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.