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Merger and Acquisition

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Mergers & Acquisition

Due to the positive economic development and the fact that no taxes are levied there, the UAE are an interesting business location. Some foreign companies decide to enter the local market through the acquisition of already existing companies. By this means, the foreign company saves time and money for the market launch and the gaining of market share and also has the opportunity to achieve synergies in the context of acquisition.

In the acquisition of companies in the UAE, essentially the same criterion is applied as in the acquisition of a company in Germany. A legal and financial due diligence is carried out. In the absence of local tax law, a tax due diligence is not necessary. The following peculiarities, among others, should be emphasized, however:

1. Control of Mergers

With the 'Federal Law No. 4 of 2012 Concerning Regulating Competition', a competition law was introduced in the UAE with the aim of ensuring free competition. The law is applied to numerous economic transactions that could have effects on free competition. This law is also always applied to company purchases and company mergers. In this respect, in the case of company mergers, 'merger approvals' must if necessary be acquired from the UAE Ministry of Economy.

Despite the Cabinet Resolution No. 37 of 2014, which clarified several open points, the law leaves many questions open. Thus, the law contains a provision that is not to be applied to small and medium companies, without defining the term 'small and medium companies'.

Because of the existing uncertainties that have arisen from the still relatively recent law, it is of utmost importance in the company acquisition contracts to clearly regulate who is responsible for any necessary approval.

2. Local Sponsor

Any LLC that is not domiciled in a free trade zone has a local sponsor that holds 51% of the shares. In a company acquisition, the buyer should carefully check the articles of association and the side agreements (even if the legal enforceability of the latter is fraught with risk). Independent of this, the acquiring party should gain a personal impression of the 'Local Sponsor'. One should also take into consideration in each individual case whether one should activate as a 'sponsor' an LLC that is held 100% by UAE citizens and in which the foreign investor or a person appointed by the foreign investor shall take over the management.

3. Payment of Purchase Price – Earn-out Clauses

In numerous acquisitions, a contractually agreed fixed payment is made when a company takeover is completed. Further payments are made provided certain 'milestones' are reached by the company; certain profit expectations should be met on a regular basis. These 'milestones' and downstream purchase price payments are defined in so-called 'earn-out clauses'. Provided that the existing management undertakes, on the request of the acquirer, to continue to manage the company for a certain period, 'earn-out clauses' of this kind are fair and acceptable to both sides. If, however, an acquirer is not interested in the old management, the enforcement of 'earn-out clauses' may become difficult for the acquirer, as it is difficult to make the former management responsible for the reaching of or failure to reach 'milestones'.

4. Annual Financial Statements

In the case of smaller acquisitions, often only a very brief legal and financial due diligence is carried out in Europe. In the financial due diligence, the commercial and tax balance sheets are only checked summarily. For reasons of cost, this approach makes sense in the case of small acquisitions in jurisdictions with a functioning financial administration. In the UAE, by contrast, balance sheets are only audited for reasons of 'compliance'. The audit for 'compliance' reasons is performed by the auditors only in a very superficial way. It is thus important in the case of smaller companies to not 'blindly' trust the balance sheets, and to work carefully on the drafting of the contract. The purchase price should be paid in instalments and the acquiring party should demand accounts warranties from the seller.

5. Contractual Clauses and Practical Handling of the Acquisition

When drafting the contract, the local circumstances should be taken into account in the completion of the transfer of shares. The procedure of transferring shares varies from emirate to emirate and can be very time-consuming. Moreover, in the context of completing a company purchase, follow-up contracts (more or less standard contracts of the notaries) must be concluded. Here it is important to ensure that these do not conflict with the actual company purchase agreement.

6. Timeline

Company purchase contracts should contain provisions that determine when the company acquisition has to be completed. Following the expiry of this deadline, the seller is normally entitled to withdraw from the contract and to enforce certain contractual penalties. When determining the time frame, one should take into account any 'merger approvals' and the sometimes time-consuming transfer procedure at the local authorities, in order to reach a fair and also enforceable agreement.

DIFC Wills: Protect Your Assets in Dubai

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Prior to the launch of Dubai International Financial Centre (“DIFC”) Wills and Probate Registry, Dubai Courts would normally apply Sharia law to non-Muslims for the question of how to distribute their assets in Dubai in the event of their deaths.

The DIFC Wills and Probate Registry (“WPR”) is an administrative body that collaborates with the DIFC Courts in the production of grants and court orders for the distribution of assets and as well as guardianship. DIFC is constantly working towards broadening the applications of its regulations and laws nationwide, however the application of the WPR is limited. Only non-Muslims are able to register their wills with the DIFC Wills and Probate Service and only the assets situated in the Emirate of Dubai can be included in such wills.

While wills are a useful way to ensure that your assets are distributed the way you want it to be, they not only need to be in compliance with the DIFC Rules (including the Wills and Probate Registry Rules) but also they cannot be in contradiction with the UAE laws and regulations. Therefore, it is important to have someone with extensive experience and knowledge on how to draft wills that comply with the rules of DIFC and the UAE as a whole.

To register a will, WPR charges certain fees. For a single will, it charges a fee of AED 10,000 on the execution and witnessing of the will before a registry officer at the registry. If you and your spouse are simultaneously executing (registering) two mirror wills*, WPR charges a fee of AED 15,000 on execution of both wills before a registry officer. If you are only registering guardianship wills, WPR charges a fee of AED 5,000 on the execution and witnessing of a single guardianship will before a registry officer and AED 7,500 on the execution and witnessing of two mirror guardianship wills.

While the costs of having a professional draft your will can be more than doing your own will, it is extremely important (both to you and your family) to have wills that are error-free, unambiguous and in compliance with the laws. If you make mistakes in your will, you are not going to be around to explain yourself or to make corrections when the time comes to administer your will. Therefore, it is important to get professional help to write your will.

* Mirror wills are designed for couples (usually a wife and husband) that are nearly identical and which both leave assets to the same beneficiary or beneficiaries.

Abu Dhabi’s New Real Estate Law

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The Abu Dhabi new real estate law, Law No. (3) of 2015 Regulating Real Estate Sector in the Emirate of Abu Dhabi, has come into effect as of January 2016. This article discusses a few impotent provisions that have been introduced by the new law.

Part one of the new law defines important terms, such as the Real Estate Register, Account Trustee, Off-Plan sales, Service Fees, and so on.

Part two lays out the department’s power structure and authorizes Abu Dhabi’s Department of Municipal Affairs (the “DMA”) to regulate and supervise the real estate sector. In practice, the DMA is authorized to implement laws and regulations, issue licenses, regulate and control escrow accounts and cancel real estate projects.

Part three states the types of entities and persons permitted to engage in real estate-related activities. It is forbidden to practice any real estate-related activity before first obtaining a license from the DMA. Engaging in any real estate-related activity without a proper license from the DMA will lead to several fines, as set out by the law.

Part four of the law states that the developers have to be registered in the Real Estate Development Register which will record and keep all relevant data. Furthermore, off-plan properties have to be registered in the Interim Real Estate Register before any sales agreement can become binding on the parties. The law also prohibits developers from collecting any registration fees from investors; however, subject to the DMA’s approval, it allows developers to charge administrative fees.

Moreover, the law authorizes off-plan sales of properties if and only if certain requirements are met. Apart from mandatory approvals that they have to obtain, developers must, among other things, prove that they own real estate rights on the land and on the project to be built on such land. Another important requirement is that developers must open an escrow account for the development project and must pay moneys only from the escrow account. Additionally, the law does not allow any developer to dispose of any amount held in the escrow account unless the developer has constructed a minimum of 20% of the project.

Off-plan investors may be able to terminate the sales agreements where there has been a gross breach of the contract by the developer. Similarly, the law sets out consequences of delays in starting construction of the project or failing to complete the construction. In such circumstances, the DMA may be entitled to cancel the project and distribute the amount kept in the escrow account in accordance with the priorities set out in the law.

Finally, as stated above, the law sets punishments if any person violates the provisions of the law. For instance, the DMA may punish anyone who engages in real estate-related activates without a proper license by imprisonment or a fine of up to AED 200,000.

Contact us at +971-44473557 or info@azhari-law.com to learn more about your rights!

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Ministry of Labour Provides Official Template of Offer Letter

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Background

Following the three ministerial decrees of January 2016, all employees across the UAE will be presented with a standard Job Offer that contains clear and binding terms of employment, prior to the worker’s entry in the UAE, or prior to the change of status in case the worker is already in the country. If an employee is coming from abroad, the contract must be signed before he arrives to the UAE. Subsequently both the employer and the employee will need to sign the employment contract which cannot be significantly different from the job offer. The Employment Contract needs to be registered with the Ministry and any change or addendum to the terms of the employment need to be approved of by the Ministry.

What you need to know about the new standardized Offer Letter The Contract contains 12 clauses regarding the obligations and rights of both employer and employee. Like the old employment contracts, the new Contract contains basic information regarding the employer and employee. The information include the names and addresses of both the employer and the employee, the nationality of the employee, the employee’s profession, job title and basic remuneration allowances, the date the employment begins and the duration of probation (cannot be longer than 6 months), if any.

One clause explains that both party can end the employment relationship if they choose to, subject to certain legal consequences. However, given the new decrees, the legal consequences generally mean giving a proper notice (as agreed, between 1 to 3 months) of intentions to terminate the employment, honoring the employment obligations and indemnifying the other party as agreed.

Another clause states that the employee is entitled to a weekly rest period (either 1 or two days) and obliges the employer to determine such period prior to commencement of employment.

Three clauses (clauses 7, 8 and 9) stipulate that both parties acknowledge they have reviewed the clauses thoroughly and understand the terms of the employment along with attached Annexes that explains in more details the applicable laws and regulations of employment in the UAE. Furthermore these clauses specify that all the terms of the offer should be binding on both parties.

Additional terms of employment can be added in the last clause of the contract. However, these additional conditions must be in compliance with the labor laws and can be binding subject to the approval of the Ministry of Labour.

Removal of Sanctions: Iran Nuclear Deal

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In June 2006, China, Russia, and the United States joined France, Germany and the United Kingdom which had been negotiating with Iran since 2003, to offer another proposal for comprehensive negotiations with Iran in diplomatic efforts to reach a nuclear deal with Iran to ensure that its nuclear program is peaceful and in return Iran could rejoin the world economy by means of removing sanctions and embargos against Iran. After years of negotiations and diplomacy, the Joint Comprehensive Plan of Action (the “JCPOA”), the nuclear accord between Iran and six of the world’s major powers, went into effect on October 18, 2015, (“Adoption Day”).  On that date, the United States and European Union published the legal framework for future sanctions relief and Iran began steps to ensure the peaceful nature of its nuclear program. The good news for all of us is that the world is a safer place (perhaps Prime Minister Bibi disagrees), and for Iran to be able to trade with the world.

The next major milestone in the JCPOA, the so-called “Implementation Day,” occurred on Saturday, January 16, 2016, when the International Atomic Energy Agency (“IAEA”) verified that Iran has fulfilled all of its commitments and requirements under the nuclear accord.  Consequently, the United States and European Union provided the first phase of sanctions relief, including oil embargos and financial or trade embargos on Iran. Furthermore, the US and EU would also release roughly $100 billion of Iran’s assets after international inspectors concluded that the country had followed through on promises to dismantle large sections of its nuclear program. The second phase of relief will come in October 2023, on the so-called “Transition Day.”  On that day, some of the restrictions on Iran’s nuclear program will be lifted.

European Union Sanctions

The EU terminated all nuclear-related economic and financial sanctions, on Implementation Day, including restrictions on:

  • Transfers of funds between EU entities, including financial and credit institutions, and Iran.
  • Banking activities, including the opening of new branches of Iranian banks in the EU and the opening by EU entities of new offices, subsidiaries, joint ventures, or bank accounts in Iran.
  • Insurance and reinsurance for Iranian entities.
  • The import of Iranian oil, gas, and petrochemical products.
  • Investment in and the export of equipment for Iran’s oil, gas, and petrochemical sectors.
  • The shipping, shipbuilding, and transport sectors.
  • The export of gold, precious metals, and diamonds and the delivery of Iranian banknotes and coinage.

As a result of its compliance with the nuclear deal, Iran now regains access to financial messaging services, including SWIFT, (except for banks that remain designated by the EU until Transition Day.) The E.U. will allow member states to import and sell Iranian crude oil and gas. Additionally, The E.U. will allow for trade to Iran of naval equipment and technology for ship building. It’ll also allow cargo flights from Iran to access member state airports. The EU will also lift sanctions that impose asset freezes and travel bans on a first set of companies and individuals (mostly in the financial, energy, shipping, and transport sectors).

A second phase of sanctions relief is expected 8 years following the Adoption Day, or sooner if the IAEA reaches its Broader Conclusion (when the IAEA verifies that all nuclear material in Iran remains in peaceful activities). On Transition Day, all EU proliferation- related sanctions will be lifted which also include the removal of a second, smaller set of individuals and entities from the EU blacklist – those designated for proliferation activity.

United States Sanctions

When it comes to the United States and Iran, and in particular the U.S. embargos on Iran, things are a bit more complicated (isn’t everything complicated between these two?). The United States has also agreed to sanctions relief, but this relief will only affect secondary sanctions – the restrictions that the U.S. government places on non-U.S. persons (including entities). Furthermore, the United States had promised to remove, on Implementation Day, a set of entities from various restricted party lists (mostly Iranian financial institutions, individuals and entities designated for being part of the Government of Iran, as well as entities in the energy, transport, and shipping sectors). As a result, Obama administration removed 400 Iranians and others from its sanctions list. Under the new rules put in place, the United States will no longer sanction foreign individuals or firms for buying oil and gas from Iran. However, The American trade embargo remains in place, but the government will permit certain limited business activities with Iran, such as selling or purchasing Iranian food and carpets and American commercial aircraft and parts. So can Americans (individuals and entities) trade with Iran? The question begs for some more detailed clarifications that we hope will be addressed within the coming months by the Office of Foreign Assets Control (“OFAC”), part of the U.S Treasury Department. Up until now one thing is clear, according to the Treasury Department, that the U.S. will allow “the sale of U.S. origin aircraft, parts and services exclusively for commercial passenger aviation to Iran; the import of Iranian-origin carpets and foodstuff; and certain activities conducted by foreign subsidiaries of U.S. companies.” Additionally and according to the White House, “U.S. statutory sanctions focused on Iran’s support for terrorism, human rights abuses, and missile activities will remain in effect and continue to be enforced.”

The United States has also agreed to “cease the application of” the bulk of its secondary sanctions (see below) on non-U.S. persons engaged in Iran’s financial and energy sectors. However, the agreement states that “U.S. persons and U.S.-owned or -controlled foreign entities will continue to be generally prohibited from conducting transactions of the type permitted pursuant to the JCPOA.”

The secondary sanctions to be lifted include restrictions on:

  • Financial and banking transactions with Iranian financial institutions.
  • Transactions in Iranian currency (Rial).
  • The provision of U.S. banknotes to the Government of Iran.
  • The purchase or facilitation of issuance of Iranian sovereign debt.
  • Financial messaging services (such as SWIFT).
  • Insurance and re-insurance.
  • Sales, investment, and transport of Iranian oil, gas, and petrochemicals.
  • Shipping, shipbuilding, and port sectors.
  • Trade in gold and other precious metals.
  • The automotive sector.

A second phase of sanctions relief is expected 8 years following Adoption Day, or sooner if the IAEA reaches its Broader Conclusion.  As a result, the United States will seek legislative action in Congress to terminate the secondary sanctions that will be suspended on Implementation Day.  The United States has also promised to delist a second group of 43 entities, many of which have been involved with illicit procurement for Iran’s nuclear and missile programs.

However, what you should note is that the lifting of sanctions does not mean that the United States is removing its trade embargo on Iran.

United Nations Sanctions

On July 2015, the U.N. Security Council adopted resolution 2231 as a means of endorsing the nuclear deal and superseding the existing Iran-related resolutions.  On Implementation Day, resolution 2231 will terminate the provisions of resolutions 1696 (2006), 1737 (2006), 1747 (2007), 1803 (2008), 1929 (2010), and 2224 (2015).  Resolution 2231 itself will be terminated 10 years following Adoption Day (October 18, 2025).

On Implementation Day, January 16, 2016, 36 individuals and entities (out of 121 currently blacklisted) will be removed from the sanctions list, while sanctions will remain in place on the remaining entities for eight years, or until the IAEA reaches its Broader Conclusion.

The following U.N. sanctions will also remain in place:

  • The U.N. conventional arms embargo (5 years).
  • The U.N. ban on ballistic missile technology imports and ballistic-missile related activity (eight years).  The language of the new U.N. resolution on the restrictions on ballistic-missile related activity appears to be more permissive than the existing ban under resolution 1737.
  • The U.N. restrictions on nuclear-related procurement, overseen by the procurement channel discussed above (10 years).

Impact of the new DIFC Wills and Probate Registry on Expats

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On May 4, 2015, the Dubai International Financial Centre (“DIFC”) launched the DIFC Wills and Probate Registry (“Registry”). Following this Registry, DIFC became the first and only, at this time, jurisdiction in the MENA region where non-Muslim foreign nationals with assets in the Emirate of Dubai are able to register their wills under common law principles, whereby a testator has freedom to dispose of their estate, rather than being subject to any specific legal rules regarding distribution or a forced heirship regime such as Sharia inheritance law. The complex battle between applying Sharia law and the law of the foreign deceased, coupled with costly and time consuming Dubai Courts process in relation to inheritance and succession matters, had created legal and practical uncertainties for non-Muslim individuals regarding acquiring and maintaining assets in Dubai. To avoid expensive and lengthy court procedures regarding inheritance matters, and for other benefits, many foreign nationals transferred their real property assets into offshore setups (currently only possible within the Jebel Ali Free Zone Authority (“JAFZA”). The benefits of setting up an offshore company still continue to attract many foreign nationals, especially for structuring multiple assets. However, there can be situations in which an expat’s assets are not protected as the expat’s wishes after he or she is gone. In other words, foreign nationals with assets outside of Dubai are still at risk of being subject to Sharia law. The UAE does not recognize the right of survivorship and thus, even though the ownership of a property continues by way of shares in the property of the offshore company, the shares cannot pass down to the heirs of the deceased shareholder, hence the need for a proper will. In addition, there are certain costs associated with registering and maintaining an offshore company which may be justified in different situations, such as protecting multiple assets. The new DIFC Wills and Probate Rules complement the already established rules and mechanisms in the UAE, for the purposes of safeguarding your assets. The Registry now gives peace of mind for non-Muslim expats who own property in Dubai to protect their families and to assure that Sharia law would not govern the wills if something goes wrong. The Registry entitles these individuals to safeguard their assets in Dubai and have them distributed as their wishes should they die. It is important to note that the laws under the Registry apply only to non-Muslims who own property in the Emirate of Dubai. These individuals can also appoint a guardian, in their wills, for their minor children living in Dubai. The Registry will work with the DIFC Courts for the production of grants and court orders for the distribution of assets. As the grant is issued by the DIFC Court, it will be directly enforceable in Dubai without the need to go through the Dubai Courts.

How to Register Your Will

  1. Prepare a will by a qualified lawyer or qualified will writing services in Dubai. The Registry may invalidate a home-drafted will. Please note that the cost of making a will in Dubai varies depending on several factors such as the number of years of experience of the lawyer, the complexity of the testator’s assets, etc.
  2. Should you appoint a guardian in your will, make sure he or she has signed a correct declaration.
  3. Make an appointment with the Registry.
  4. Bring a witness and sign the will at the Registry in front of a Registry Officer.

Contact +971-44473557 or info@azhari-law.com for further assistance.

 

DIFC Offers Single Family Offices to Family Owned Businesses

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The concept of family offices has proven successful in the global family owned business environment. In the UAE, as per the regulations of Dubai International Financial Centre (DIFC), family businesses have been encouraged to establish Single Family Offices (SFOs) at DIFC.

What Is A Single Family Office?

A single-family office is an organizational structure that manages the financial and personal affairs of one wealthy family. Because a single-family office is driven purely by the needs and preferences of the underlying family, there is no standard for how one should be structured. For instance, some single-family offices are lean enterprises that focus exclusively on investing with a skeleton staff while others are robust organizations with in-house staff, numerous vendor relationships and a broad platform of services. This disparity means it’s difficult to establish hard-and-fast criteria for how a single-family office should be defined other than its dedication to a sole family.

Due to these wide variations numerous challenges may also arise relating to transition from one generation to the next. The dynamics of family-owned business may also include such factors as:

  • How should we manage succession from one generation to the next?
  • How do we professionalize our business for growth without losing the family spirit and values?
  • Should we create a family office to manage the family interests?
  • What is the best way to share rewards for family and non-family members?
  • Can we attract a CEO who is a non-family member?
  • How do we draw the line between ownership and management?

With the boom in private wealth creation – especially at the very high end – there’s a corresponding explosion in the number of single-family offices. The main appeal of single-family offices for the ultra-wealthy is control. The founders of single-family offices are able to create the organization that they see best meeting the needs, wants, and preferences of the individual and the family.

Consultants at Azhari Legal Consultancy provide reliable professional assistance for setting up single family offices at the DIFC.

DIFC Regulation for Single Family Offices

The DIFC Single Family Office (SFO) regulations specifically address the needs of family-run institutions and create a platform for wealthy families to set up holding companies at DIFC to manage private family wealth and family structures anywhere in the world.

Family offices have become highly significant on the global economic landscape. In the Middle East, where family-run businesses make up more than 75 per cent of firms and have total assets in excess of $1 trillion (Dh3.67trn), the need for a specialized legal framework is acute.
In contrast to conventional financial institutions, Single Family Offices (SFOs) have no direct public liability as all their shareholders are bloodline descendants of a common ancestor. As such, their regulatory requirements differ significantly. By establishing such regulations, DIFC has become a hub for local, regional and international family offices.
The regulations follow the establishment of the DIFC Family Office initiative, which provides comprehensive infrastructure solutions for families and family businesses operating in the region.

The DIFC Family Office initiative is aimed at promoting DIFC as an ideal location for family offices.

Azhari Legal Consultancy’s Assistance

We help family-owned businesses address following challenges:

  • vision and strategy development
  • governance and organizational structure
  • internationalization
  • succession planning and founder plan
  • transference of the family ‘goodwill’*
  • leadership development
  • reward strategies
  • talent management

* Family goodwill is the relational, human and social capital that typically contributes to the economic value of the business.

Contact us at +971-44473557 or info@azhari-law.com

 

 

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UAE Labour Law 2016

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New UAE Labor Regulations:

Higher Labor Standards

On September 27, 2015, the Ministry of Labour introduced three decrees, which come into effect at the start of 2016, to ensure more transparency and clarity of the Labor Contracts and termination related issues, greater protection for employees and to provide for a more balanced and flexible work environment. The three decrees are primarily dealing with Employment Contact and Offer Letters, Termination of Employment, and New Work Permit and related Labor Bans.

Employment Contract and Offer Letter

The new decrees require that an employee sign an employment offer letter, which will be binding as a legal contract on both the employee and employer, that ‘conforms with the Standard Employment Contract’ prior to issuing a work permit and a residency visa. This also applies in the event the employee, residing in the UAE, is switching employers/jobs. The Standard Employment Contract must match the terms of the offer and its terms cannot be changed by either employee or employer unless the terms are more beneficial to the employee. This will help reducing the risks of confusion and any wrong-doing as both the employee and employer are aware of the terms of the employment.

Termination of Employment

The new decrees also deal with termination of employment. Practically speaking, nothing has changed regarding the implications or means of terminating an unlimited contract other than that the notice period cannot be less than 1 month or more than 3 months.

However, in the case of a fixed-term contract, more impact is to be seen with the new decrees coming to effect. In addition to the expiration of a contract period, for a fixed-term contract (two years), or fundamental breaches of labor law by either party (Articles 120 and 121 of the UAE Labour Law), an early termination of a fixed-term contract is allowed by mutual consent or unilaterally (by either party), provided that (1) the terminating party notifies the other party of its intention to terminate (minimum 1 month and maximum 3 months prior to termination date), (2) honors the employment obligations during the notice period and (3) pays the agreed compensation. Both the employee and employer may agree on the amount of compensation for an early termination, to be included in the offer letter and the Standard Employment Contract, up to a maximum of 3 months’ salary.

This reduces the likelihood of lengthy and costly employment-related lawsuits, for the purposes of seeking compensations, since both the employee and employer are fully aware of their rights and obligations when terminating the employment.

Work Permits and Labor bans

The new decrees also set out new rules on work permits which warrant a more work environment mobility and flexibility. A new work permit will be issued in the following circumstances:

1. The contract term has expired and not renewed.

2. Both parties mutually agree to terminate the employment, provided the employee has completed

a period of at least 6 months (the 6 month period is waived if the employee has a high school diploma or higher).

3. Either party unilaterally terminates the employment after the expiry of the first fixed-term contract provided that: (1) the terminating party notifies the other party of its intention to terminate; (2) honors the employment obligations during the notice period; and (3) in case of a fixed-term contract, pays the agreed compensation, or in case of an unlimited contract, the employee has completed a period of at least 6 months (the 6 month period is waived if the employee has a high school diploma or higher).

4. The employer terminates the employment (without the employee’s fault) provided the employee has completed a period of at least 6 months (the 6 month period is waived if the employee has a high school diploma or higher).

5. The employer has failed to meet its contractual or legal obligations, including but not limited to failure to pay the employee’s wages for more than 2 months.

6. The employer is shutting down its business.

7. The labor court provides a final ruling in favor of the employee stating that the employee is

entitled to: (1) no less than two months of work; (2) arbitrary or early termination compensation; or (3) any other entitlements that the employee is denied for no lawful reason including granting of end-of-service gratuity.

For further details please see our brochure UAE Labour Law.

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Key Distinctions between DIFC Employment Law and UAE Labour Law

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Probation, Notice Period & Termination:

Under UAE Labour Law, the employee and employer can agree on a probation for a period not exceeding six (6) months, during which the employer may terminate the employment without notice or end of service benefits. Furthermore, and upon successfully completing the probation period, the required notice period to be given by the employee or the employer to terminate the employment shall be between one (1) to three (3) months.

In the event of termination by either the employer or employee, certain obligations apply to the terminating party, given the nature of the agreement – i.e. limited and unlimited, in terms of end of service benefits and payments in lieu of notice periods.

DIFC Employment Law, on the other hand, does not expressly mention any probation period per se. However, when an employee has been employed for more than one (1) month, the notice required to be given by the employer or the employee to terminate the employment, cannot be less than:

  1. one (1) week, if the period of continuous employment is less than 3 months;
  2. one (1) month, if the period of continuous employment more than 3 months but less than 5 years; or
  3. three (3) months, if the period of continuous employment is 5 years or more.

Furthermore, under DIFC Employment Law, parties can agree on longer or shorter period of notice or even waiving notice or accepting a payment in lieu of notice.

DIFC Employment Law, does not distinguish between a limited or unlimited employment agreement, and terminating an agreement is generally governed by the terms of the agreement, subject to notice period requirement and other obligations defined by DIFC Employment Law.

Vacation/Annual Leave:

UAE Labour Law grants employees, who have been continuously employed for more than six (6) months, a period of annual leave of two (2) days per month, starting from the first day of employment, where the employment has been less than one (1) year and thirty (30) days per year where the employment has been more than one (1) year. Under UAE Labour Law, all national holidays made by law or agreement, weekends and/or sick days, if any, will be part of the annual leave if such days fall within the period of annual leave.

DIFC Employment Law, on the other hand, grants vacation leave of twenty (20) working days per year to the employees who have been employed for at least three (3) months. Furthermore, the annual vacation leave is exclusive of national holidays, weekends, maternity leave and sick leave or any other days of absence from work as agreed between the parties.

Sick Leave:

Under UAE Labour Law, no sick leave is given to an employee during probation period and only after three (3) months into the continuous employment following the probation period, the employee is entitled to ninety (90) days of sick leave per year. Furthermore, the employee is entitled to full paid sick leave for the first fifteen (15) days with full pay. The employee is entitled to half day payment for following thirty (30) days of sick leave and the remaining forty five (45) days of allowed sick leave per year are non-paid.

On the other hand, under DIFC Employment Law, an employee is entitled to a maximum of sixty (60) working days in aggregate per year. Please note that, the employee is entitled to be paid at the rate of normal daily wage for the entire period of sick leave.

Please note that, where an employee takes more than an aggregate of sixty (60) working days of sick leave in any twelve (12) month period, the employer may terminate the employment immediately with written notice to the employee.

Maternity:

Under UAE Labour Law, an employee is entitled to full paid maternity leave for a period of forty five (45) days per year if she has been continuously employed for at least one (1) year. If an employee has been continuously employed for less than one (1) year, her paid maternity leave will be reduced by half. Please note that, UAE Labour law, allows an employee to take longer maternity leave, due to complications of pregnancy or delivery, beyond forty five (45) days for a maximum period of hundred (100) continuous or intermittent days without pay.

UAE Labour Law, does not recognize, up until now, maternity rights to a female employee who is adopting a child.

By contrast, DIFC Employment Law grants maternity rights to an employee who is adopting a child of less than three (3) months old.

A DIFC employee is entitled to a minimum maternity leave of sixty five (65) working days. Furthermore, an employee is entitled to be paid during the minimum maternity leave if she has been continuously employed for at least one (1) year prior to the expected or actual week of childbirth.

The maternity pay, under DIFC Employment Law, is calculated as follows:

  1. normal daily wage for the first thirty three (33) working days of maternity leave; and
  2. fifty (50) per cent of the employee’s normal daily wage for the next thirty-two (32) working days of maternity leave.

End of Service Gratuity:

Generally, under both DIFC Employment and UAE Labour Laws, an employee who has been continuously employed for a minimum of one (1) year, is entitled to gratuity payment at the termination of the employment. Both Laws calculate the payment of gratuity in the same manner, i.e. the gratuity shall be 21 days’ basic wage for each year of the first five years of service and 30 days’ basic wage for each additional year of service provided that the total of the gratuity shall not exceed the wages of years of service. However, under UAE Labour Law, in the event of a resignation by the employee, the amount of gratuity will be significantly reduced, if the continuous period of service does not exceed five years.

UAE Labour Law Reform 2016

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labour law uae

Labour Law of UAE – Reforms for 2016

Expatriates and business owners have warmly appreciated the recent reforms to the Labour Law of UAE.

Minister of Labour Saqr Ghobash in his press conference to the journalists told that these labour reforms aim to tighten oversight of employment agreements for temporary migrant workers. These reforms will come into effect from January 2016.

UAE Labour Law Reforms

Under the new reforms and policies, prospective foreign workers would be asked to sign a standard employment offer in their home countries. The contract would be filed with the Ministry of Labour before a work permit was issued. That agreement would then be registered as a legal contract once the worker arrives the country and no changes would be allowed unless they were additional benefits that the worker agreed to.

 

Ministry of Labour has issued three new labour rules which include:

  1. ministry-approved contracts,
  2. conditions for terminating employees and
  3. labour permits to work for new employers.

Either side (the employer or worker) can terminate the contracts under terms spelt out in the ministry decree. Once that is done workers are free to switch to a new employer.

The main goal of these reform is to ensure transparency and compliance in matters related to labour contracts, including terms of termination. The new laws would benefit both the employer and the employee. Mr Al Meqbali, who also sits on the board of the Abu Dhabi Chamber of Commerce and Industry, said the changes would provide more flexibility because with the reduced time for transferring employees and their contracts, companies will be able to quickly put workers in the right positions, while employees will have better ability to find the job they want.

Response from the Media, HR and Workers

Media analysts, HR experts and lawyers have also shared their points of view, for example:

  • The labour reforms would curb abuse of foreign workers by employers. There are so many sad stories about contracts not honoured by abusive employers. Expat are left with no choice but follow the employers. (Cristina Magallon, chief editor ofUAE DNA Blogazine, a Dubai-based online publication).
  • The new laws would help to prevent such situations where workers had to leave the country after a potential employer did not honour her contract. (Ms Magallon, a Filipina)
  • I worked as a foreman but situations forced me to become a bus driver. I have to spend two years in this company, which is a burden on me. The new rules for recruitment, termination and changing jobs are good news for blue-collar workers. (Mohammed Momin Khan, a Pakistani)
  • For five years I have worked with the same company and not a single penny was increased in my salary. (Cleaner Hassan Ali, a Bangladeshi)

For further details please see our brochure UAE Labour Law.