Employment disputes in Dubai and the DIFC courts

Employers based in the United Arab Emirates (UAE) are having to make very difficult and unpopular decisions in relation to the structure and survival of their business in the current economic climate, making queries, complaints and formal claims from employees in respect of such measures inevitable.

When a complaint from an employee cannot be resolved and a formal claim is filed, the procedure that will be implemented will be affected by a number of variables – not least whether the employer is located in the Dubai International Financial Centre (DIFC), 'onshore' mainland Dubai or another UAE free trade zone.

Regardless of the court system and procedure that will apply to the claim, the company will face certain obligations and financial costs. These costs can often be very significant and rival, or even outweigh, the value of the claim itself. Claims often take several months or years to reach final judgment, so even relatively low value claims have the potential to pose a significant financial risk to the company.

When faced with a dispute with an employee, it is imperative that companies take legal advice at an early stage. This will allow the company to understand its legal position, its prospects of success, the likely costs involved as the claim progresses and the options available. Armed with this information, the company can then put in place an appropriate strategy to resolve the issue in the most cost efficient manner.

Types of claim

Wherever in Dubai the company is located, we are seeing trends in relation to the types of employment disputes that employers are currently facing. This is often due to temporary or permanent measures put in place by employers in response to the Covid-19 pandemic such as salary reductions, periods of unpaid leave and company restructuring. Measures such as these often lead to claims including for:

• unpaid or reduced salary;
• breach of contract and unlawful dismissal;
• claims related to company restructures; and
• employees breaching restrictive covenants and joining competitors.

Employment claims in the DIFC free zone

The DIFC has its own employment law - the DIFC Employment Law (No. 2 of 2019) as amended - and its own independent court process which is entirely separate and independent from the other courts within Dubai.

This means that, where a company is incorporated within the DIFC or where the employee is based or ordinarily works in the DIFC, any employment dispute would be subject to the DIFC Employment Law and the DIFC court process.

Courts in the DIFC

There are two potential courts where an employment claim may be heard in the first instance: the Small Claims Tribunal or the Court of First Instance. Both courts have their own processes and characteristics.

In the Small Claims Tribunal (SCT):

• parties represent themselves at court, with lawyers assisting them throughout the process;
• the SCT facilitates a mediation-type hearing as the first step in proceedings to try to resolve the dispute amicably where possible;
• employment claims are capped at AED 500,000 (US$136,000), unless the parties agree to waive the statutory cap;
• the SCT process generally takes in the region of two to four months to obtain a judgment;
• parties typically bear their own costs incurred in the proceedings, with costs awards rarely awarded in favour of the winning party or against the losing party;
• it is possible to appeal a judgment from the SCT to the Court of First Instance.

In the DIFC Court of First Instance (CFI):

• parties are represented by law firms which must be registered with the DIFC courts;
• employment claims are issued before the CFI if either the value of the claim is AED 500,000 or higher, or the matters in dispute are so complex that it is proportionate for the dispute to be heard before the CFI;
• the CFI process can take more than one year to obtain a judgment;
• costs may be awarded in favour of the winning party and against the losing party, adding an additional financial risk to claims;
• it is possible to appeal a judgment to the DIFC's Court of Appeal.

Employment claims in onshore Dubai and other free trade zones

The starting position is that all UAE employment disputes outside of the DIFC are governed by the UAE Labour Law No. 8 of 1980 (the Labour Law), which is ultimately enforced by the UAE's Labour Courts. All disputes with employers based in onshore Dubai and in all UAE free trade zones other than the DIFC will ultimately be resolved in accordance with the dispute provisions set out in the Labour Law.

Mediation

Where a dispute with an employee exists which cannot be resolved within the employer's internal procedures, the employee must first file a complaint - either with the Ministry of Human Resources and Emiratisation (MoHRE) if the employer is based in onshore Dubai; or with the labour department of the free trade zone that the employer is located in. A representative of either MoHRE or the relevant free trade labour department will then try to settle the issue before a formal court process is instigated.

How this conciliatory stage is carried out will vary between MoHRE and the free trade zones. For example, the Dubai Multi Commodities Centre (DMCC) has a mediation service using trained mediators in place.

If the dispute is not settled within two weeks of the original complaint being filed, MoHRE or the relevant free trade labour department is then required by the Labour Law to refer the matter to the Labour Courts through a 'transfer letter'. This referral letter allows the employee to proceed with their claim if they choose to. However, they must do so within six months of the transfer letter.

Labour Courts

Once a case proceeds to the Labour Courts, certain 'appointments' will be scheduled by the court with a series of written pleadings required to be filed surrounding these. Given the limited rights of hearing in the Labour Courts and the complicated nature of many claims, employers are often advised to instruct legal counsel to act on their behalf during this process.

Once the court has considered all of the written submissions that it considers necessary, it will provide its judgment on the case in both oral and written form. Either party may then appeal this judgment if it so wishes.

Costs and timing

Notwithstanding the legal merits of any claim, the costs and management time required to defend a claim through to judgment is often the factor that will determine an employer's approach when responding to an employment dispute.

Where a claim proceeds to the Labour Courts, an employer will face the following costs:

• court filing fee – this is paid by the employer, regardless of which party brought the claim and the claim's eventual outcome. This fee is 5% of the total sum claimed by the employee, up to a maximum of AED 20,000;
• legal expenses – nearly all employers engage a law firm, in order to best navigate the court system and ensure compliance with their obligations. The level of these costs will depend on the nature of the claim and its complexity, but are often significant. Each party is responsible for its own legal costs. Even if an employer is successful in defending the claim, it will only be able to recover a small nominal amount towards its costs from the employee;
• expert fees – depending on the nature of the claim, it may be necessary for an expert to be appointed to consider a specific matter in the case. The cost of such an appointment is often borne by the employee bringing the claim, however it is common for the courts to direct both parties to pay the expert's costs.

Co-written by Michael Chattle of Pinsent Masons, the law firm behind Out-Law.