UAE issues labour reforms as Saudi Arabia makes play for business hub crown
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Dubai Palm Jumeirah island, United Arab Emirates
John van der Luit-Drummond, Editor

Amid increased regional competition, the UAE is banking on pro-employee labour reforms to maintain its position as the dominant business hub in the Middle East.

In an attempt to lure foreign investment away from the UAE, and thereby reduce its own economic dependence on oil, Saudi Arabia announced in February that multinationals across a range of industries had until the end of 2023 to set up their regional headquarters in Riyadh or risk losing out on lucrative government contracts.

In the months since, Saudi Arabia has granted licences to 44 multinationals – including Deloitte, Samsung, and Unilever – to set up shop in the nation’s capital, as Crown Prince Mohammed bin Salman looks to transform his kingdom into an international business hub.

While officials have played down the suggestion of competition between two members of the Gulf Cooperation Council, the UAE’s recently announced labour reforms for the private sector will be seen as its way to minimise a loss of international investment to a close neighbour.

Announcing the reforms on 15 November, Dr Abdulrahman Al Awar, minister of human resources and Emiratisation in the UAE, said the new labour law “comes in response to the rapidly changing workplace amid technological advancements and the outbreak of covid-19”, would ensure efficiency in the labour market, and attract and retain the best talent.

Coming into effect on 2 February 2022, Federal Law No. 33 of 2021 introduces part-time, temporary, and flexible working arrangements to the Gulf state’s labour law. However, according to Rebecca Ford, a partner in Clyde & Co’s MENA employment group based in Dubai, the most striking aspect of the new law is that unlimited-term contracts will become obsolete.

“All employees – regardless of nationality – must be engaged on fixed-term contracts not exceeding three years, which may be renewed by mutual agreement any number of times, for similar or shorter periods,” she explains. 

“Employers will have one year from the date the new labour law comes into effect to transfer their employees from unlimited-term contracts to fixed-term contracts.” Notwithstanding the fixed-term nature of the contracts, employment may be terminated on notice, adds Ford.

“Notice periods have been revised; with the minimum notice period – following completion of probation – remaining 30 days but with a new maximum cap on notice of 90 days,” she continues. “Where notice is served by the employer, an employee is entitled to one day unpaid per week during the notice period to search for new work.”

The new law also contains several provisions setting out specific employee and employer obligations, including an obligation to have written by-laws or policies. “It appears likely that employer policies or handbooks will increasingly take centre stage in the new employment paradigm,” observes Ford.

Progressive policies

While the UAE’s new labour law still requires workers be given a minimum of one day off per week, it no longer stipulates that this must be a Friday. This contrasts with Saudi Arabia law where Friday is stated to be the weekly day of rest. This change is likely to enable companies in the UAE – and, by inference, the UAE as a whole – to align themselves with much of the rest of the world.

In a further attempt to be seen as a more socially progressive and inclusive jurisdiction, the labour reforms aim to protect and empower female employees.

For the first time, UAE law forbids sexual harassment, bullying, or any form of verbal, physical, or psychological violence within the workplace. Employees subject to these forms of harassment may terminate their employment without notice with employers liable to fines, explains Ford.

Protection from discrimination has also been enhanced, with the law prohibiting discrimination based on race, colour, sex, religion, national or social origin, or disability. 

The law also grants women the right to the same wage as men if they are doing the same work or work of equal value, and extends maternity leave to 60 days, including 15 days at half wage.

Mothers may receive an additional 45 days unpaid leave should their newborn child fall ill. An additional 30 days paid leave is available for mothers whose children have special care needs, renewable for a further 30 days unpaid. Employers must also provide five days’ paid paternity leave.

“Pregnant women and those on maternity leave maintain the same rights and employers may not discriminate against them or threaten to terminate their employment for reason of being pregnant or on maternity leave,” says Ford, who adds that the new anti-discrimination rules do not apply to Emiratisation policies.

Bereavement and study leave entitlements have also been introduced.

Restrictive covenants

Unlike the UAE’s 1980 legislation, the latest reforms provide some much-needed clarity on the validity of non-compete clauses in employment contracts.

“Previously, restrictive covenants needed to be ‘reasonable’ in scope and thus a ‘reasonable’ period of the restriction was generally quite short,” explains Ford.

“Under the new law, non-compete clauses may apply for up to two years, but will still need to specify the duration of the restriction, the restricted type of work and the geographical limits. 

“In addition, these are stated to be applicable either where the employee seeks to compete with the employer or seeks to join a competing project in the same sector. Notably, an employer who violates the new law on terminating employment will not be able to enforce its non-compete covenants, for example by not giving proper notice.”

The reforms recognise several new reasons for termination of employment, including permanent closure of the employing establishment; the employer’s bankruptcy, insolvency, or inability to continue the business for any economical or extraordinary reasons; or the worker being unable to renew their work permit for reasons beyond the employer’s control.

As under the old legislation, employees’ end-of-service gratuity payments remain a key feature of UAE law, but have been given greater protection and importance, says Ford. 

As she explains, there is no reduction of gratuity due to an employee’s resignation, and even where an employee may be dismissed without notice for cause, the employee remains entitled to receive their accrued gratuity. In addition, the gratuity calculation is now based on working days rather than calendar days. 

“Further changes in this area may be introduced in the future; the provisions in the old law regarding the possible replacement of the gratuity with a pension scheme or savings scheme have not been carried into the new law, although it provides that the cabinet may approve schemes as alternatives to gratuity,” Ford adds.

The new law no longer contains specific compensation entitlements for arbitrary dismissal or early termination compensation. However, an employee is entitled to compensation where the termination is considered to be “unlawful”, where a serious complaint is submitted to the Ministry of Human Resources & Emiratisation, or a claim is filed and proven to be valid. 

“In such circumstances, the competent court will determine the compensation due, which remains capped at three months’ remuneration – as is the case for the compensation payments under the old law – to be determined with reference to the type of work, volume of damage sustained, and the term of service of the employee,” says Ford. “This compensation is in addition to any notice and gratuity payments due to the employee.”

Human rights

Despite being touted as the biggest update to the UAE’s labour relations, the reforms fail to meet international standards for workers’ rights, according to the International Trade Union Confederation (ITUC).

“The UAE could learn from the experiences of its neighbours like Qatar, where a modern industrial relations system has been developed that dismantles the kafala system of modern slavery and gives workers a voice and the means to settle grievances through functioning labour courts that allow fair access for workers,” said Sharan Burrow, ITUC general secretary.

The kafala – or sponsorship – system is often criticised as being a form of modern slavery where employers can confiscate migrant workers’ passports, stranding them in the UAE, or force them to leave the country at the end of an employment contract.

Under the UAE reforms, the fees and costs of recruitment are the responsibility of the employer and must not be collected from the worker either directly or indirectly. The law also prohibits the withholding of employees’ passports and forcing workers to leave the country at the end of an employment contract. However, these prohibitions do not apply to domestic workers.

The ITUC is calling on the UAE government to bring a complete end to its kafala system; introduce a non-discriminatory minimum wage; abolish the need for employer permissions to leave the country by allowing workers to deal directly with the government in cancelling their residence visas; include domestic workers in the labour law; and establish a functioning labour court with grievance procedures.

“Without social dialogue, the UAE is not serious about reform. These laws do nothing to end recruitment fees, debt bondage, and non-payment of wages, which have been normalised in the UAE and enslave workers. Domestic workers are excluded from the labour law, in contravention of international standards. Labour courts which don’t enforce or resolve cases leave workers unable to seek justice or remedy,” added Burrow.

Although Saudi Arabia has moved to reform its widely criticised kafala system, human rights abuses linked to the kingdom – the 2018 murder of Saudi journalist Jamal Khashoggi in Istanbul, in particular – may still be a concern for some global employers. Whether these concerns and the UAE’s reforms will be enough to persuade multinational to maintain their current regional headquarters remains to be seen.