New DIFC Employment Law coming into force on 28 August 2019
The Dubai International Financial Centre Authority (“DIFCA”) has introduced a new DIFC Employment Law (DIFC Law No. 2 of 2019) (the “New Law”) which will replace the current DIFC Employment Law (Law No. 4 of 2005, as amended by Law No. 3 of 2012) (the “Current Law”) in its entirety. The New Law will be effective from 28 August 2019 (DIFC Employment Law No.2 of 2019).
The New Law sets out several key changes, a number of which we summarize below (in no specific order of importance):
Current Law: In the absence of any statutory provisions in relation to part-time employees, such workers have had the same statutory benefits and leave entitlements as full time employees.
New Law: Part-time employees are specifically recognised and will be entitled to vacation leave, maternity/paternity leave and sick leave entitlements on a pro-rated basis.
Parental leave – Paternity and adoption
Current Law: No provisions for paternity leave. Female employees who adopted a child have only been entitled to statutory maternity leave if the child was less than 3 months old at the time of adoption.
New Law: Five working days of paid paternity leave, as well as paid time off to attend antenatal appointments or adoption proceedings. Female employees who are adopting a child will be entitled to statutory maternity leave if the child is less than five years old at the time of adoption.
Sick leave payments
Current Law: Employees have been entitled to 60 working days of sick leave with full pay per year of service.
New Law: Sick leave remains at 60 working days per year but only the first 10 days will be at full pay. The next 20 working days will be at half pay, with the remaining 30 working days to be unpaid.
Current Law: Protected characteristics for discrimination include sex, marital status, race, nationality, religion and mental or physical disability. No provision for any remedy.
New Law: There have been a number of amendments to the discrimination provisions. Pregnancy, maternity and age are added to the above list of protected characteristics.
The New Law also introduces a prohibition against victimisation, meaning where an employer subjects an employee to detriment or dismisses them due to a “protected act”. Such acts include where the employee files a discrimination claim against their employer, alleges that their employer has engaged in discriminatory conduct, or gives evidence or information in connection with a discrimination claim (unless the allegation or provision of evidence/information was false and made in bad faith).
Importantly, in the event of a finding of discrimination and/or victimisation, the New Law provides for the following new remedies: (i) compensation of up to one year’s wage (being salary and allowances) which can include an award in respect of injury to feelings; (ii) the court can make a declaration, and/or (iii) the court can make a recommendation for the employer to take certain steps to reduce the adverse effect on the successful claimant. Furthermore, if the employer unreasonably fails to comply with any recommendation made by the court, the court will have discretion to increase the amount of monetary compensation awarded to two years’ wage.
Current Law: No limitation period is specified.
New Law: A six month limitation period for claims will be introduced which commences on the relevant employee’s termination date save in discrimination cases where the limitation period commences upon the later of when the New Law is effective (28 August 2019) and the date of the act/omission in respect of which the claim relates.
Penalty for overdue payments
Current Law: Employers have been required to pay all termination payments and other sums owed to an employee within 14 days of the termination of employment. If an employer fails to pay within 14 days, the employer could be required to pay the employee a penalty of the last daily wage for each day delayed. This penalty has proven to be onerous for DIFC employers and a source of much contention.
New Law: Employers will be required to pay all outstanding remuneration (excluding deferred bonuses, grants or commissions), end of service gratuity and accrued annual leave within 14 days of the termination of employment, and a penalty of a day’s wage still applies for each day the employer is in arrears save that that the penalty:
- will only apply if the overdue amount exceeds the employee’s weekly wage; and
- will be waived in respect of any period during which (a) there is a pending court dispute between the employer and employee regarding the amount owed; or (b) the employee’s unreasonable conduct is the material cause of the employee failing to receive the overdue amount.
End of service gratuity – Termination for cause
Current Law: Where an employer terminates an employee for “cause” (typically gross misconduct or negligence), they have not been required to pay gratuity.
New Law: Mandates that employers pay gratuity even in circumstances where the termination is with “cause”.
Sponsorship costs and retaining employee passports
Current Law: No reference to passing on visa sponsorship costs to the employee and does not specify the position with regard to an employer holding an employee’s passport.
New Law: Clarifies that employers are prohibited from passing on the sponsorship costs to employees. It further states that employers are prohibited from retaining an employee’s original passport or other original personal documents.
Gratuity Calculation: Split between basic salary and allowances
Current Law: No minimum percentage for split of basic salary and allowances.
New Law: For the purposes of the end of service gratuity calculation, basic salary will need to comprise at least 50% of the employee’s total wage (which includes allowances but excludes bonuses, grants and commissions).
Compliance – Fines and inspections
Current Law: Specifies a number of basic requirements for employers to adhere to but does not specify any corresponding fines.
New Law: Introduces fines and penalties to ensure adherence to basic employment and immigration requirements including in circumstances where the employee’s residency visa is not cancelled within 30 days of the termination date. The fines range from USD 2,000 – 10,000 (per occurrence) depending on the violation. It further allows for the DIFCA Board of Directors to expand the fines and penalties regime, impose additional fines and appoint inspectors (similar to the onshore Ministry of Human Resources and Emiratisation inspectors) to ensure compliance.
Minimum notice periods
Current Law: Provides for minimum notice periods (depending on the employee’s period of service) but specifically allows an employer and employee to agree on a longer or shorter notice period.
New Law: Provides for the same minimum notice periods but only allows the parties to agree to a longer (but not shorter) notice period.
Secondments in the DIFC
Current Law: Does not specifically provide for employee secondments.
New Law: Specifically provides for an individual employed by a third party (whether inside or outside of the UAE) to be seconded to a DIFC company pursuant to a secondment card issued by the DIFCA for up to 12 months (or for such longer period as the DIFCA may approve). In such cases, the individual’s employment can continued to be governed by a law other than the New Law.
Use of settlement agreements
Current Law: Employees are not allowed to waive their minimum rights. This has proven problematic for employers and employees settling disputes.
New Law: Provides that an employee may enter into a written agreement with the employer to terminate the employment or settle a dispute with such an agreement including a waiver of the employee’s rights, remedies, obligations or claims. This provision is subject to (i) the employee providing a warrant in the agreement that they had the opportunity to obtain independent legal advice regarding the settlement agreement; or (ii) the employer and employee taking part in mediation proceedings at the DIFC Courts prior to entering into the settlement agreement.
Employer’s vicarious liability
Current Law: Employers can be vicariously liable for any act of an employee done in the course of employment, except where the employer took reasonable steps to prevent the employee from doing that act.
New Law: Specifies that employers can only be held liable for claims for loss, damages or compensation for any act, attempted act or omission on the part of an employee if the claim is sufficiently connected with the employee’s employment that it would be fair and just to hold the employer vicariously liable.
Additionally, in the case of discrimination or victimisation, the employer may be liable if unable to demonstrate that reasonable steps were taken to prevent the employee from carrying out that act, attempted act or omission.
The New Law also includes additional changes, including but not limited to:
- the minimum age for an employee will increase from 15 to 16 years of age;
- the mandatory retention period for employee records will increase from two to six years; and
- employees will only be permitted to carry over five (rather than 20) days’ accrued vacation to the following year.
It is important for all DIFC employers to review their employment contracts, employee handbooks and any other employment policies and procedures to ensure consistency with the New Law. We look forward to working with you to ensure that you are fully compliant as at the go-live date on 28 August. Please let us know whether you wish to set up a call or meeting to further discuss.