The ADGM Employment Regulations 2019 (the ADGM Employment Law) set out employers' obligations in the freezone and contain important provisions relevant to employment policies and practices, including around recruitment and employee entitlement to wages and leave. The aim of the changes is to strengthen the ADGM's employment framework and its reputation as an international financial centre.
We set out below the main employment law themes that senior management teams, HR managers and in-house legal teams need to be aware of under the ADGM Employment Law:
One change in the law was the introduction of overtime provisions. Employees are entitled to compensation for overtime worked, though there is an exception for managers and supervisors as well as employees "in positions where it is reasonably expected within that industry internationally that overtime compensation is not payable". Given the nature of the businesses incorporated in the ADGM, it is possible that a large proportion of personnel will be exempt from the law's overtime provisions
The entitlement to overtime compensation arises when an employee's working time exceeds an average of 48 hours for a seven day period; employees may no longer agree to opt out of the maximum 48 hours working week through written consent.
Overtime compensation can either be monetary in nature or provided in the form of time off in lieu of the extra hours worked. The regulations state that overtime payments are payable at a rate of 25% of the employee's hourly rate, though this rises to 50% of their hourly rate if the overtime worked was between the hours of 9pm and 4am. Likewise, time in lieu accrues at 25% or 50% of the overtime worked depending on the time period the extra hours were worked.
Employers in the ADGM will need to assess whether any employees will be subject to the statutory overtime and consider the applicability of the exclusions.
Penalty payment for the late payment of dues on employment termination
A welcome amendment for employers was the introduction of changes to the late penalty payment compensation.
The obligation of the employer to pay the employee "all wages and any other amounts owing" within 14 days of the employment termination date remains. However, as with under the old rules, an employer could face a penalty equal to the employee's daily wage for each day that the employer was late in paying the employee's termination dues. This runs the risk of creating "windfall payments" where large penalties could accrue on what could be a relatively small outstanding sum.
While the penalty payment risk remains, the ADGM Court will exercise its discretion to make an award that is "just and equitable". Unlike other jurisdictions, such as the Dubai International Financial Centre, there is no cap on the level of the penalty payment. However, it is reasonable to assume that the court will seek to avoid disproportionate compensatory awards.
The regulations make provision for when employees take sick leave. Employers have a right to terminate the employment of employees that take in excess of 60 sick days in total over any 12 month period, unless the employee sick leave was on account of a disability.
Employees who take sick leave are entitled to sick pay under the regulations. Sick pay is payable at different rates, referenced against their daily wage, depending on the length of time an employee spends off work, whether those days off are taken consecutively or not over the 12 month period:
- Employees are entitled to full pay for the first 10 working days off on sick leave;
- Employees are entitled to half-pay for the next 20 working days off.
Employees are not entitled to any sick pay for the remaining 30 working days sick leave taken during the 12 month period.
The above statutory entitlement to sick pay has been reduced in comparison to the position under the old law. This change reflects the trend adopted in the DIFC Employment Law and is more in line with the position under the UAE's onshore labour law.
ADGM employers will need to review their policies and employment contracts in light of these updates to sick pay.
The obligation under the old law for parties to serve a minimum of 90 days notice to terminate the employment where the employee had five or more years' service has been removed. Instead, the ADGM Employment Law provides for the following minimum periods to terminate the employment:
- Seven days' written notice where the period of service is between one and three months;
- 30 days' written notice where the period of service is three months or more.
It is still open to employers and employees to agree longer notice periods than those prescribed in the regulations or waive or accept a payment in lieu of notice. In these ways, the ADGM Employment Law gives the parties increased flexibility in relation to the arrangements surrounding notice periods.
The ADGM Employment Law specifically prohibits employers from discriminating against employees and prospective employee on the basis of certain protected characteristics. The protected characteristics are gender, marital status, race, nationality, colour, religion, age and/or disability. Unlike the DIFC Employment Law, "maternity and pregnancy" do not amount to a protected characteristic under the ADGM's employment statutory regime.
There are three ways in which an employer might be said to discriminate on the basis of any of the protected characteristics under the ADGM Employment Law:
- Direct discrimination – where an employee is treated less favourably than others would be treated in the same circumstances on the basis of their protected characteristic;
Indirect discrimination – where, in respect of the application of the same provision, criterion, or practice, an employee is put at a disadvantage not faced by others who are not of the same protected characteristic – the regulations provide more detail of what is meant by 'provision, criterion or practice';
- Harassments – where an employee, on the basis of a protected characteristic, is subjected to unwanted treatment or conduct which has the purpose or effect of creating an intimidating, hostile, degrading, humiliating or offensive workplace.
Where there is a positive finding of discriminatory treatment the court can:
- award compensation subject to a cap of three years' basic wages; and
- make recommendations to the employer to take specific steps within a specified period and if the employer fails; to comply, a fine not exceeding USD 20,000 can be imposed.
The Employment Regulations 2019 (Compensation Awards and Limits) Rules 2019 sit alongside the ADGM Employment Regulations 2019. Those rules provide for employers to be issued with fines in the event they breach requirements around hiring, protection of wages, working time and leave, maternity and paternity rights and termination, or their general employer obligations or rules around discrimination.
Non ‘employee’ status of workers recognised under the law
In May of 2020 the ADGM Employment Regulations 2019 (Engaging Non-Employees) Rules 2020 (the Rules) came into force. The Rules introduce new categories of workers which should provide ADGM employers with more flexibly for resourcing their business operations.
Under the Rules, ADGM entities are able to engage the following categories of non-employees:
- Interns: a trainee or student working for an ADGM company to gain experience without pay.
- Temporary freelancers: an induvial with a freelancer license who renders services to an ADGM company.
- Secondees: someone working temporarily in the ADGM for an ADGM registered entity of a secondment basis but who is sponsored for UAE residence visa and work permit purposes by a non-ADGM company.
The Rules do not go so far as to exclude these categories of workers from the ADGM Employment Law. However, and for the workers who are defined as non-employees, it is reasonable to assume that they will not benefit from all of the employee statutory entitlements under the ADGM Employment Law.
The ADGM Employment Law and Rules are a positive development for the business community within the freezone. They will assist companies in recruiting and engaging a modern and progressive workforce and will help the business community to attract world class talent into the jurisdiction.
Co-written by Ruth Stephen and Michael Chattle of Pinsent Masons.