DIFC Employment Law – Proposed amendments 2021

A public consultation process is currently underway in relation to various proposed amendments to the DIFC Employment Law (DIFC Law No. 2 of 2019, as amended) (the “Law”) and the associated Employment Regulations (dated 1 February 2020) (the “Regulations”). The DIFC Authority is welcoming feedback on the proposed legislative amendments until 28 March 2021. Defined terms used below have the meanings given to them under the Law and/or the Regulations.

This client alert provides a high level summary of a number of the more significant proposed amendments.

What is the primary focus of the proposed amendments?

The proposed amendments seek to refine the Qualifying Scheme savings regime, introduced in February 2020, under which the DIFC Authority introduced the default DIFC Employee Workplace Savings Plan (“DEWS Plan”). The DEWS Plan was authorised and licensed by the DFSA. However, the DIFC Authority and DFSA encountered difficulties in assessing applications from other Qualifying Schemes operated by foreign service providers. These issues were also highlighted in the proposed changes to the DFSA Rules contained in the DFSA’s Consultation Paper No. 137.

The proposed amendments will require that Qualifying Schemes (including the applicable trustee and administrator) are established in the DIFC and regulated by the DFSA.  Provision for an exemption may only being granted where:

1. the employer is under a clear statutory duty in another country to make pension, retirement, saving, gratuity or any substantially similar contributions into a scheme in respect of the employee(s) in question; or
2. the employer is making payments into a group scheme with the prior written consent of the employee(s) concerned and where the value of such payments are in excess of the Core Benefits required under the DIFC employment law (i.e. global company sponsored 401(k) plan for US employers).

DIFC employers who currently use a savings scheme which will not satisfy the proposed new requirements (there are only a limited number of DIFC employers who fall into this category) will have a 12-month grace period (from when the new legislative requirements come into effect) to transition to a different employee savings scheme going forward.

What is the impact of this amendment?

For employers who are enrolled with DEWS and are satisfied with the operation of the scheme, there will be no impact.  For employers who were considering alternative Qualifying Schemes, the proposed amendments will have an impact as any alternative scheme must either now be established in the DIFC (rather than be established in other offshore jurisdictions such as Jersey, Isle of Man etc) or meet one of the two exceptions set out above. Essentially, there will no longer be scope for commercially run foreign schemes under the new proposals.

What other changes are proposed?

The majority of the other proposed amendments are intended to remove potential ambiguity and/or address unintended consequences arising under the Law and Regulations as they are currently drafted. Some of the additional proposed changes are summarised below:

• carving out certain occupational health and safety requirements for employers in circumstances where employees are working from home;
• setting out the applicable limitation periods in respect of employment claims which are initiated during the employment (rather than on or following its termination) including in respect of unlawful deduction from wages claims;
• clarifying that an employee may carry forward more than five days of accrued annual leave to the following holiday year with their employer’s agreement;
• seeking to limit the potential abuse or misuse by employers of the “Additional Payment” wording under the Law in an attempt to unfairly reduce an employee’s Basic Wage (and therefore their savings scheme contributions/entitlements from their employer) for example by erroneously referring to regular employee payments as being non-recurring, or by expressly agreeing that certain payments should not form part of the employee’s Wage when they ultimately should be;
• clarifying that multiple successive fixed term contracts and periods of Secondment will be treated in aggregate when determining an employee’s overall period of employment (which in turn impacts the employee’s Core Benefits and Gratuity Payment calculations); and
• clarifying that monthly savings scheme contributions are not required in respect of any drawings, profit distributions or dividends which are received by Equity Partners from either their DIFC employer or its affiliates (rather than only the DIFC entity).

The full consultation paper and associated documentation can be accessed via the link provided.  If you would like any further information regarding the proposed legislative amendments, or if you have any comments which you would like us to incorporate when we submit our feedback to the DIFC Authority in connection with the public consultation process, please do not hesitate to contact us, whether in writing or via a call to discuss.