (DIFC) made significant changes to its insolvency and employment laws earlier this year. The way that the two sets of laws interact provide much greater financial protection and security for employees working there.

DIFC Law No.1 of 2019 (the New DIFC Insolvency Law) aims to create a more efficient and effective bankruptcy and restructuring regime, and there are better protections for employees in cases of bankruptcy and insolvency.

The DIFC's new Employment Law (DIFC Law No. 2 of 2019) also introduced new protections by creating a defined-contribution pension scheme which is due to come into force on 1 January 2020.  

Employee Ranking

The DIFC Insolvency Regulations say that the order in which debts are paid in an insolvency will be: the expenses of the winding up process; then any payments to preferred creditors, then payments of all other debts which are unsecured or secured.

Under the DIFC Preferential Creditor Regulations, employees are designated as 'preferred creditors'. Employment payments which are classified as preferred debts and will be paid before unsecured or secured payments include:

  • any sum owed by the company which is a contribution to a pension scheme on behalf of the company’s employees or any end of service gratuities;
  • remuneration of company employees for a period of up to four months;
  • any payments in lieu of notice, and
  • payments in respect of accrued but untaken annual leave.

DIFC Court

The  DIFC Preferential Creditor Regulations say that any sums ordered by a  DIFC Court as payment to an employee is classified as a preferential debt.  

The DIFC Authority's chief legal officer Jacques Visser said that even in an insolvency situation an employee who considers that their employer has breached its obligations under the DIFC Employment Law will still have access to the DIFC Courts, including the DIFC's Small Claims Tribunal which is designed to provide quick and cost-effective dispute resolution.

Employee Workplace Savings Scheme

The current statutory end of service gratuity system – a defined end of service benefit which foreign employees are entitled to following the completion of one year's service – will be replaced with a funded workplace pensions scheme with effect from 1 January 2020. The savings scheme, known as the DIFC Employee Workplace Savings scheme (DEWS), is meant to be more closely aligned with global retirement savings standards.   

In the context of insolvency - and while pension payments are already set out as a 'preferred debt' - the fact that the assets will sit in trust means that if a company goes into administration the money will still be there and will grow on a month-by-month basis. Accordingly, the DEWS should help to go one step further and help employees achieve added financial security.

Ruth Stephen and Andrea Hewitt-Sims are employment experts at Pinsent Masons, the law firm behind Out-Law.