New UAE Labour Law ushers in groundbreaking employment changes

In the most significant overhaul of labour regulations in years, the new UAE Labour Law introduced groundbreaking concepts such as flexible work, non-discrimination and equality for the first time in the Gulf Arab region.

Coming into force in February 2022, the new law was aimed at responding to new challenges and needs of the country’s labour market which has evolved significantly in the past years and aligning its regulatory and statutory framework with global standards.

The new law replaced Federal Labour Law No. 8 of 1980 as amended, which had governed employment relationships in the UAE for over four decades.

Flexible working

While the old law did not expressly address part-time and flexible working, the new legislation introduced a number of alternative flexible and atypical employment arrangements, providing an extra competitive edge for the diversified UAE economy.

Part-time employees are now recognised and entitled to vacation leave on a pro-rated basis, while temporary work is applicable where time or a project objective is a determining factor.

The concept of flexible work was introduced where working hours and/or days of work alter depending on the employer’s workload and the company’s economic and operational variables.

“It remains to be seen what will be required of employers to implement these alternative employment arrangements and how, if at all, end of service entitlements will be affected for part-time, temporary and flexible workers,” Al Tamimi & Co lawyers said.

While there are no specific guidelines concerning working from home, the law acknowledges that an employee may work remotely whether from inside or outside the country with the approval of the employer, a development reflecting new working concepts triggered by the pandemic.

“The enactment of the new Law has provided employers with additional options to meet their recruitment needs. It will also enable flexibility for employees who seek non-traditional working models,” said Maryam Zaman, Partner, Head of Corporate Governance at KPMG Lower Gulf.

Limited contracts only

Applicable to employees and employers in the UAE’s private sector, the law also removed the concept of unlimited employment contracts, stating that all now must be for a specific period not exceeding three years.

The change, allowing multiple renewals and extensions which count towards continuous employment used for the calculation of the end of service gratuity, aligns the duration of employment contracts with that of standard employment-based residence visas.

“Limited employment contracts offer some advantages such as allowing employers to assess employees’ contribution and value to the entity prior to entering a binding contract or hiring subject matter experts for a specific assignment,” KPMG’s Zaman said.
“However, the new Law is expected to help improve employee retention, requiring employers to offer additional incentives including benefits and payouts and a better work culture to attract qualified employees,” she said.

Employers are required to convert existing unlimited term contracts into fixed term contracts within one year from the effective date of the new law, i.e. by February 1, 2023.

Contract termination

As for the contract ending, termination with notice for reasons other than those related to an employee’s performance or conduct is now permitted.

Most notably, the concept of redundancy is expressly recognised as a valid reason for termination if the employer is bankrupt or insolvent, or there are any economic or exceptional reasons, according to Al Tamimi & Co.

In another change, the statutory notice period of minimum 30 days for termination of contracts has a maximum length of 90 days in the new law.

“This is likely to impact existing senior management contracts that provide for longer notice periods, sometimes as a way of securing non-competition protection for employees,” said ReedSmith, a global law firm.

“Given the refinement of express permission of non-competition restrictive covenants in the new law, it is likely that negotiations will be in order to amend contracts with longer notice periods to provide for a combination of shorter notice periods and non-competition restrictions,” it said.

End of Service Gratuity

Unlike in the old law, which reduced the end of service gratuity entitlement before an employee completed five years of service, the reduction provisions were left out in the new legislation giving resigning employees a full gratuity payment if they have completed at least one full year of service.

It also introduced the time limit of 14 days from the termination date for the employer to pay all end of service entitlements, and a fine of between AED5,000 and AED1,000,000 for failing to comply with a possible multiplier effect for the number of employees affected by the breach.

Non-discrimination

Introducing the concepts of equality and non-discrimination rights, the new Labour Law prohibits discrimination based on gender, sex, religion, age, disability and national origin in the workplace, an important and far-reaching move.

Equal opportunities and equal pay, in particular a woman’s right to be paid the same wage as a man if she performs the same work or work of equal value, are protected under the new law.

Pregnant women and those on maternity leave maintain the same rights and employers may not discriminate against them or threaten to terminate their employment.

Importantly, protection for employees against bullying and sexual harassment in the workplace has been introduced. In addition, an employer is prohibited from coercing or threatening an employee to undertake work or provide services against their will.

“These kinds of provisions have not been specifically dealt with before, and it is encouraging to see that the UAE is taking these situations seriously and the law is protecting these basic human rights,” ReedSmith said.

Breaches of the law in terms of discrimination, bullying and harassment may expose employers to the same range of fines as for failing to pay the end of service gratuity on time, according to Al Tamimi & Co.

Enhanced maternity leave

Another change the new law brought was that maternity leave has been extended to 60 days from 45 days with the first 45 days being on full pay and the next 15 days on half pay.

Female workers can also be absent from work after maternity leave for up to 45 consecutive or intermittent days for medically certified illness both of the employee or her child resulting from pregnancy or childbirth.

Breastfeeding mothers can also take two 30-minute breaks during the workday for up to six months.

In addition to maternity leave, the law also provides for the first time for five working days’ parental leave, which can be taken by the father or the mother.

Bereavement and study leave entitlements of three to five days, and 10 days, respectively, have also been introduced, according to Clyde & Co.

Scope of work protection

The new law also protects employees from being coerced to accept additional or undesired responsibilities that are not agreed to in the employment contract. It also outlines the duration of the non-compete clause as to not exceed two years, which is likely to contribute to a more competitive workforce.

The new Labour Law is an important step to protect both the employers’ and the employees’ rights and to bring more flexibility into the workplace which is likely to result in increased market efficiency. It also compels businesses to repair and adjust any existing gender pay gaps.