Do you relocate employees from foreign jurisdictions to the UAE? Or are you expanding your business in the UAE?
Here are some thoughts on the issues you will need to address in cross-border employment. Watch this space for the application of the new Remote Work Visa.
Since its establishment in 1971, the United Arab of Emirates (“UAE”) has come a long way in respect of its infrastructure, development, and its openness to diverse cultures. The UAE has quickly become an extremely attractive destination for multinational and regional corporations wanting to enter the Middle East market. The UAE is now considered a significant hub for multi-national corporations allowing them to manage their operations in the MENA region (and beyond) seamlessly.
Not only the multinational corporates but also individuals from all over the globe, and their families, have become attracted to live and work in the UAE. According to the 27th edition of the Annual Economic Report 2019, the UAE had a total labour force of 7,400,000 million approximately in 2018 and became a home to over 200 nationalities.
Overview: cross-border employment
The cross-border employment becomes relevant, primarily, in two scenarios:
- A foreign entity chooses the UAE as a new destination for its business. This foreign entity (the “Overseas Entity”) will, in most cases, be required to set up a corporate presence in the UAE (the “Local Entity”). The Local Entity can be incorporated in the UAE onshore area, commonly referred to as mainland, or within one of the UAE free zones. while deciding on the place of incorporation of the Local Entity (whether mainland or free zone), the Overseas Entity will simultaneously consider sending its existing employees from the foreign jurisdiction to the UAE to work for the Local Entity and assist in its growthAnd, best of all, Practical Law gives you access to the expertise of more than 300 attorney editors whose full-time jobs are to provide support, institutional knowledge, and expertise on all areas of the law. It’s like having a legal research team of 300-strong working specifically to keep you updated, informed, and practicing at your best.
- Multinational employer seconds/relocates its employees from an overseas jurisdiction to the UAE. While doing so, the Overseas Entity will have to handle this process carefully. Improper handling of this cross-border employment can have dramatic ramifications, so it is important that from the outset that the Overseas Entity has a good understanding of the practicality of the UAE Federal Law No. 8 of 1980 (the “UAE Labour Law”).
What are the key points of consideration in relation to cross-border employment in the UAE?
- Employment Contract
- Continuity of Employment
- Pension vs. End of Service Gratuity
- Termination of Employment
- UAE resident visa and recent developments
Employment contracts – Have you had open discussion with your employees and managed their expectation?
There needs to be a well drafted contract that clearly sets out the legal relationship between the employee, the Overseas Entity in the foreign jurisdiction and the Local Entity in the UAE. Failure to appropriately deal with these from the outset can open both the Overseas Entity and the Local Entity to dual employment rights, multiple court jurisdictions and conflict of laws.
Continuity of employment – which entity is the employer?
One of the key issues when relocating an employee from the Overseas Entity to the Local Entity is continuity of employment. The Overseas Entity can opt to either (A) continue the employment relationship between itself and the employee during the relocation period while the employee is also employed by the Local Entity or (B) terminate the employment relationship, settle all existing labour entitlements, subject to applicable laws in the overseas jurisdiction, and start a new employment relationship between the Local Entity and the employee.
Remuneration – which entity is paying the salary?
In cross-border employment scenarios, some employers prefer to keep the salary payment arrangements unchanged so the Overseas Entity continues to make monthly salary payments into the employee’s bank account in the foreign country or via international wire transfer to the employee’s bank account in the UAE. However, in some cases this arrangement is not possible as some employers (depending on their place of their incorporation in the UAE) will need to comply with Ministerial Resolution No. 788 of 2009 and pay salaries in accordance with the UAE Wages Protection System. This system requires some employers to transfer the employee’s salary into a UAE bank account in the UAE currency.
Pension or end of service gratuity?
One important point to highlight, is the Local Entity’s obligation to pay end of service gratuity (“EOSG”) to the employee at the end of employment. Nevertheless, there are some scenarios where the Overseas Entity has offered the employee contributions to a pension scheme. The UAE Labour Law has allowed Local Entity to opt out from the EOSG given the existence of a more favourable pension scheme.
The employment contract must specify that the pension contributions made will be a substitute to the EOSG and the employees must expressly agree and acknowledge that these contributions will be paid to them in place of the EOSG (if not, the employee will arguably be entitled to the pension in the overseas jurisdiction and the EOSG in the UAE). As mentioned above, a clear contract must be drafted to set out this arrangement carefully
Termination of Employment – Are we on the same page?
Most of the issues which arise in relation to cross-border employment in the UAE come to light on the termination of the employment relationship. Depending on the circumstances, on termination, the employee could potentially bring claims against both the Overseas Entity and the Local Entity for arbitrary dismissal and EOSG. In addition, the UAE Courts may have the jurisdiction to accept the employee’s claim against both the Overseas Entity and the Local Entity. More importantly, the Courts may extend the application of the UAE Labour Law to the relationship between the Overseas Entity (in the foreign jurisdiction) and the employee, even if the relationship between both began before the employee relocated to the Local Entity (in the UAE). The employee may also try to bring a claim in the foreign jurisdiction if the employment rights and entitlements there are more favourable than those in the UAE.
UAE resident visa and recent developments
The Local Entity will have to comply with the regulations governing employment in the UAE such as obtaining valid resident visa and work permits for the relocated employees. Failing which, the Local Entity can face penalties up to AED 100,000 and in some cases imprisonment for both the employee and the general manager of the Local Entity.
In March 2021, the UAE announced the introduction of a residence permit for remote workers. H.H Sheikh Mohamed, the Vice President and Prime Minister of the UAE, and ruler of the Emirate of Dubai has published on his official twitter account: “During a cabinet meeting I chaired, we approved a new Remote work Visa that enables employees from all over the world to live and work remotely from the UAE even if their companies are based in another country”.
This is a unique and positive change in the employment visa system in the UAE and we shall keep watching the space to see the enforcement of the new Remote Work Visa and its practicality in the employment market.
As this article shows, the ramifications of failure to properly handle the cross-border employment and its termination in the UAE can be problematic.
We have seen specific cases before the Dubai Court of Cassation awarding EOSG for employees on the full employment duration including employment with the Overseas Entity which did not take place in the UAE and ruling against both the Overseas Entity and the Local Entity, jointly and severally.
The recommendations provided in this article are vital for international businesses. A legal advice should be sought particularly with high senior employees reallocating from Overseas Entities to Local Entities in the UAE.