However, these new resolutions are untested in the courts and do not provide the answer to all the challenges that private sector employers are facing at the moment. Companies should therefore obtain independent legal advice when considering the most effective way of restructuring their business and reducing costs in the current business climate.
Redundancy and restructuring
Ministerial resolution No. 279 of 2020 (Resolution 279), effective 26 March 2020, allows private sector businesses affected by precautionary measures taken to prevent the spread of Covid-19 to restructure the contractual relationship with their employees.
‘Redundancy’ as a concept under the UAE Labour Law
Most significantly, Resolution 279 introduces the concept of ‘redundancy’ into the UAE Labour Law for the first time.
Where an employer has identified a surplus of non-UAE national staff whose employment will be terminated, Resolution 279 requires the employer to:
- continue to provide the former employee with all of their entitlements with the exception of basic salary - including housing, transport and other allowances and private medical insurance - until such time that the employee secures alternative employment or leaves the UAE; and
- register the individual onto the MoHRE’s ‘Virtual Labour Market’ so that they can take up work for another organisation, which is particularly helpful for sectors experiencing an increase in business operations given the current suspension of foreign recruitment. A new employer can then lawfully hire the employee by choosing one of the following work permit options: transfer of work permit, temporary work permit or part time work permit.
Resolution 279 does not go so far as to expressly define redundancy termination - arising in connection with Covid-19 or otherwise - as an automatically ‘valid’ reason to dismiss an employee under the UAE Labour Law. However, it is likely that the courts will be more sympathetic to employers who can prove that redundancy terminations were the only viable option for the business.
Changes to employment terms and conditions
Resolution 279 also seeks to support employers reshuffling their business structures by gradually adopting the following:
- implementing a remote work system;
- granting employees paid leave;
- granting employees unpaid leave;
- temporarily reducing salaries; and
- permanently reducing salaries.
Requiring employees to take a period of paid leave is not new and employers have always been able to unilaterally set an employee’s holiday dates under article 76 of the UAE Labour Law. However, employee consent is necessary before a period of unpaid leave can be imposed on employees.
A temporary or permanent reduction to salary will amount to a change of a key term of the employment contract. Advance written consent must be obtained from the employee in the usual way, or else the employer risks a claim.
Article 5 of the Resolution states that businesses seeking to temporarily reduce employee salary must sign an annex to the employment contract, in the form provided by MoHRE. The validity of the temporary arrangement will be as mutually agreed in the terms or for as long as the Resolution remains valid, whichever is sooner. The annex recording the salary reduction can be renewed by mutual agreement of the parties. Employers must retain an original of the annex so that it can be shared with the MoHRE if and when requested.
A permanent reduction in salary will require the employer to go one step further and first obtain the MoHRE’s approval by applying for a change to the registered employment contract. Employers wishing to introduce a permanent reduction to salary should consider how the employees’ post-employment gratuity will be calculated - specifically, if the gratuity accrued to the ‘changeover date’ will be ring-fenced at the original rate of basic salary, or if the entire gratuity value will be calculated with reference to the reduced rate of basic salary at time of eventual employment termination.
Wages Protection System
Employers in ‘onshore’ jurisdiction to which Resolution 279 applies will not be exempt from compliance with the Wages Protection System (WPS). However, Resolution 279 gives MoHRE the power to relax the WPS rules for employers as they try to work through their options in these unprecedented times.
Remote working policy
Ministerial Resolution No. 281 of 2020 (Resolution 281) is the second circular released by the MoHRE to regulate remote working in the private sector to assist businesses during the coronavirus crisis.
A schedule attached to Resolution 281 sets out a policy for employers and employees who are working remotely, to ensure that both parties are benefitting from the working arrangements. Although the policy is non-binding, it sets out a number of “obligations” for employers and employees to ensure effective home working.
Employees should “perform tasks according to specified timeframes” and “maintain confidentiality of information, documents and papers”, among other commitments. Employers should “provide the technical equipment necessary for the employee to perform their work” and “facilitate remote workers’ communication with their colleagues, management and leadership”.
The policy provides a useful benchmark for companies as they grapple with the new norm of remote working.
Research by Ruth Stephen, Associate at Pinsent Masons, the law firm behind Out-Law.