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Welcome to the latest edition of Law Update titled “Rise of Generative AI.”
In this edition, we dive into the dynamic world of Technology, Media, and Telecommunications (TMT) across the Middle East and North Africa (MENA) region. TMT continues to play a vital role in positioning the region as an international business and social hub, driving significant growth and innovation.
Our focus in this Law Update is on the sector’s ongoing potential to advance and propel the region toward a more digital economy. We explore the benefits of embracing a digital transformation and how local authorities have responded by enhancing regulations to accommodate the evolving TMT landscape.
This edition covers a range of topics, including – the new Telecommunications & Information Technology Law in Saudi Arabia, the intricacies of trademarks in the Metaverse, and the legal challenges faced by the video game industry. Additionally, we take a regional perspective, discussing jurisdictions such as Kuwait, Saudi Arabia, UAE, Oman, and Bahrain to provide a comprehensive understanding of the TMT landscape.
We hope you thoroughly enjoy this packed issue of Law Update, filled with captivating articles that address key legal issues within a vital sector for the region.Read the full edition
Anna Marshall - Senior Associate - Employment and Incentives
Following a number of recent legislative developments, end of service gratuity (‘ESG’) was replaced with a new DIFC employee workplace savings scheme with effect from 1 February 2020.
The legislative changes have now been finalised and enacted by way of the Employment Law Amendment Law (DIFC Law No. 4 of 2020) which amends certain provisions of DIFC Law No. 2 of 2019, as amended (the ‘DIFC Employment Law’). The DIFC has also introduced new Employment Regulations which set out additional details in relation to the new savings scheme requirements.
Previously, employees in the DIFC, with at least one year of employment, have been entitled to ESG. ESG accrued at the rate of 21 calendar days’ basic salary for each of an employee’s first five years of service, and at the higher rate of 30 calendar days’ basic salary for each additional year of employment. An employee’s accrued ESG entitlement is then payable to them as one lump sum when their employment terminates.
The new DIFC employee workplace savings scheme is more akin to pension arrangements which are typically found in the UK and elsewhere globally. In particular, DIFC employers are now required to pay a monthly contribution into a third-party savings scheme for each employee (subject to certain exceptions which are discussed further below).
The minimum contributions which DIFC employers are now required to pay into each eligible employee’s savings fund are as follows:
Unless a statutory exemption applies (as discussed further below), any agreement between a DIFC company and an employee to circumvent the company’s payment of the above minimum contributions into a savings scheme for the employee would be null and void.
Employees themselves are not legally required to make any contributions into their own savings scheme however, they are able to do so on a voluntary basis.
The new requirements are intended to provide security for employees’ end of service benefits, as the benefits which an employee accrues during their employment will now be professionally managed and invested by a third party (with the savings scheme being underpinned by a fiduciary trust arrangement). This is in line with international best practice and the DIFC’s aspirations to be a leading international financial centre.
The new requirements will also provide an opportunity for an employee’s accrued benefits to increase in value over time. As the contributions made to each employee’s savings scheme will be invested in funds it will therefore have the opportunity to grow in value during the period of employment.
Following a competitive tender process last year, the DIFC Authority has established a framework savings scheme which will be administered by Zurich and have asset management oversight from Mercer (the ‘DEWS Plan’). The DEWS Plan will have fiduciary backing by DIFC-licensed trustee, Equiom.
Alternatively, if a DIFC employer does not wish to enrol its employees in the DEWS Plan, the employer can apply to the DIFC Authority for a ‘Certificate of Compliance’ for a different savings scheme. In order to obtain a Certificate of Compliance, the savings scheme will need to satisfy the requirements set out in the new Employment Regulations (enacted in January 2020) which accompany the DIFC Employment Law.
As the new savings scheme requirements were effective from 1 February 2020, any ESG which an employee has accrued up to and including 31 January 2020 will not be affected. This amount can either be paid directly to the employee when their employment terminates, or alternatively it can be paid into the employee’s savings fund by their employer. While the latter can be done without the employee’s consent, the employer’s potential financial liability will be lower if the employee’s prior written consent is obtained. Otherwise, the company will be required to make up any shortfall between:
On termination of their employment with their DIFC employer, the employee can choose whether to receive a pay-out of the accrued benefits from their savings scheme or alternatively, leave the relevant amount in their savings scheme for continued investment. This choice can be made by each employee on an individual basis.
If the employee had accrued ESG prior to the new savings scheme requirements that came into effect on 1 February 2020, and unless their employer had paid their accrued ESG into their savings scheme during their employment, then the employee would also be entitled to their accrued ESG within 14 days of their employment terminating.
Yes, there are certain exemptions from the new DIFC savings scheme requirements, in particular:
The following employees are also exempt from the new DIFC savings scheme requirements:
At the outset DIFC employers need to decide whether to adopt the DEWS Plan or alternatively seek a Certificate of Compliance from the DIFC Authority to enrol their employees in a different savings scheme. DIFC employers have until 31 March 2020 to obtain a Certificate of Compliance from the DIFC Authority if they wish to use a different scheme, otherwise they will be required to enrol their employees in the DEWS Plan.
While there is a grace period (until 31 March 2020) for DIFC employers to make the necessary administrative arrangements to enrol all eligible employees in an appropriate savings scheme, the mandatory employer contributions will need to be backdated to 1 February 2020.
If a DIFC company fails to adhere to the new savings scheme requirements, it could be subject to a fine of USD 2,000 per contravention.
In addition to making the necessary administrative arrangements, DIFC companies should take this opportunity to review their employment contracts, HR policies and employee handbooks to ensure they are up to date and compliant with the new legislative requirements. It may also be helpful for companies to arrange employee meetings and/or circulate internal communications to help explain the changes to employees.
Al Tamimi & Company’s Employment & Incentives team regularly advises on all aspects of the employment relationship. For further information please contact Anna Marshall (email@example.com) or Gordon Barr (firstname.lastname@example.org).
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