"Out with the old…in with the new" – the enactment of the new DIFC Employment Law

Shiraz Sethi, Regional Managing Partner and Head of Employment at DWF (Middle East LLP)

The much anticipated new DIFC Employment Law, DIFC Law No. 2 of 2019 (the "New Law") has been enacted. The New Law repeals and replaces DIFC Law No. 4 of 2005, as amended by Law No. 3 of 2012 (the "Previous Law"). Shiraz Sethi, Regional Managing Partner and Head of Employment at DWF (Middle East LLP) assesses the key changes.

The New Law is customised to bridge the gap between the DIFC Employment Law and the UAE Labour Law. That said, the New Law also attempts to achieve a better balance between the needs of employers and employees in the DIFC, while simultaneously providing minimum employment standards and fairer treatment of all employers and employees alike. A key driver for this change was the urgency to address the imbalance of the power between employees and employers under Article 18 of the Previous Law.

Ultimately, the purpose of the New Law is to bolster the DIFC's employment practices in order to promote and contribute to the prosperity of the DIFC. The New Law was enacted on 30 May 2019 and as per the enactment period of 90 days the law will come into force as of 28 August 2019. Given the interest in this piece of legislation, the following analysis will not measure and compare the significant changes to the New Law.

General

Throughout the transition period, where a claim has been initiated pursuant to the Previous Law and the New Law is in effect, any provisions of the Previous Law which may apply to such proceedings will be deemed to survive the repeal of the Previous Law, if no equivalent provision exists under the New Law. However, any to be commenced legal proceedings must be interpreted under the New Law.

Article 4(1) of the New Law expressly extends its application to any person having a place of business in the DIFC who employs one or more individuals; or any individual based within or who ordinarily works in or from the DIFC; or any individual who has agreed in an employment contract to be subject to the New Law. In doing so, the New Law acknowledges secondments, part-time and short-term employment.

Furthermore, the New Law mandates that proceedings must be initiated no later than six months following the employee's termination date.

Secondments

The New Law defines secondees as individuals holding a valid secondment card, who work for employers in the DIFC whilst employed by an entity outside of the DIFC. As a first point to note, the New Law clarifies that a valid secondment arrangement is solely between a DIFC entity and an entity domiciled outside of the DIFC, thereby limiting intra-DIFC secondments. Secondly, as a valid UAE residence visa is required in order to apply for a secondment card, secondment arrangements can only be put in effect between a DIFC entity and an entity domiciled either onshore in the UAE or in a free zone in the UAE. To the contrary, if an individual is being seconded from an entity domiciled outside of the UAE, in order to work in the DIFC the individual will need to enter into a formal employment relationship with and be sponsored by the DIFC entity, and therefore will be subject to the full scope of the New Law.

Furthermore, a fair number of provisions under the New Law extend rights to secondees, such as the principle of no false representation; the right to a written contract; access to payroll records; capped weekly working time; Ramadan hours; and the employers' obligations towards secondees.

That said, a secondee only avails certain entitlements under the New Law provided they were previously seconded to a DIFC entity, and then subsequently hired. For example, the period spent on secondment to the DIFC entity will count towards the one year threshold that is applied to avail maternity or paternity leave, minimum notice periods and end of service gratuity ("EOSG"). In spite of this, the decision to allow the secondment period to count towards the EOSG is a point of contention. The employee would have already been paid their EOSG for the period of the secondment upon terminating their employment with their former employer, therefore, does this provide such employees with a double entitlement to EOSG? 

Misrepresentation

An employer is not permitted to induce, influence or persuade an individual in becoming an employee by misrepresenting certain key characteristics of the position. Under the Previous Law, such characteristics included the availability of the position, the type of work, the wage and the conditions of work. The New Law has expanded these characteristics, prohibiting misrepresentation of the job description, the title and the benefits of the position. This is a fundamental change as benefits can constitute a significant portion of an employee's remuneration. However, while the New Law goes to great lengths to define key terms, benefits are not defined, leaving some uncertainty.

Right to a Written Contract

The New Law provides additional requirements of an employment contract such as the duration of the employment (indefinite or definite), reference to any policies and procedures of the employer and any additional matters contained within the DIFC regulations.

Settlement Agreements

An employee may waive their rights to entitlements and remuneration under the New Law and resolve a dispute by entering into a settlement agreement. Nevertheless, the DIFC Courts have the ability to set aside a settlement agreement where it is found to be unreasonable, unless the employee sought independent legal advice prior to signing the settlement agreement.

Probation

In favour of the employee, the length of a probationary period is capped at six months. However, there is no stipulation within the New Law as to whether an employee can be put on probation more than once, i.e. three months and then a further three months.

Part-time and Short-Term Employment

The New Law introduces the concept of part-time and short-term employment. The New Law defines short-term employment as a period of service that does not exceed 30 days within a period of 12 months. With regards to part-time employment, it is classed as a period of service that is less than eight hours per day or less than five days a week. Due to the shortened hours or period of service, the New Law limits the entitlements offered to part-time and short-term employees. For this reason, short-term employees are not entitled to leave, EOSG, and cannot bring proceedings related to discrimination before the DIFC Courts. In contrast, part-time employees are provided with sick leave, parental leave, vacation leave and the ability to take time off for the Hajj pilgrimage, prorated against the number of days worked.

Article 19 – the New Article 18

Article 18 of the Previous Law placed a significant financial strain and burden on employers who failed to settle and pay all entitlements owed to terminated employees. On the contrary, Article 19 of the New Law institutes a more sensible and robust system to limit employers from paying disproportionate penalties.

Similar to the Previous Law, the New Law provides that employees are to be paid all of their outstanding entitlements within 14 days of termination. Where such payment is not effected within the prescribed timeline, the employee is entitled to payment of a penalty equal to the employee's daily wage for each day the employee's entitlement is outstanding.

Under Article 18 of the Previous Law, an employee could raise a claim if the employee was owed as little as one dirham. This is no longer the case, as Article 19 of the New Law only arises if the amounts owed to the employer exceeds the employee's weekly wage. Therefore, under Article 19, employers will not face high financial liabilities for failure to pay nominal amounts. Secondly, under Article 18 of the Previous Law, the penalty would continue to accrue throughout court proceedings and after judgment was reached; it would only cease to accrue when payment was made to the employee. Whereas, under Article 19(4)(a) of the New Law, the DIFC Courts have the ability to waive any penalties accrued during the period of court proceedings. Furthermore, pursuant to Article 19(4)(b) of the New Law the DIFC Courts, may waive any penalties that have accrued as a result of the employee's unreasonable conduct. Lastly, the DIFC Courts will only consider claims brought within six months of the employee's termination date, effectively placing a cap on the amounts which may accrue as a result of Article 19 claims.

Employers' Recoverable Costs

The New Law now provides employers with the ability to recover reasonable costs if the employee terminates their employment for any reason other than termination for cause within six months from the employee's start date. Recoverable costs are those that are: (i) directly incurred during the recruitment of the employee; (ii) supported by proof; and (iii) specified in the employment contract as being repayable by the employee in such circumstances.

Ramadan

Under the New Law, Muslim employees remain entitled to reduced working hours (six hours) during the holy month of Ramadan. But the New Law extends the reduced hours to include all Muslim employees regardless of whether they are observing the fast. Unlike the Previous Law, the New Law does not address whether fasting employees are entitled to an hour break when they have worked longer than six hours.

Leave

Subject to the length of service, female employees who adopt a child of five years or less are permitted to take maternity leave. This was not offered under the Previous Law as it only permitted those adopting a child of three months or less. Furthermore, under the New Law, male employees, subject to the length of their service and notification requirements, will be able to take five days of paternity leave, paid in full. Such leave must be taken within a month of childbirth or adoption. Male employees will also have the right to time off work to enable them to attend ante-natal appointments, provided that the employer is given reasonable notice of the appointment.

Similar to the Previous Law, the New Law allows Muslim employees to perform the Hajj pilgrimage. However, this has been shortened to 21 days under the New Law.

While under the New Law employees remain entitled to 60 working days of sick leave, these are no longer taken at full pay. Sick pay is now calculated as per the following:

  • first 10 working days – 100 per cent payment of the employee's daily wage;  
  • next 20 working days – 50 per cent of the employee's daily wage; and
  • remaining 30 working days – zero payment.

Vicarious Liability

The New Law clarifies the liability of employers based on the conduct of their employees. As such, it sets out the following test to determine whether employers are liable for the acts of their employees:

  • in the case of a claim for compensation, it needs to be established that the employee's act was sufficiently connected to the employee's employment; and
  • in the case of discrimination or victimisation, the employer needs to prove it took preventative measures to stop the employee from carrying out the act or omission.

Employees' Obligations

The New Law sets out guidance on an employee's duty to their employer, which shall include the employee's obligation to abide by the employer's lawful and reasonable instruction as it may vary from time to time, act faithfully and with due skill and care, as well as protect the employer's confidential data, including trade secrets. In the event that an employee fails to abide by these obligations, the employer can issue a warning notice and/or terminate the employee.

Immigration

Under the New Law, an employer is responsible to obtain and maintain, at their own cost, the requisite sponsorship documentation. An employer is not permitted to recoup any costs and expenses incurred from the employee in relation to visa and permits. Also employers are not permitted to retain the passport of their employees.

The New Law sanctions that visas must be cancelled by no later than 30 days from the termination date. This prohibits employers from being flexible with good leavers, as this may result in the employer being fined USD 2,000.

Discrimination and Victimisation

Discrimination is an important part of the New Law and has undergone a significant overhaul. Age, pregnancy and maternity have been added as new protected characteristics. That said, an employer can discriminate on the grounds of age if the employer can show that the treatment of the employee is a proportionate means of achieving a legitimate aim.

In the event that there are several acts which have taken place, the six months period will start from the date that the last of the acts occurred. Furthermore, the New Law safeguards employees who bring proceedings under discrimination for matters relating to victimisation. In doing so, the New Law protects employees from being subjected to unjust treatment for providing evidence, making an allegation or bringing a claim against employers, provided that any such disclosure is truthful and made in good faith Under the New Law, the DIFC Courts have discretion to provide employees who file a claim for discrimination or victimisation with a remedy. DIFC Courts have power to make a declaration as to the rights of the parties, award the employee compensation, make a recommendation or do a combination of the aforementioned. If the employer fails to comply with any recommendations set by the DIFC Courts and compensation has been awarded, the DIFC Courts has the ability to grant compensation to the employee, which would be the equivalent of two times the employee's annual wage. That said, if no such order was originally made, the DIFC Courts can make a compensation order, which is capped at the employee's annual wage.

Minimum Notice Periods

The New Law states that employees and employers can no longer agree to shorter notice periods than the minimum threshold. However, they can still agree to serve longer notice periods. The New Law permits an employer to make a full or partial payment in lieu of a notice period in the event that:

  • an employer terminates for cause; or
  • an employee and employer take part in mediation proceedings provided by the DIFC Courts prior to entering into a written agreement; or
  • an employee enters into a settlement agreement.

Right to a Written Statement of Termination

Article 64 of the New Law allows employees to request a written statement that details the reasons for termination. Under the Previous Law, only employees who were continuously employed for at least a period of one year were entitled to request a written statement of the reasons for their dismissal. The New Law has removed the one year threshold, but the request of a written statement is subject to certain qualifications: firstly, such request must be made to the employer within 30 days of the termination date, and secondly, the employee must be terminated for cause. Provided that such qualifications are satisfied, the New Law mandates that an employer shall provide such written statement within 14 days of the request. Moreover, the New Law goes further by stipulating that the written statement of the reason for termination must contain sufficient detail in order for a reasonable person to understand it. Thereby, providing a higher degree of transparency to employees.

End of Service Gratuity

There are some key changes which affect the way in which EOSG works and how and when it will be paid. The fundamental principle of basic wage has changed, providing that an employee's basic wage shall not be less than 50 percent of the employee's remuneration package. EOSG will be payable to every employee, regardless of whether they are terminated for cause under Article 63(1) or not, therefore protecting such amounts.

In a recent town hall, the DIFC proposed replacing the existing EOSG system with a funded workplace savings plan for expatriate employees via an investment vehicle from January 1, 2020. Importantly, the contribution plan will be regulated by the Dubai Financial Services Authority, whilst the administration costs will be incurred by the employer, and management costs may be borne by the employee. Even though this is not addressed in the New Law, legislation pertaining to the new contribution scheme is expected to be released shortly. This may require an amendment to the law or may be addressed by way of issuance of separate regulations.

Definitions

The Previous Law was silent on several definitions, giving rise to a degree of uncertainty and placing reliance on case law. As a result, the New Law clarifies ambiguous existing definitions while introducing some novel definitions that will assist in further changing employment practices in the DIFC. The existing definitions that have been clarified include; employment contract, court, daily wage, employee, employer, hourly rate, wages and working day. Additionally, the New Law adds important definitions such as parental leave, part-time employee, paternity leave, relevant calculation period, secondment, secondment card, short-term employee, termination date, and weekly wage.

Penalties

A major issue with the Previous Law was the inability to apply any fines and/or penalties for contraventions by the employer. Schedule 2 of the New Law now provides the DIFC Authority with a number of penalties which it can impose on those who act in contravention of the New Law. For example, penalties can now be applied in the event an employer employs a child under the age of 16 years, which would attract a fine of USD 10,000. Similarly, if an employer fails to provide health insurance to its employees, they would be subject to a USD 2,000 fine. However, the schedule of fines is limited to only a number of breaches.

Conclusion

The New Law ushers in a new era for employment standards within the DIFC. It is evident that the DIFC is trying to reduce the exploitation of disproportionate entitlements such as sick leave and the Article 18 penalty structure imposed on outstanding dues. This is a clear indication that the DIFC is taking steps towards promoting a diligent working culture.

Further, employers should ensure that they understand the key changes to the legislation and start taking active steps to reflect these changes within their employment contracts, policies and procedures. Time is of the essence as the DIFC has provided a three month window for all employers to meet the basic requirements of the New Law – a period which has already commenced.  

Author: Shiraz Sethi, Regional Managing PartneR, Head of Employment DWF Middle East LLP

T    +971 4 524 5636

M   +971 56 775 4260

E    shiraz.sethi@dwf.law

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