Employment rules being modernised in Dubai's finance centre

Out-Law Analysis | 26 Nov 2018 | 10:44 am | 5 min. read

ANALYSIS: Employment law in the Dubai International Financial Centre is set to be brought into line with international best practice through reforms expected to take effect in 2019.

The changes planned should help promote the DIFC as a place where businesses can thrive within the Middle East and on a wider global basis.

The reforms, which have been in the pipeline for months, have yet to be finalised. However, they look set to impact significantly on central components of existing employment law in the DIFC and on employment relationships in the jurisdiction more generally. It is therefore vital that businesses understand the amendments that could be introduced.

Work undertaken in 2018

The DIFC is an independent jurisdiction and operates its own common law system which is different to all other jurisdictions within the United Arab Emirates, both in terms of the applicable legislation and the governing courts.

Although the DIFC's existing employment law from 2004 has been updated before, most recently in 2012, the DIFC Authority (DIFCA) decided earlier this year to seek to make sweeping changes to the current regime by bringing forward plans for an entirely new employment law, DIFC Law 8/2018.

The DIFCA opened a one-month long public consultation on the draft new law which closed at the end of March. The proposals sparked lots of interest and the DIFCA has since been reconsidering the draft. The current law will remain in full force and effect until the DIFCA notifies any legislative changes through a notice on its website.

The DIFCA's rationale for the new law is to balance the needs of employers and employees in the DIFC while maintaining a framework of minimum employment standards to contribute to the success of the DIFC.

The main changes proposed

Scope

The proposal is to expand the scope of protection that applies under the existing DIFC employment law. The draft provisions confirm that the new law would apply to: 

  • part-time and short-term employees – the new provisions confirm that part-time and short-term employees will be covered. For part-time employees, the only distinction the new law makes when compared with full-time employees is by pro-rating their leave entitlements.
  • secondees – subject to certain limitations, the DIFCA helps employers to facilitate secondment arrangements within the DIFC. However, this is the first time secondees have been expressly included within the employment regulations. 'Secondee' has been drafted widely to include any agreement or arrangement for the temporary transfer by an employer to its place of business within the DIFC. To ensure that the secondment exemption is not abused, the DIFCA intends to restrict its definition further in secondary regulations.
  • close connection with the DIFC – individuals determined by the DIFC Court to have a "sufficiently close connection with the DIFC for it to be appropriate for it to deal with any right, remedy, privilege, debt or obligation of that individual" will be protected under the new law. The DIFC often serves as a nexus point for expatriate workers whose work requirements are peripatetic in nature. This change would mean that an individual on an overseas contract but who works only part of the time for a DIFC entity may be able to bring claims under the new law.

Waiving statutory rights

Under the planned new law, the default position remains the same - unless the law specifically permits, parties will not be able to contract out of the minimum statutory entitlements.

However, and in order to resolve a dispute, the draft new law has a carve-out which permits parties to waive their statutory rights by entering into a settlement agreement.

Employees would be protected insofar as the court would have the discretion to set aside a settlement agreement which it considers to be unreasonable, unless the employee has obtained independent legal advice in advance of signing.

Penalty

One of the main drivers for the legislative reform is the provisions under the current law which impose a financial penalty for non-payment of dues within 14 days of the employment termination date. The penalty is levied at the employee's last daily wage for each day the employer is in arrears. There is no cap on the penalty and it has, in some cases, rendered disproportionate results for businesses.

The penalty is preserved under the draft new law; however, it would be subject to qualifications:

  • the penalty would be triggered only where the outstanding entitlements exceed 5% of the total sum due to the employee.
  • the penalty would be capped at six months' wages.
  • the court would have discretion to waive or reduce the penalty where it considers it reasonable to do so, for example where there is an ongoing dispute in the court or where the employee has caused the delayed payment.

The draft new law would give employers an added degree of certainty in terms of their risk exposure when terminating an employee's employment.

Discrimination

The current law already includes anti-discrimination provisions. However, their usefulness in terms of protecting employees is negotiable as the current law does not provide for any remedies in response to a positive finding of discrimination. The proposed new law seeks to go some way to rectify this by enabling the court to address any discriminatory act by: 

  • making a declaration as to the rights of the complainant;
  • making a recommendation; and
  • ordering the respondent to pay compensation capped at one year's wages.

In addition, employees would be entitled to request information from the employer regarding potential discrimination against them. The draft new law also adds two new protected characteristics – age and pregnancy.

Constructive dismissal

This is one of the more radical proposals. Under the new law as drafted an employee would be able to claim damages capped at one year's salary where they terminate the employment 'for cause'. In other words, this creates a statutory unfair dismissal law but only where the employee resigns; there would remain no unfair dismissal protection where the employer terminates. 

Whistleblowing

A person who discloses confidential information in good faith and in accordance with DIFC companies law would be protected from: 

  • civil or contractual liability; and
  • being dismissed or subject to any detriment.

Employers could face a fine of up to $30,000 for a breach of these provisions.

End of service gratuity

The current law is aligned with the onshore federal regime insofar as end of service gratuity is concerned; that is, entitlements are forfeited where an employee is terminated for cause.

Under the draft new law, an employee terminated for gross misconduct would be paid their full gratuity. The rationale being that gratuity serves as an employer's contribution to the expatriate employee's retirement fund and withholding gratuity for behaviour that may constitute grounds for summary dismissal has potential for gross unfairness.

As the DIFC matures as a jurisdiction, there have been discussions as to whether now is the right time for a pensions law to be introduced into the DIFC to replace gratuity. A Working Pensions Group has been created but there does not seem to be any indication of a pensions law on the near horizon; accordingly, employers should continue to factor gratuity liabilities into their balance sheets.

Timing and action points

It is anticipated that the amended law will be implemented in either the first or second quarter of 2019. During the interim period, employers should conduct a risk assessment of what the new law might mean in terms of potential new claims from employees and those already underway in the court.

Luke Tapp and Ruth Stephen are Dubai-based employment law experts at Pinsent Masons, the law firm behind Out-Law.com. A version of this article was originally edited by, and first published on, www.internationallawoffice.com.