The new UAE Labour Law: what employers need to know

Out-Law Guide | 03 May 2022 | 8:58 am | 21 min. read

Private sector employers in the United Arab Emirates (UAE) should review their policies and procedures following the biggest change to the law governing labour relations in the country since 1980.

Federal Decree – Law No. 33 of 2021 on the regulation of labour relations in the private sector came into force on 2 February 2022. The law is designed to enhance employment rights and boost the competitiveness of the UAE as a place to live and work, helping the region to attract and retain world class talent.

Significant changes have been introduced to family leave entitlements, discrimination laws, termination of employment and ‘non-compete’ clauses in employment contracts. The new law also makes provision for businesses to put in place part-time and flexible working arrangements.

Here, we summarise some of the most significant changes to the legislative framework.

Recruitment and employment contracts

Topic Previous position New Labour Law position
Employment contracts

Employees could be employed under either permanent or fixed term employment contracts.

All employees must sign a registered MoHRE (or relevant free zone) standard contract. Additional company contract containing additional clauses optional.

All employees must be employed on a fixed term employment contract, not exceeding three years in length. Contracts can be renewed, and any renewal is included in total period of service. Transition to fixed term contracts must be completed by 1 February 2023.

Requirement for MoHRE/free zone contract remains. However, changes can now be made to MoHRE template contract and different forms exist depending on type of visa/work model.

Models of work

Historically, only full-time employment was possible.

Part-time working was introduced in 2019 with some further flexibility added as part of 2020 Covid regulations.

New models of work introduced, including:

  • full-time
  • part-time, for one or more employers
  • temporary
  • flexible
  • remote working
  • job sharing

All employees have the same entitlements, however some of these may be pro-rated.

Probationary period Maximum six-month probationary period, with no notice required from either party to terminate the employment.

The maximum six-month probationary period remains. However, employers must give 14 days’ notice to dismiss.

Employees must give:

  • 14 days’ notice to resign if they are leaving the UAE
  • one month notice required if they are leaving to join another employer in the UAE

Where an employee leaves during the probationary period to join another employer in the UAE (or returns to the UAE to work within three months), the old employer may claim the costs of recruitment from the old employer.

Non-competition restrictions

Non-competition clauses were permitted, with no stated maximum length.

The maximum permitted length was generally considered to be 12 months.

Non-compete clauses can be used and can last up to two years’ in length.

The restriction must go no further than is necessary to protect a legitimate business interest requiring that it is limited in terms of geographical location, type of work and length.

The law sets out the circumstances in which post-termination restrictions will unenforceable including where, for example, the employer terminates the employment in breach of its legal obligations due to the employee.

Restrictive covenants can be set aside where any of the following occur:

  • the parties’ written agreement;
  • the new employer or the employee pays up to three months’ compensation to the old employer (subject to the old employer providing their written consent);
  • the employee is terminated during their probationary period; or
  • as may be deemed appropriate in light of labour market needs.

Employee benefits

Topic Previous position New Labour Law position
Internal policies The law was silent on mandatory employee policies.

Employers with 50+ employees must have in place:

  • a grievances policy;
  • a disciplinary sanctions policy.

Any other policies are at the discretion of the company.

Overtime

Employees could work an additional two hours of overtime per day.

Enhanced overtime rates of pay applied for all overtime hours at the rate of:

  • during ordinary working hours – 125% of normal pay
  • between 9pm and 4am – 150% of normal pay
  • on non-working days – 150% of normal pay.

Exemptions to limits on overtime existed, however were limited.

A limit of two hours per day of overtime continues to apply. A further cap of 144 total working hours (including overtime hours) over a three-week period also applies.

Rates of pay for overtime continue unaffected and are calculated on the rate of basic pay, except that the enhanced premium for night work now only applies for hours worked between 10pm and 4am.

Limited exceptions apply to the overtime (and overtime pay) provisions. This list of exemptions has not been materially expanded and includes for members of the board and for employees with supervisory responsibilities.

Payment of salary All salary had to be paid in UAE dirhams (AED) Employees may be paid in currencies other than AED by agreement between the employer and the employee.
Maternity leave and maternity pay

Female employees with over one year’s service were entitled to maternity leave of 45 days, paid at the employee's usual rate of pay.

A further period of 100 days unpaid leave was available to employees suffering from an illness related to pregnancy or delivery.

Maternity leave entitlement has been increased to:

  • 45 days at 100% pay; plus
  • 15 days at 50% pay.

There is now no minimum qualifying service requirement.

This maternity leave is now available to women who suffer from a miscarriage or still birth after six months of pregnancy.

An additional 45 days’ unpaid leave is available where the employee suffers from a pregnancy related illness, and an additional 30 days’ paid leave and 30 days’ unpaid leave is available where the employee’s child has a disability.

Annual leave

Employees were entitled to a minimum annual leave of:

  • two days per month during the first year of employment; and
  • 30 calendar days from the second year of employment onwards.

Employees were entitled to carry forward or be paid in lieu of any unused annual leave at the end of the holiday year.

Basic annual leave entitlement remains the same.

Employees no longer have the automatic right to carry forward unused annual leave to the next holiday year. Any carry forward or payment in lieu can only be made with the agreement of the employer. Payment in lieu of holidays on termination is at the rate of basic salary only.

Study leave No previous entitlement Employees with more than two years’ service are entitled to ten days’ leave per year in order to sit exams. To be eligible, the employee must be studying at a government approved UAE educational institution.
Compassionate leave No previous entitlement

All employees are entitled to compassionate leave in the event of a death of a family member:

  • death of spouse – five days’ leave;
  • death of parent, child, sibling, grandchild or grandparent - three days' leave.

Termination of employment

Topic Previous position New Labour Law position
Dismissal on notice Employees could be dismissed by employers for a ‘valid reason’.

 

Fixed term contracts could not be terminated prior to their expiration date outside of summary dismissal without compensation being payable.

Employees can be dismissed for any 'legitimate reason'. Expiration of a fixed term contract is a valid reason for dismissal.

Employees on fixed term contracts can now be dismissed on notice as normal, with no additional compensation being payable.

Victimisation - where an employee is dismissed for filing a complaint against the employer - is unlawful.

Notice periods Minimum notice period of 30 days for employees who have completed their probationary period.

Minimum notice period of 30 days continues. However, a maximum of 90 days’ notice period has been introduced.

For employees leaving while still employed on unlimited term contracts, minimum notice periods apply of:

  • 30 days for employees with up to five years' service
  • 60 days for employees with between 5 and 10 years’ service
  • 90 days for employees with 10 years' service or more.
Summary dismissal

Article 120 of the Old Labour Law prescribed specific and limited reasons for which employees could be summarily dismissed.

Employees summarily dismissed were not entitled to notice period or end of service gratuity.

The exhaustive list set out under the Old Labour Law has been maintained, with two further additions:

  • abusing position with the aim to obtain personal gains and profits; and
  • joining another establishment without complying with controls and procedures in place.

Further limitation has been placed on summary dismissal for failure to carry out basic duties – a written investigation and written warnings must technically be provided before the employee is dismissed.

Employees summarily dismissed lose their entitlement to their notice period, however now retain their entitlement to an end of service gratuity payment.

End of service gratuity

Employees with over one year’s service were entitled to an end of service gratuity payment (ESG), calculated at the rate of:

  • 21 calendar days’ basic pay for every year of service up to five years’ service
  • 30 calendar days’ basic pay for every year of service over five years’ service.

Employee basic pay was calculated on the basis of calendar days, and a maximum cap of two years remuneration applied.

Employees summarily dismissed lost entitlement to ESG, and employees that resigned with less than five years’ service would see a reduction in their ESG.

Employees with over one years’ service continue to be entitled to ESG, calculated on the same basis as before.

Employees summarily dismissed now retain their entitlement to ESG, and no reductions apply where an employee resigns.

Payment of ESG, together with all other termination payments, must be made within 14 days of the termination date.

Potential liability

Topic Previous position New Labour Law position
Discrimination Limited protection against discrimination existed for employees, primarily arising out of wider Anti-Hate legislation.

Specific protections have been introduced for employees, meaning that they cannot be discriminated against on the basis of:

  • race;
  • skin colour;
  • sex;
  • religion;
  • national origin;
  • social origin; or
  • disability.

Positive discrimination in favour of Emiratis is an exempted category.

Harassment Little to no anti-harassment provisions existed under the Old Labour Law. Express protections against sexual harassment, bullying and any verbal, physical or psychological violence against employees have been introduced.
Fines The Old Labour Law contained a limited right for the UAE courts to issue fines against employers.

The UAE courts are now able to levy fines against employers for breaches of the Labour Law. Fine ranges are:

  • AED 20,000-100,000 for providing false information to recruit an expatriate employee;
  • AED 50,000-200,000 for illegally employing an individual or recruiting an employee without having work to provide; and
  • AED 5,000-1,000,000 for any violation of the UAE Labour Law.

Fines can be doubled by the court for repetition of violations.