SME: Basics of labour law every UAE employer must know

Understanding legal issues surrounding employment relationships could help firms avoid heavy losses, writes Ludmila Yamalova.

  

Employment issues in the UAE have certain unique characteristics reflective of the country’s social fabric, cultural values and economic considerations. It is, therefore, imperative that foreign companies and individuals setting up businesses and hiring employees in the country understand the relevant laws and their impact on business. 

Below are some specific employment issues that all companies must bear in mind.

EMPLOYMENT VISA

Anyone who works in the UAE must have an employment visa and as a general rule, employees must only work for the company who sponsors their visa.  There are few exceptions to this rule such as part-time employees, students and female spouses. Companies engaging the services of individuals who either do not have an employment visa or hold a wrong visa can be subject to heavy penalties, as set by the Immigration Law. 

For example, a company employing someone on a tourist visa or on someone else’s visa will be subject to a fine of AED 50,000 (USD 13,605) per employee. Repeat offenders can have their trade license suspended and ultimately cancelled. For employees, the penalties can and often do result in monetary penalties, jail sentence and ultimately deportation for life.   

SPONSORSHIP CONCEPT

A sponsoring company is ultimately responsible for an employee as long as he or she remains in the country and on the company’s visa. This sponsorship relationship is not to be underestimated, as it deeply permeates the relationship between the parties.

The company may be held responsible for its employee’s actions even those committed out of scope of the employee’s responsibilities. It is also required to ensure that, at the end of the relationship, the employee has a ticket to exit the country and that he or she ultimately leaves the country or transfers to someone else’s sponsorship. Also, in the unfortunate event of an employee’s death, the company is responsible for the repatriation of remains. Furthermore, in some cases, the company may also be held accountable for the employee’s debt, such as medical bills, if the employee cannot settle the dues and must leave the country.  

MUTUAL RIGHTS AND OBLIGATIONS

Employees and employers have respective rights and obligations to each other. Employers are required to pay employees timely, provide them with certain working conditions, vacation, holidays and sick days.  For example, the maximum working hours shall be 48 hours per week, except for certain professions and management designations.  During the month of Ramadan, working hours must be reduced. Employers are also required to provide a special once-in-a-lifetime pilgrimage leave. Employees, on the other hand, must perform their obligations to the company and follow the laws. 

EMPLOYMENT AT WILL

Despite common perception, the relationship between companies and employees in the UAE is one at will. This means that no one can force employees to work – or companies to employ someone – against their will. Irrespective of the terms and conditions of the underlying employment contract, an employee can leave a company and a company can terminate employees at any time.

The matter becomes one of compensation. If an employee prematurely leaves a limited-term contract, he or she has to pay the company 1.5 months’ worth of salary and forego end-of-service benefits. If an employer terminates an employee either prematurely and/or without cause, it may be liable to pay the employee up to three months of compensation as arbitrary dismissal, along with the standard end-of-service benefits and other outstanding payments.

VALIDITY AND ENFORECEABILITY OF CONTRACTS

Employment relationships are primarily based on the government-issued contract, irrespective of the particular economic zone. Most companies also have their own employment contracts, varying in form and substance. Sometimes these contracts are all together separate employment agreements. Other times, they outline additional benefits for employees. Commission, bonus, confidentiality and non-competition agreements are some such examples.

As a general rule, the government documents will always prevail and serve as governing instruments in the event of dispute.  The validity and enforceability of the private agreements heavily depends on how those agreements are structured and presented.  Any agreements that take away rights or benefits to which employees would be entitled under the Labour Law will be held invalid.  Similarly, any private agreements that are either too broad or unreasonable will also be held invalid.

TERMINATION OF RELATIONSHIP

One of the most contested issues in the employment relationship in the UAE is termination and, in particular, as it relates to compensation. Establishing the nature of termination falls heavily on the requirement and form of notice.

There are two types of notices.  One refers to the notice of termination, where the minimum termination notice under the Labour Law is one month. The other form of notice is termination for cause.  To be valid, the termination for cause notice must be served pursuant to Article 120 of the Labour Law, which refers to the employee’s misconduct and sets out requirements for the company to document and notify employees accordingly. 

Under the Article 120 notice, the company can terminate the employee without any further notice and, potentially, without having to pay any other dues. However, in the event a company terminates an employee prematurely and does not serve proper Article 120 notice, it may be held liable for arbitrary dismissal. Compensation for arbitrary dismissal, in turn, can be based on up to three months of gross salary. In practice, judges, almost as a matter of course, award the maximum three months of gross salary. 

When termination is at the end of the employment contract, no notice is required and no additional payments, other than outstanding dues and end-of-service benefits. 

END-OF-SERVICE BENEFITS

End-of-service benefit is one of the specific traits of the UAE Labour Law. Its objective is to compensate employees for their services to the company, commensurate with their length of service, while providing employees with interim income until either their next employ or exit out of the UAE.   

Employees become entitled to end-of-service benefits after one year of continuous service. For the first five years of service, an employee is granted 21 days of basic salary for each year of service. After the fifth year of service, the end-of-service benefits are 30 days for each additional year of service. 

In an unlimited contract, when an employee resigns, he or she is entitled to a third of the end-of-service benefits for the first three years of service. Between three and five years of service, the entitlement goes up to two-thirds.  After five years of service, the employee is entitled to the full benefits even upon resignation. In a limited contract, if an employee resigns before the expiration of the agreement, he or she is not entitled to the gratuity. 

Depending on how the employment contract is structured and how the payments to the employees are made, courts may include commissions, bonuses and raises into the basic salary, for the purpose of calculating the end-of-service benefits. 

OTHER COMPENSATIONS

Companies may also be required to pay additional benefits to employees – some established by law and others by contract. By law, for example, companies in Abu Dhabi and in Dubai are required to provide employees with health insurance. 

Companies are also required to pay for employees’ visa costs, Emirates ID and a ticket home at the end of term and in the event the employee wishes to leave the country.  There is, however, no requirement for an annual ticket home. 

Contractually, some companies pay their employees bonuses and commissions. Others choose to pay for transportation, accommodation and school fees. If any such additional benefits are offered, it is imperative that they are properly addressed in the employment documents and with certain procedures in mind, so as to avoid unnecessary and excessive liabilities.  

RESOLUTION OF DISPUTES

The resolution of employment disputes is subject to exclusive jurisdiction of the Labour Court.  This excludes DIFC companies, which are subject to the DIFC Small Courts Tribunal. Companies in free zones must first go through mediation before their cases can be referred to the Labour Court. 

In many cases, judges tend to want to protect employees, insofar as they are often the aggrieved party.  Yet, the courts are generally objective and tend to just apply the law.  As such, parties should not shy away from filing a dispute with the Labour Court when they reach an impasse.  

In summary, all companies in the UAE would benefit greatly from understanding the relevant employment and related laws.  Structuring their employment relationship properly will minimise unnecessary damages and liabilities.

Ludmila Yamalova is managing partner at HPL Yamalova & Plewka DMCC.

© ZAWYA 2020