Middle East - Proposed Changes to the DIFC Employment Law

This article first appeared in the April edition of The Oath– April 2018

Consultation paper

The DIFC Authority has published a draft of the new DIFC Employment Law (proposed DIFC Law No. 6 of 2018) (the “New Law”) for public consultation for a period of one month. The New Law is intended to replace Law No. 4 of 2005, as amended by Law No.3 of 2012 (the “Existing Law”). The Existing Law shall remain in full force and effect until further notice. 

Process and purpose

The initial aim of the DIFC Authority was to bring the DIFC Employment Law more in line with the UAE Labour Law, and to reduce the gulf between them. The New Law attempts to balance the needs of employers and employees in the DIFC with strict emphasis being placed on providing a framework of minimum employment standards and fair treatment. The aim is to foster employment practices that will contribute to the prosperity of the DIFC.

The DIFC Authority has acknowledged that the Existing Law needs to change and that such changes impact each and every employee within the DIFC. To that end, the proposed amendments have gone through several iterations during the course of 2017 culminating in the launch of the Consultation Paper. Given the interest in this piece of legislation and the potential for further proposed changes, I would anticipate the law coming in to force later this year. 

There were a number of proposed changes put forward to the DIFC Authority to consider including the introduction of an unfair dismissal provision similar to the UK; however, this was viewed as quite a draconian measure and was rejected. Similarly, there have been discussions around the introduction of the Wage Protection Scheme (WPS) in the DIFC however this has been parked for the time being.

Key changes

There have been a number of changes to the Existing Law:

Application

• Will apply to short-term and part-time employees.
• Will also apply to those who candemonstrate a “close connection” to the DIFC jurisdiction subject to the Court’s determination.
• Secondments will be permitted under the New Law.

Probation

There is no stipulation within the New Law as to what the length of probation should be. However, if a probationary period is agreed between the employer and employee, then this must form part of the employment contract. Also, minimum notice periods will not apply during the probation period.

Employee Duties

The New Law sets out guidance on an employee’s duty to their employer, which shall include the following: 

• Serving the employer faithfully;
• Complying with reasonable instructions from the employer;
• Exercising reasonable skill and care in the performance of their duties; and
• Non-disclosure of the employer’s confidential information.

Penalties

Article 18 of the Existing Law caused a number of issues on payments at termination and was the key driver behind the development of the Existing Law. Its application has seen harsh consequences for employers within the DIFC.  For example, where an employer unintentionally miscalculates a payment due on termination, this could trigger the penalty clause under the Existing Law – the consequences could be devastating and in some instances have led to restructuring of businesses and closure of operations. 

The Existing Law provides that where an employer fails to pay wages and any other amount owing within 14 days of the termination of an employee’s employment, a penalty payment shall become payable. Such a penalty would be equivalent to the employee’s daily wage whilst the amount remains unpaid and there is no cap on the maximum liability of the penalties to be applied. 

The New Law, creates certainty on how penalties are to be applied for late payment of any remuneration and/or end of service gratuity. 

The key changes to Article 18 are as follows:

• Only triggered if the outstanding amounts exceed 5 per cent of the total amount due to the employee upon termination;
• Capped at 6 months’ wages;
• Penalty may be reduced or waived by a Court if deemed unreasonable in circumstances where:
• There is an ongoing dispute with the Courts; or
• It can be proven that the employee is the cause for the delay in payment.

As such, the provision under Article 18 shall now operate within certain boundaries with the intention to curb any irrational penalties being applied and any unscrupulous claims being made.

Family Friendly Rights and Benefits

• Male DIFC employees (subject to the length of service) will be able to take 5 days of paternity leave; and 
• Male employees will have the right to time off work to enable them to attend antenatal appointments.

Sick Pay

The Existing Law provided for 60 days statutory sick pay; however, under the New Law, the entitlements to be awarded have been reduced as follows:

• First 10 working days – 100 per cent payment of the employee’s daily wage;
• Next 20 days – 50 per cent of the employee’s daily wage; and
• Remaining 30 days – zero payment.

Discrimination

This section of the Existing Law has undergone a significant overhaul.

The key changes are :

• Age and pregnancy have been added as new protected characteristics;
• Employees can request information from the employer to determine and support whether they have been subject to or a victim of discriminatory practices. In the event the employer fails to comply with such a request, the employee can approach the DIFC Courts and seek an order to compel the employer to provide the information.
• Any claim for discrimination must be initiated within 6 months from the date of the act.
• In the event that there are several acts, which have taken place concurrently, the 6 months’ period will start from the end of the period during which the acts occurred.
• The New Law gives the Courts power to propose or make a declaration or recommendation to the employer about its conduct and the necessary actions it should take to avoid a reoccurrence of this behaviour. Alternatively, the Court can award an amount equal to the employee’s annual wages as compensation.
• If the employer fails to comply with any recommendations set by the Court, the Court has the ability to award compensation to the employee, which would be the equivalent of two times the employee’s annual wage.

Dismissal

The New Law seeks to introduce the concept of constructive dismissal. A Court will have the discretion to award an employee up to 1 year’s salary, which shall include allowances but exclude commissions, bonuses and any other payments, which are discretionary, do not to form part of the employment contract and/or those that are non-recurring.

Payment in Lieu of Notice

The New Law permits an employer to make a payment in lieu of a notice period; however, if this amount is paid, the employer will have the opportunity to require the employee not to work for any third party for the duration of that notice period.

End of Service Gratuity (“EOSG”)

There has been extensive discussion surrounding the future of end of service benefits and whether as the DIFC matures as a jurisdiction, we start to move towards the introduction of a pensions law. Whilst a Working Pensions Group has been set up to look into the abolishment of the end of service gratuity provision, and to replace this with a more conventional pension arrangement, for the purposes of the New Law, there are some key changes, which will affect the way in which EOSG works and how and when it will be paid:

• EOSG will be payable to an employee and cannot be forfeited even if they have been dismissed under Article 59A therefore protecting such amounts – they may also be waived (subject to agreement) and exchanged for contributions to be made to alternative savings schemes upon retirement; and
• When calculating EOSG, it will be based on an employee’s basic salary, which shall not be less than 50 per cent of the employee’s salary inclusive of allowances but to exclude commissions, bonuses, or any other payments, which are discretionary, do not form part of the employment contract and/or those that are non-recurring.

Settlement Agreements

• An employee can waive his or her rights under the New Law to resolve a dispute by entering into a settlement agreement.
• The courts have the ability to set aside a settlement agreement where it is found to be unreasonable unless the employee sought independent legal advice prior to signing the agreement.

Vicarious Liability

The New Law attempts to clarify the liability of employers based on the conduct of its employees. As such, the New Law sets out the following test to determine whether or not the employer is liable for the acts of its employees:

• The employee’s act was sufficiently connected with what he or she was authorized or expected to do; and/or
• The employer did not take preventative measures to stop the employee from carrying out such an act.

Whistleblowing

 A person who makes a disclosure of information in good faith and in accordance with the DIFC Companies Law shall be protected from: 

• Civil or contractual liability for making the disclosure; and
• Being dismissed or subject to any action, which is reasonably likely to cause detriment to that individual. 

Any breach of these provisions could result in a fine of up to USD30,000.

Fines for Contraventions

One of the key issues with the Existing Law was the inability to apply any fines and/or penalties for contraventions by the employer.  This has now changed and the DIFC Authority (under the New Law) has the ability to impose sanctions for breaches of the New Law. A separate Schedule 3 has been incorporated into the New Law, which sets out these penalties. For example, penalties can now be applied in the event the employer does not pay salary within 7 days from the pay period, which would attract a fine of USD2,000. Similarly, if an employer fails to provide health insurance to its employee, they would be subject to a USD2,000 fine. These amounts are payable to the DIFC Authority.

Immigration

The New Law has now clarified the position on visas and permits. An employer is responsible to obtain and maintain (at their own cost) the requisite sponsorship documentation. An employer is not permitted to recoup any costs and expenses incurred from the employee in relation to visa and permits. In addition, an employer is not permitted to retain the passport of an employee. Visas must also be cancelled by no later than 30 days from the termination date.

Next steps and further consideration

The New Law refers to a set of Employment Regulations, which will be a secondary layer of legislation and should be read in conjunction with the New Law. These have been drafted and are undergoing some review before being released. At present however, there is no indication nor is there a definitive date as to when these Regulations shall be released.

If you would like to provide feedback on the New Law, you can either do so directly to the DIFC Authority (consultation@difc.ae) in the prescribed form. Alternatively, we would be happy to receive your feedback and share this in our collective response to the DIFC Authority. 

If you are concerned about how the New Law will impact your business/organization and want to learn more about the new proposed changes and what you should be doing now in readiness for the New Law, please feel free to get in touch.