Outsourcing of employment in the UAE is largely governed by the Ministry of Labour (MOL) regulations on "outsourcing" (Ministerial Order No. 1283 of 2010) (Order 1283).

The device of "outsourcing" - that is to say, the hiring of independently supplied "labour" as opposed to the direct engagement of staff - is as old as recorded industry.

In the modern era, the idea of "labour supply", as a form of business venture, may well have begun with the establishment of employment agencies from which trained clerical or hotel/domestic staff could be hired out on a short-term basis to meet the client's immediate needs. This no doubt led in turn to such agencies providing both skilled and unskilled labour to satisfy more diverse client requirements - e.g. extra help in retail stores to cater for increased seasonal demand (etc.). Under these "labour supply" contracts, the method of remunerating the hired personnel differs. However, in many cases the preferred arrangement, from the perspective of both agency and client company, is that the company pays the agency an overall "hiring" fee, and the agency then pays the individuals whose services it has hired out.

No doubt the availability of outsourced staff, as made possible under the terms of Order 1283, was greatly welcomed by the business community in the UAE. No longer do companies have to go through the costly and time-consuming procedures, that ordinarily apply - given the strict employment/sponsorship regime that operates in this country - every time they engage new staff from abroad or indeed from within the UAE itself. Instead, it is the outsourcing agency that has to ensure that the necessary employee registration procedures are completed and the fees are paid, when building up its "portfolio" of skilled and unskilled labour.

The particular advantage to the UAE business community of being able to turn to outsourcing companies is the immediacy with which they can now achieve the desired headcount in those skill areas where they are deficient.

Even if recourse to outsourced labour only works as a stop-gap, pending the recruitment of permanent staff, the breathing space thus provided gives HR managers much needed to time in which, in accordance with established procedures, to recruit and bring to the UAE the additional "pairs of hands" that their operational managers are calling for - a process which in the ordinary course is likely to take several weeks, if not months to complete. Naturally enough, it may be possible for a company to source new staff from within the UAE itself in the conventional fashion, now that the rules relating to "internal" employment transfers have been greatly relaxed (see Council of Minister's Order No. 25 of 2010). However, where large-scale recruitment is envisaged, it is unlikely that there will be sufficient "free labour" available in the local market.

So much for the positive side of outsourcing. Are there any "negatives" to which the business community's attention should be drawn?

It is respectfully suggested by this writer that there may be:-

In the first place "outsourcing", although undoubtedly a useful facility for the commercial community, does not sit comfortably within the classical "sponsor/employer" model established by legislation formulated in the early years of the UAE federation - in particular Federal Law No. 6 of 1973 (relating to Immigration & Residence) and the Labour Law of 1980.

Although the strategic considerations that lie behind the "sponsorship" system are still very relevant to the UAE authorities, it may be that the importance of aligning an employee's "employer" with his (or her) "sponsor" (the usual model for immigration/employment control purposes) is nowadays of much less importance than previously.  The probable reason for this is that nowadays sophisticated software can collate information, relating to immigrant workers, within a short period.

From another perspective, however, stronger reservations with regard to Order 1283 may perhaps be permissible.

As it stands the employee registration system, such a significant feature of the existing immigration/employment regime, has the great virtue of identifying, without any room for doubt, which individual trader or business entity is the employer of a registered employee (whether Emirati national or immigrant worker).  This certainly is of advantage, from the point of view of the MOL and other governmental authorities, when it comes to ensuring the proper administration of the Labour Law or the corresponding Employment Regulations of the relevant free zone, as the case may be.  Specifically, the employee registration system enables relevant authorities to quickly identify the person or entity responsible for payment of an employed person's wages and provision of other benefits as per the agreed terms of service.

Order 1283 introduces the novel idea that an employed person in the UAE can have two employers - (i) the "employer of record" (i.e. the outsourcing company by which the individual in question has been recruited and registered under the federal registration scheme) (see above) and (ii) the de facto employer - i.e. the company to which the employee is hired out (pro tempore) by the outsourcing company (as original employer).

Is it possible that such an arrangement, which splits the identity of the employer, between "employer of record" and "temporary [de facto] employer," could give rise to difficulties within the context of UAE employment law?  In particular, could this "split" employer identity have the result of impacting adversely upon the legal position of persons employed by outsourcing agencies?

The draftsmen of Order 1283 certainly appear to have been alert to the possibility that such difficulties could indeed arise and hence endeavoured to cater for problematic situations likely to result in "employer default" scenarios, where not one employer, but two employers, are involved.

Article 10 of Order 1283 requires that outsourcing agencies must perform all obligations that an employer is required to perform for the benefit of the employee, other than any obligations excluded in the Order or in other Orders issued by the Ministry.

This gives rise to the possibility that a person employed by an outsourcing agency may end up with fewer rights than someone directly employed by an ordinary business concern.  If the employee of an outsourcing agency is (or could be) placed in a worse legal situation (with respect to enforceable rights) than someone directly employed by an "ordinary" company (i.e. other than an outsourcing agency), then such a consequence of Order 1283 is difficult to square with the general employment law regime of the UAE.  Other than in the case of excluded categories (e.g. domestic servants and agricultural workers), this legislation envisions equal rights, under statute, for all employed persons.

The penultimate sentence in the first paragraph of Article 10 declares that "in no circumstances may the outsourcing agency delay in the performance of its obligations [towards the employee], as a consequence of the [de facto] employer failing to honour its agreement with the outsourcing agency" (i.e. to pay the agency's fees for the outsourced labour hired from the agency). As a statement of principle this is fine. However, the final sentence in the same paragraph appears to dilute this strict principle (i.e. that an employed person shall be entitled to look exclusively towards the business entity by which he (or she) has been engaged and of which he (or she) is the registered employee) by stating that "[the agency] shall remain the main party responsible, in all circumstances, for ensuring that these obligations (i.e. including the obligation to pay the employee's wages) are complied with". Again, in terms of the following Article 11 the [de facto] employer shall be legally bound in terms to pay to the outsourced employee "the salaries and other benefits" granted to the [outsourced] employee in the event that the agency delays in making such payments [to the employee]. Since the outsourcing agency is the registered employee's "employer of record", why should the employee not be able to look exclusively to the entity by which he (or she) is employed, namely the outsourcing agency? Since there is no contractual nexus between employee and "temporary" (de facto) employer, it seems wrong in principle that the outsourced employee should be invited to direct his (or her) claim against the de facto employer, even as a secondary recourse. It is not difficult to envisage a scenario in which, as the result of a dispute breaking out between de facto employer and outsourcing agency (e.g. over fee payments), the outsourced employee is denied his salary and/or other benefits, as the parties to the outsourcing contract battle it out, each accusing the other of breach of contract. Against whom, in such circumstances, should the employee direct his (or her) claim - the outsourcing agency, the de facto employer or both? Articles 10 and 11 of Order 1283 would seem to open the door to the possibility of employees' claims being frustrated by "third party" defences along the following lines:-

(a)   In the case of the outsourcing agency: - The employer to whom I hired your services is responsible for paying you. An amount representing your salary and benefits for the relevant period have already been subtracted from the overall fee that this agency has charged to our client, i.e. the company currently employing you as "outsourced" labour.

(b)   In the case of the de facto employer: - The outsourcing agency from whom I hired you, and to whom I have already paid the hiring fee, undertook to cover your salary and benefits; therefore you have no recourse against me.

This type of difficulty for outsourced employees may conceivably be more apparent than real. However, no doubt time will tell the extent to which the forward-looking initiative, embodied in Ministerial Order 1283, will in the future give rise to legal disputes between the parties involved in outsourcing arrangements.

Author: Alex McGeoch
a.mcgeoch@hadefpartners.com

© Hadef & Partners 2014