Out-Law / Your Daily Need-To-Know

UAE's new labours laws trigger 'significant changes' to employment contracts

Out-Law News | 24 Mar 2022 | 10:38 am |

Luke Tapp and Ruth Stephen tell HRNews about some of the key employment law changes in the region

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  • Transcript

    Last week we highlighted the raft of new labour laws that came into force in the UAE 6 weeks ago – the first substantial update of the region’s labour laws in the last 40 years in the form of Federal Decree Law No.33 of 2021. Gulf News reported it as a ‘qualitative leap’ in the region’s efforts to develop and sustain the labour market. Two of the region’s lawyers in Dubai talked to this programme about the impact of the changes on employers and the importance of complying with the new laws given that breaches can attract huge fines as well as serious reputational damage.

    We are returning to this to have a look at some of the changes in more detail, in particular the changes directly affecting employment contracts. To discuss that, Luke and Ruth joined me on a video-link from Dubai. I started by asking Ruth about the move away from traditional unlimited term contracts:

    Ruth Stephen: “Yes, so now what the law says is that with effect from 2 February all employees have to be employed on a fixed term employment contract. So, for new hires going forward, it's arguably easier because you just need to issue them with the updated company employment contract which has to be for a fixed period, but for current employees who are on an unlimited term employment contract there is a one-year grace period to move everyone across. So, by 1 February 2023 all current employees have to be employed on this fixed term employment contract. Now, it's really important that you get your employee comms correct for your current staff to reassure them in terms of what this means for their accrued entitlements, and what it means for them going forward.”

    Joe Glavina: “So Luke can I turn to you. As I understand it, the new law also changes the way employers can go about dismissing employees. Is that right?”

    Luke Tapp: “Yes, absolutely. In relation to dismissals, it’s one of the areas of the legislation which have been looked at and have been developed under the new Labour Law. So obviously, contractor being transferred into fixed term contracts under the new Labour Law which gives companies a little bit of a consideration in relation to how they exit from those fixed term contracts but one provision that's within the new Labour Law is that it is possible to terminate a fixed term contract part-way through the period of the contract by providing notice to the employee provided there's an underlying good reason for why the employment relationship is being terminated. So, companies still need to have a legitimate reason but it is possible to terminate a fixed term contract part-way through it. What  constitutes a good reason? Well, there'll be obvious situations like poor performance, misconduct, but potentially redundancy as well and we've seen references to redundancy type dismissals in the new Labour Law. Then the other way of terminating employment relationships would be summarily where it's a gross misconduct type reason. Many of the reasons that were in the old Labour Law have carried forward into the New Labour Law under Article 44 of the new Labour Law, previously article 120 of the old Labour Law, but there's been a couple of provisions added as well. So, it's really important that clients and companies are aware of these new termination provisions and apply those provisions to the workforce going forward.”

    Joe Glavina: “Finally to you, Ruth, and restrictive covenants. So, what’s changed there?”

    Ruth Stephen: “So, in terms of what's changed it’s arguably limited insofar as the law has always permitted an employer to include post termination restrictive covenants in the employment contract. So that hasn't changed. However, what the law does now tell us is that in order for the restriction to be enforceable in a court the restriction has to be limited in terms of geographical scope, duration, and also the work scope performed and, really, the employer has to review its restrictive covenants in the employment contract to make sure that it provides for these, sets out it's legitimate business interests that it's seeking to protect and having the restriction in place in order for the restriction to be enforceable.”

    Joe Glavina: “So a final message, Ruth. What do you want employers to do?”

    Ruth Stephen: “So, employers really need to sit down and identify whether this key employee is a risk and has access to company confidential information such that they need to have these restrictive covenants in the employment contract. The employer needs to identify it's legitimate business interest that it's seeking to protect and then, also, the employer needs to look at each of the heads of the duration of the restriction, the geographical scope and also the work type that the employee was performing. Those are the actions that the employer needs to take in order to make sure that the covenant could be enforceable in a court.”

    Last week Luke and Ruth talked about why employers need to comply with the new labour laws and the risks of non-compliance. That programme is: ‘Fines up to Dh1 million for breach of UAE's new Labour Law, warn lawyers’ and is available now for viewing from the Outlaw website.

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