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DIFC Employment Law Update – Presidential Directive on COVID-19

The recent DIFC Directive (No.4 of 2020) is intended to be in force until 31 July 2020 and is subject to extension (the “Emergency Period”). The DIFC Directive supersedes all other DIFC regulations during this Emergency Period.

We summarise the key measures and provisions below.

Flexibility Provisions

Heretofore, under the current DIFC Employment Law, employee consent is required for employers to impose various measures, such as reduced working hours, reduced salaries and forced unpaid leave. However, the new DIFC Directive permits employers to impose any of the following six measures with five (5) days’ written notice and without employee consent:

  1. reduced working hours;
  2. forced annual leave (this was permitted without consent, in any event);
  3. forced unpaid leave;
  4. reduced salary on a temporary basis;
  5. restricted workplace access; and
  6. remote working conditions.

These Emergency Measures are similar to those introduced by the UAE Government on 26 March 2020 by Ministerial Decision No.279/2020 (see our article here). Under Ministerial Decision No.279/2020, employers must have suffered actual losses or expect losses to be incurred before imposing measures on employees. This is not the case under the DIFC Directive. No threshold is required.

Sick Leave Provisions

  • Any sick leave taken as a consequence of having contracted COVID-19 or for being placed in quarantine by a competent UAE authority will not be counted towards an employee’s statutory sick leave entitlement (refer to our article on DIFC Employment Law here);
  • Employees will also be entitled to full pay during any COVID-19 sick leave period provided the employee can provide a sick leave certificate issued by a competent UAE authority. The DIFC Directive also confirms that an employer cannot impose any of the abovementioned emergency measures on employees during their COVID-19-related sick period.

Visa Permits

  • Employers may defer the cancellation of the residency visas and/or sponsorship of terminated employees during the Emergency Period, provided the employer continues to provide basic medical insurance to the terminated employees;
  • If an employer in the retail, service or hospitality sector provides accommodation to an employee, the provision of this accommodation must continue until the visa is cancelled.

DIFC Available Employee Database

  • Similar to the Virtual Labour Market introduced by the UAE Government (view our article on Virtual Labour Market here), all DIFC employers must maintain a list of employees during the Emergency Period. The list will include all employees that have been terminated since 1 March 2020 and any other employees that are surplus to its current needs. DIFC employers wishing to employ new employees may search the DIFC database for suitable candidates.

Contact Us

We are currently assisting clients across the UAE concerning business contingency plans and are advising both employers and employees on all employment-related aspects of COVID-19.

Should you require any assistance in navigating employment issues during the current crisis, please contact us at covidqa@adglegal.com.

Investment Opportunities in Sudan

Since independence in 1956, the Republic of Sudan has not enjoyed the opportunity to benefit from its enormous resources and rich treasures due to constant civil wars and conflicts. However, since the recent ceasefire, the situation is, at last, heading towards permanent stability. Firm foundations are now being built to stabilize the country, achieving peace and justice and consequently encouraging investors to look to Sudan for opportunities. So what does Sudan have to offer?

In addition to the known opportunities involving oil and gas, there are dozens of agricultural opportunities in crops such as cotton, peanuts and grains like corn, wheat and sesame, in addition to many fruits and vegetables. Most of these crops are grown for export abroad.

Sudan is also one of the largest producers of Arabic gum and is rich in natural and planted forests, from which wood can be used in building products or manufacturing.

Investment is being encouraged in agricultural projects, with the government having marked over 2 million acres of land for investors. Further opportunities for investment lie in livestock, being one of the biggest meat exporters worldwide.

Turning to mining, the country has yielded nearly 250 tons of gold in the past year and there remains significant virgin land available for expansion. This is to say nothing of other metals, where many prospects remain.

The establishment of modern hospitals provide further opportunity, with medical aid companies taking further advantage of the Investment Law to introduce equipment without customs or taxes, as well as profiting from contracting with medical insurance companies and other agencies in Sudan.

It is also hoped that tourism may flourish in the coming years, with over 400 km of land along the Nile available for the development of luxury hotels and restaurants, museums and the potential for sports tourism by way of golf courses. This is in addition to the many historic sites which could support further tourists – such as the pyramids of Meroe.

The scope for expansion and investment are many, but what are the requirements of investors and are there any advantages and guarantees given to potential investors in Sudan?

Investors are obliged to implement their project within a two years of the issue date of their license, with requirements that they notify the authority of any amendments that occur during the implementation stages and the submission of bi-annual reports.

In return, the authority may approve an investment project with guarantees such as tax and fee exemptions. Investments projects are protected so that confiscations and the seizure, freezing or confiscating of funds is not permissible without a court order, and compensation and recovery of invested funds, machinery, equipment are available for projects that are not implemented.

Importantly, guarantees granted by the administrative bodies cannot legally be withheld. Indeed, the authority may grant additional advantages.

In addition to exemption from fees and customs duties, the minister at the national level may recommend opportunities, such as lands allocated by the various authorities, and numerous accounting and tax benefits.

Further advantages may be granted to those projects deemed to be of greatest benefit to Sudan, such as those directed to less developed areas, helping to achieve integrated rural development and providing work opportunities for local communities.

Projects providing social services contributing to the advancement of the region are also encouraged, as are those that boost charitable endowment or renew natural resources. Any project seeking to reinvest a projects’ profits, or that assists in the states export capabilities may be further encouraged through the offering of additional benefits.

If you are interested in learning more about investment opportunities in Sudan or would like assistance in pursuing an opportunity, please contact your relationship manager or email Najla Obeid at nfh@adglegal.com

Amendments to the Bankruptcy Laws in the UAE

Following the 2008 global financial crisis, the UAE has worked diligently to further regulate and support companies in financial difficulties. After a long period of anticipation, the UAE Bankruptcy Law (Federal Law Number 9 of 2016) came into effect on 29 December 2016 (the “Bankruptcy Law”). This legislation has overhauled how the law deals with businesses with debt burdens that they cannot pay. It has mapped out a process for the restructuring of debt owed to creditors, as well as drawing a line between the rights and duties of each party involved in the bankruptcy process.

Following a successful pilot phase of the legislation in action, the Bankruptcy Law has been amended to further refine the process and also expand the scope of application, culminating in Federal Decree-Law No. (23) of 2019 Amending Certain Provisions of the Federal Decree-Law No. (9) of 2016 on Bankruptcy, issued 5th September 2019 and which came into force in January 2020. The Bankruptcy Law applies to all companies established under the UAE Company Commercial Law, including most free zones except for the DIFC and ADGM.

We will review the most prominent and important amendments, as well as their effects for the parties involved in the application of the Bankruptcy Law:

  1. What we deem the most noteworthy update is Article (4) Paragraph (1) allowing any regulated company to apply to the Financial Restructuring Committee (FRC) to facilitate amicable agreements between the debtor and its creditors, with the assistance of one or more experts appointed by the Committee for this purpose, following the procedures stipulated in the Cabinet’s Resolution. Previously only financial institutions licensed in the UAE that were facing current or projected financial difficulties could apply to the FRC. This amendment now caters for a wider scope of the FRC’s remit and the applicability of the legislation to a broader range of business entities.
  2.  The revision to Article (24) now imposes on trustees the duty to prepare an inventory of the debtor’s known creditors for submission to the Court. The inventory shall additionally include a ‘determination of the creditors, holders of preferential rights and the nature of such rights.’ This is to establish the grading of creditors’ dues as early as possible and determine which creditors have a greater preference.
  3. The revision of Article (29) allows the Court to appoint one or more controllers from among the creditors who request such appointment, to supervise the implementation of the protective composition procedure. Where there are candidate creditors of ordinary debts, debts secured by a mortgage, or privileged creditors, at least one controller must be appointed for each group. This amendment ensures that creditors can monitor and observe the process applied by the law and ensure that the process is secure and transparent. Also, Article (43) Paragraph (1) stresses a comparable idea as it states that “upon the suggestion of a group of creditors or by the Court’s accord after consulting the trustee, the court may issue a decision to establish one or more committees of creditors who represent different categories of creditors.”
  4. Amendments to Article (32) paragraph (2) states that “the creditors of the debts secured by a mortgage may exercise their foreclosure rights if their debts are due, upon approval of the court. The court shall decide whether to grant such approval within ten (10) Business days from the date a creditor files an application with the court.”
  5. Article (45) previously stated only the voting rights of ordinary creditors were of consideration while voting on the draft Protective Composition Plan; this has now been amended to include privileged creditors whose debts have been accepted.
  6. Furthermore, amendments to Article (46) Paragraph (1) and (2) now allow secured creditors to officially file as a creditor, as well as all other creditors. This amendment increases secured creditors’ options and rights in circumstances of bankruptcy. The amended law states that secured creditors have additional rights to vote on a protective composition to the extent that the money they are owed exceeds the value of the security.
  7. Article (69) now allows mortgagees to be regarded as creditors when filing, subject to the debt exceeding the value of their security, as it states that (1) the creditor or the group of creditors with a debt of not less than AED 100,000 may apply to the Court to open the procedures and (2) the creditor whose debt is secured by a mortgage shall only submit an application.
  8. Lastly, point (e) of Article (189) of the revised law now states that debtors’ professional fees incurred under the bankruptcy proceedings, are to be treated as a priority debt, including legal fees incurred as a result of the bankruptcy proceedings. This amendment was made as a consideration to the effort and time-consuming process involved in the resolution of the complicated cases of bankruptcy. Additionally, point (b) and (c) in the same article include outstanding end of service gratuity and alimony debt to also be treated as priority debts.

The amended law has also included several procedural amendments:

  1. Notices of bankruptcy may now be served electronically;
  2. Creditor Committee Meeting invitations may now be recorded and made available electronically. Previously, invitations to these meetings could only be issued via publication in two widespread local daily newspapers;
  3. Amendments to Articles (42) and (103) now allow electronic means to be used to deliberate insolvency plans and vote thereon.
  4. An amendment to Article (73) states “the debtor may specify whether the application is for the purpose of restructuring, or for the purpose of adjudicating bankruptcy and liquidation. Also, he shall mention the justifications on which the application is based.” This amendment is a useful measure to allow the debtor to establish their intentions early in the proceedings.

In a nutshell, the Bankruptcy Law has been better adapted to the current market conditions through the latest amendments, and further regulates and facilitates the process between debtors and creditors to make the business environment in the UAE more investor-friendly and transparent.

If you need any help in understanding the impact of this law on your business, please contact Dina Assar at da@adglegal.com

Restructuring in the Era of COVID-19

Keeping the Harbingers of Doom at Bay
By Roberto Cornetta

“How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. “Gradually and then suddenly.” 1

The current pandemic has meant that some companies may be going insolvent rapidly, despite the efforts of many governments to stem the tide.

In such distressed situations, stakeholders (debtors and lenders) seek to protect their position and provide a stable platform for the company. However, such a crisis also presents opportunities. Indeed, as Churchill reportedly said, “never let a good crisis go to waste”. While businesses are facing financial difficulty, it is an opportune time to consider alternative business streams, potential reorganization and new markets. Consider already the number of manufacturers who have quickly converted to producing much-needed medical supplies.

The road from financial tension to a more severe, expensive and risky crisis can be fast and slippery. Therefore, the golden rule when there is a global shortage of liquidity is to act rapidly as soon as symptoms of a crisis emerge.

Debt restructuring is just one example. As with any complex problem, the key is to conduct a robust analysis of the causes of the distress, both external and internal factors, and to identify and explore all recovery options. In fact, the analysis may well demonstrate that the effects of COVID-19 have simply exposed pre-existing fractures. Note for example that UK clothing brands Oasis and Warehouse have blamed the pandemic for going into administration, when in fact they were in trouble before it began. At the same time, the clothing chain Next has been overwhelmed with orders on reopening its online shopping facility and is seeing a recovering share price. Any plan for recovery must, therefore, take into account any underlying weaknesses and present sustainable solutions.

A comprehensive analysis should involve a consideration of factors such as:

  • Whether there is enough funding to keep operating while a solution is being developed and implemented
  • Whether to start a more aggressive program of collections
  • The most sustainable capital/debt structure
  • How to reconcile all stakeholder positions to implement the new debt/capital structure
  • How to ensure the business is supported through its recovery, e.g. with temporary cash in the form of privileged loans or third-party capital injection
  • Whether the business may take advantage of existing pre-insolvency rules
  • Negotiating with large suppliers regarding financing e.g. vendor finance, anticipated payment with discounts etc.
  • Negotiating payment terms to align with loan installments and customer payments

Additionally, while analyzing existing facility agreements with lenders and potential structuring, the following should be considered:

  • Applying for a moratorium at least until execution of the restructuring plan and the disbursement of new liquidity
  • Proposing more flexible covenants to reduce default risk, e.g. in respect of debt to equity ratios, grace periods etc
  • Exploring alternatives to shareholder guarantees, for example by channeling customer revenues directly to lenders and/or by renegotiating interest rates.

Our team have previously advised numerous public and private companies and Private Equity funds on restructuring measures, from debt restructuring to alternative capital raising, bond restructuring, separation of business units, sales of non-core businesses, and reorganization.

We work with a number of financial institutions, other lenders and borrowers, financial advisory firms, fund managers and others, in order to assist them to combat the effects on all stakeholders.

Our experience in this area includes construction, telecoms, medical and other sectors. We are able to provide strategic advice and assist with:

  • Devising action plans for the pre- and post-financial restructuring process
  • Litigation, debt recovery and enforcement strategies
  • Internal and external investigations
  • Litigation financing options

Should you require any assistance or simply wish to discuss options, please contact Roberto Cornetta at rco@adglegal.com.

Roberto Cornetta is a Partner in Al Dahbashi Grays’s Dubai office. Roberto teaches in distressed debt at LIUCC University, Milan. He has a track record of over 20 years advising companies in complex national and transnational debt restructuring. Roberto has also advised large corporations and banks on bond restructuring, securitization, de-listing and reorganization, and issues of director’s liability.

1 Ernest Hemmingway’s character, Mike Campbell in “The Sun Also Rises”

Can Cases Still be Filed in Dubai Courts During COVID-19 Restrictions?

You are all aware that the current situation with Covid 19 has caused the UAE government to impose measures to contain the outbreak. Given most of the official authorities are either working remotely or closed, people ask what the status of the courts is.

The Chief Justice decided to postpone all court hearings and pause non-urgent proceedings such as normal commercial and civil cases, however for the critical divisions such as the Public Prosecution and the Summary Courts, it is business as usual.

Many mistakenly believe that all legal actions shall be on hold until the courts return to normal working hours, consequently losing their right of litigation. We would like to confirm that the below legal actions are still active and do not require the client’s attendance before the Court.

Legal Notices

You may now proceed with any activity that needs to go through the Notary Public online, i.e. Power of Attorneys, legal notices and signing any undertakings. All you need to do is to submit all documents to the Notary Public by email, pay the fees and then a video call will be arranged with the Notary to complete the notarization process.

Payment Order Application

This type of application does not require any attendance before the Court. Once you send the legal notice as mentioned above, you can file the Payment Order application using the Court’s website and a decision shall be issued within 48 hours without any other process. No service or summons, attending in person or hearing is required.

Precautionary Attachment

If you fulfil the requirements of Article (111) of the Regulations of the Civil Procedure Code, you can draft your Statement of Claim and submit it in an online application to the Court, along with the necessary documents. A decision shall then be issued within 48 hours. Again, neither a hearing or any court attendance is required.

Enforcement

Similar to the above, you can lodge an enforcement file and follow the enforcement process, including the investigation and the attachments of your opponent’s assets, through the Court website without the need to attend personally.

We actually recommend that you proceed with your legal actions today (if they fall within the above scope) for two main reasons:

– Courts will be overwhelmed with work once the curfews are lifted and business is back to normal, and

– Costs are less, as lawyers are able to action these processes in a more time-efficient manner.

If you have any queries or require any legal assistance, please contact us on info@adglegal.com

Pressure on UAE Contractors to Re-Price Projects: Hostages to Fortune?

It has been reported that UAE contractors will have to go through the price negotiation process again, as project promoters insist on re-pricing contracts because of the changed circumstances (Gulf News: ‘UAE construction sector told to re-price projects’, 11 April 2020).

The current lockdown and coronavirus-related health and safety requirements on construction projects are certainly contributing to general anxiety over the bottom lines of contractors and developers. Among other things, there is additional time spent complying with on-site precautions, such as distancing and increased frequency of cleaning and the off-site transportation of workers. All the while, ordinary running expenses of maintaining the workforce and other mandatory expenses are still being incurred.

Employers are also increasingly nervous about the post-coronavirus world; in Dubai alone, the 2020 growth forecast (Fitch Ratings) has been revised down to -2.3%, from 3.8%, and Expo 2020 has been delayed until 2021.

While it has been suggested that employers will be looking to contractors to ‘sharpen their pencils’ and reflect the so-called ‘new reality’ post-coronavirus, there is a significant cause for concern that this is a short-sighted approach. There is good reason to argue that the current imperative to reduce prices is unsustainable in the medium term:

  • Despite the ‘double-shock’ of enormous drops in global fuel demand during the outbreak, together with excess supply, oil prices are on the road to recovery. While some analysts are of the view that the recent deal for production cuts are too little, too late for an immediate-to-short term recovery, others claim that the storm clouds for oil prices will dissipate once lockdowns are lifted. The lag effect could prove positive for world economies, helping to fuel a faster rebound after the virus subsides.
  • Commercial and industrial activity appears to be picking up, as suggested by the recent increase in refinery utilisation in China, and their copper and steel inventories are beginning to fall. While it is right to approach such reports with some scepticism, if the pandemic is brought under control relatively soon, trade and output will inevitably rebound, even though a return to the pre-virus trajectory is not likely to be immediate.
  • The UAE Central Bank has announced an AED 100 billion stimulus announcement, with virtually all other GCC countries adopting similar measures. This stands to affect individuals and SMEs, and ought to cushion the fall in activity. The boost on morale and confidence has been immediate, however, the wider growth benefits are unlikely to be seen until the health crisis subsides.
  • On the infrastructure side, while the effects of the stimulus on public spending are unlikely to be seen until the pandemic subsides, a spike in government infrastructure spending packages may be utilised as a part of the economic response. For example, if countries in the MENA region were to adopt a similar approach to the US, which has announced (with apparently bi-partisan support) a USD 2 trillion package only one week after the USD 2 trillion public stimulus relief package.

Additionally, demands for price reductions based on reduced materials costs, are questionable. According to sources reported by Gulf News, UAE contractors say they are seeing no shortages of key building materials, even those coming in from China, and the prices of key materials too – cement, steel products – are as steady as they have been for some time.

Naturally, much depends on the duration of the protective measures. According to analysts, on the assumption that the pandemic eases in the second half of 2020, there should be a marked rebound in growth, albeit a return to pre-virus levels is not expected until late 2021, but the uncertainties surrounding these forecasts are extremely high. If a longer lockdown period is required, that prediction must be pushed back.

There is a significant risk to contractors agreeing on any price reduction that is fixed during this period of uncertainty. As we have seen in the past, undue focus on the (temporary) burden of un-utilised overheads and a so-called imperative to ‘keep busy at all costs’ may result in increased future losses and business failure.

Should you need help with the terms of any renegotiation, advice on how to approach a contractor for a price reduction, or if you are a contractor faced with such a demand, please contact Josh Kemp on jk@adglegal.com.

Written by Josh Kemp

New Commercial Courts In Abu Dhabi

Al Dahbashi Gray has recently obtained a judgment issued by the newly established Abu Dhabi Commercial Court (Commercial Court). The Commercial Court was formed by Decision No.28/2019 on 4 September 2019 and comprises of minor, major and appeal chambers. The Commercial Court is completely independent and exclusive from the Abu Dhabi Court of First Instance.

It should be noted at the outset that prior to the establishment of the Commercial Court, all cases in Abu Dhabi were registered as ‘commercial’ without much attention being paid towards the commercial or civil nature of the cases. For simplification purposes, commercial cases relate to disputes between businesses while civil cases involve individuals.

Al Dahbashi Gray represented the Defendant and obtained a favourable judgment on its behalf. The Court dismissed the case for lack of jurisdiction and ordered the case to be transferred to the relevant Abu Dhabi First Instance Court due to the civil nature of the case. This judgment confirms that the Commercial Court has only jurisdiction over commercial disputes.

The Decision No 28/2019 further confirms that the Commercial Court shall have jurisdiction over disputes, motions, and cases arising in connection with the application of the following laws (even if the transaction is civil for one party and commercial for the other):
– Commercial Transactions law
– Commercial Companies Law
– Commercial Agencies Law
– Emirates Securities & Commodities Authority and Market
– Copyright Law
– Industrial Property Protection Law for Patents and Industrial Designs
– Transactions and Electronic Commerce Law
– Consumer Protection Law
– Competition Regulation Law
– Bankruptcy Law
– Central Bank Law
– Foreign Investment Law
– Maritime Trade Law
– Air Transport Law and Rules

Furthermore, the scope of Commercial Court’s jurisdiction will cover enforcement of foreign judgment or arbitral awards provided such judgments or awards are of commercial nature.

Accordingly, it is now imperative for law firms and/or litigants to ensure that they register their cases before the appropriate court systems. Registering a civil case with the Commercial Court would most likely be dismissed resulting in needless time and costs spend on litigation.

If you need any help in understanding the changes and the potential impact of the recent amendments, please contact us on info@adglegal.com.

COVID-19 Employment Law Update: Common Questions Answered for the UAE

We have been receiving a flood of employment-related enquiries since the outbreak of COVID-19, and the situation is changing almost on a daily basis. We have set out below our answers to some of the most frequent questions we have been asked.

  1. What are the employer’s obligations with regards to the safety of their employees?
  • Employers operating under the UAE Labour Law, DIFC and ADGM laws must provide their employees with ‘adequate means of protection’ and must ensure the health, safety and welfare of their employees.
  • To control the spread of the virus, we recommend employers to carry out risk assessments and take precautionary measures, such as holding educational seminars and actively encouraging their employees to work from home.
  • We also recommend employers to circulate up-to-date information on best hygiene practice and provide any equipment to facilitate this, such as hand sanitizers and facemasks.

 

  1. Can employees be terminated due to COVID-19?
  • In our experience, UAE Courts will only consider termination to be valid if a) the employee is guilty of one of the specified violations listed in Article 120 (which, amongst others, includes violations such as disobeying safety instructions issued by an employer, defaulting on the terms of the employment contract, and revealing any confidential information to competitors) of the UAE Labour Law or b) if the employer has documentary evidence to prove the employee is a poor performer.
  • Therefore, termination merely due to COVID-19 itself will be considered arbitrary (and therefore unlawful) under Article 122 of the UAE Labour law, as it does not relate to the employee’s work performance. However, since many businesses are currently facing financial difficulties, it is unclear whether courts will consider termination due to economic or financial downturn to be a valid reason for termination. We will have to wait and see how the courts deliberate on this.
  • In addition, on 26 March, the UAE issued a resolution (Ministerial Decision No. 279/2020 (the Resolution)) for all private sector employers to register their employees on the Virtual Labour Market (VLM) which enables jobseekers to search for jobs in the UAE. More information on VLM can be found here.
  • Furthermore, employers will need to settle their employee’s dues as outlined in the relevant law and employment contract before finalising their termination.
  • Comparably, DIFC and ADGM laws allow employers to terminate employment contracts without cause if they provide sufficient notice. The notice period may vary depending on the terms of the employment contract.

 

  1. Does an employee have the right to work from home?
  • The UAE’s recent decisions to enforce strict measures to contain the spread of COVID-19 on a 24/7 basis means that only employees that work in certain sectors will be permitted to attend the workplace (Exempted Sectors). Some of the vital Exempted Sectors are healthcare, telecommunications, media and banking & finance (a full list of the Exempted Sectors can be found here).
  • Unless an employee works in one of the Exempted Sectors, they must work from home.
  • Employers (that fall under the list of Exempted Sectors) can decide which of their employees attend the workplace. However, there are guidelines for employees to prioritise working from home (e.g. pregnant women, older employees, and employees with chronic diseases).

 

  1. Can an employee be forced to take their paid annual leave?
  • Yes, provided employees have enough leave balance available.
  • UAE Labour Law, DIFC and ADGM laws employers have the right to compel employees to take annual leave and determine the date of its commencement.
  • DIFC and ADGM require employers to give 7-days’ notice before doing so. This is not a requirement under the UAE Labour Law.

 

  1. What happens if an employee is infected or becomes ill?
  • As per the UAE Labour Law, DIFC and ADGM laws, COVID-19 will be treated in the same manner as any other sickness, in terms of payment.
  • The Labour Law stipulates that an employee is entitled to 90 calendar days of sick leave. The first 15 days are payable at full pay, the next 30 at half pay and the remaining 45 days are unpaid.
  • DIFC and ADGM laws provide employees with a maximum of 60 business days of sick leave. The first 10 days are payable in full, the next 20 days half pay and the remaining days as unpaid.
  • While these are minimum requirements under each of the jurisdictions, an employer may provide more generous entitlements.

 

  1. Can employers compel employees to take unpaid leave?
  • The UAE’s recently issued Resolution (279/2020) gives employers effected by COVID-19 the option to take the following gradual steps as precautionary measures, in their respective order:
  1. Working remotely
  2. Paid annual leave
  3. Unpaid leave
  4. Temporary salary reduction
  5. Permanent salary reduction (approval required from the Ministry in accordance with the normal procedures)
  • As discussed in Q3, employees that do not fall under the list of Exempted Sectors are required to work from home.
  • Furthermore, the Resolution applies only to non-UAE national employees and is applicable only during the duration for which the precautionary measures are in place in the UAE. It is also applicable only to onshore companies who are subject to the MOHRE regulations.
  • The newly issued Resolution does not provide any guidelines for the duration of unpaid leave. Therefore, our advice to employers is to try to minimise the impact on employees as much as possible. We recommend employers to place their employees on unpaid leave, only if they are actually facing losses and not just decrease in profits.

 

  1. Can an employer make salary reductions?
  • The UAE’s recent Resolution affirms that employers who wish to temporarily reduce salaries during the period of precautionary measures may draft a “temporary supplement” to the employee’s employment contract. More information on this can be accessed here.
  • If the employer wishes to introduce permanent salary reductions, it must obtain permission from the Ministry. This step must only be taken if all the other four steps (as mentioned in Q6) have been exhausted and in accordance with the normal rules of changing labour contracts.
  • DIFC and ADGM employers need to consider that non-payment of salary may result in the penalties specified under respective employment laws, which may be severe.

Final Comments

Employers need to be careful to strike the correct balance between protecting its workforce and business continuity, while simultaneously preventing undue panic.

The key takeaways are:

  1. There should be regular and consistent communication in place between employers and employees and employers should ensure employees understand the rules as they are evolving.
  2. The employer must continue to undertake risk assessments on an ongoing basis to both minimise the spread of the virus and ensure the smooth functioning of the business.
  3. Employees should review their employment contracts to be mindful of its provisions in the event they are terminated or placed on sick/annual leaves.
  4. Employers need to be aware of the restrictions on their ability to reduce salaries, force leave and to terminate employees.

To assist clients to navigate this crisis, we have set up a Special Purpose Hub enabling clients and potential clients to contact a member of the team to obtain preliminary or in-depth advice. Enquiries can be sent to covidqa@adglegal.com

MOHRE’s Decision in Response to COVID-19

Since COVID-19 precautionary measures were implemented, we have been flooded by employment inquiries from both employees and employers who have been affected.

We have always tried to balance our advice pragmatically and know that it is important to allow businesses to continue running and vital to ensure employees’ wellbeing and survival remains a top priority. Our advice varies based on the size of the employer, the current circumstances, and the tolerance level of both the business and its human capital.

On 26 March 2020, the Ministry of Human Resources and Emiratization came up with the Ministerial Decision no. 279/2020 which addresses a number of these concerns. This decision included two main provisions:

A. Applicable measures employers may take in response to the precautionary measures

  1. The Ministry advised employers to apply the following measures on a step by step basis:
  2. Working from home methodology;
  3. Granting paid leave to employees;
  4. Granting unpaid leave to employees;
  5. A temporary decrease in salaries, with a requirement to enter into an addendum in the form provided by the Ministry which shall expire by the end of its period or by the end of the precautionary measures, and which should be in two copies: one to the employer and one to the employee, available for the Ministry to check whenever required;
  6. A permanent decrease in salaries, which should follow the normal procedures set out by the Ministry

While there is no guideline on the time period required to move from one step to another, we advise clients to apply the reasonability test. This means that less severe measures should be applied when there is an opportunity to do so. Further, as these measures decrease employees’ benefits, they should be taken only in response to actual losses incurred or expected to be incurred by the employer. A decrease in profit would not constitute a reason for decreasing the benefits.

B. Virtual Labour Market (VLM)

Separately, the Ministry advised employers with excess employees to register them on the VLM to show their availability to other potential employers. The current employer shall remain responsible for all allowances (except salaries) until the employee leaves the country or joins another employer.

For those employers who wish to recruit new employees using the current pool available on the VLM, they may apply for new permits, temporary permits, and part-time permits as applicable.

During this tough time, everyone must co-operate in the best interests of our society. A number of our clients have already started planning initiatives to employ idle talents during this period to fulfil the increased need for specific areas of work and to satisfy corporate social responsibility towards our communities.

If you like more information about this decision, the measures applicable, or assistance on how to plan your measures, please contact us at covidqa@adglegal.com.

Effects of COVID-19: Cross-Border Contracts and ADG’s Dedicated Advice Hub

The following article considers the treatment of force majeure and other forms of relief under contracts in numerous key jurisdictions around the world. While it is to be hoped that these unique circumstances lead contracting parties to find workarounds such that neither benefits or suffers more than the other, there will inevitably be occasions when a party relies upon its legal rights – regardless of the social considerations in play.

As the coronavirus outbreak continues to wreak havoc on markets and industries, businesses are now confronting significant and unique challenges. Successful navigation of these challenges will require thoughtful and comprehensive planning for the conduct of all activities by business and institutions, from the administration of justice, the exercise of individual freedoms, the performance of existing contracts, to the continuation of business operations.

Al Dahbashi Gray is providing in-depth advice to clients on the adverse effects on their businesses due to the occurrence of COVID-19. Through our core team of lawyers and our associated firms, we are well-placed to cover – directly or indirectly – many jurisdictions, including UAE and GCC, Egypt, UK, US, Australian, Russian, French, Italian, most African, and many others.

ADG Online Hub

To assist clients to navigate this crisis, ADG has set up a Special Purpose Hub enabling clients and potential clients to contact a member of the team to obtain preliminary or in-depth advice. The Hub can be accessed by directing enquiries to the following email address dedicated to cases of business disruption due to COVID-19: covidqa@adglegal.com.

The Hub is particularly aimed at those industries which are facing delayed or aborted corporate transactions, disrupted supply chains, sharp decreases in corporate earnings, concerns over the commercial viability of contracts, major event cancellations or a fall in customer numbers because of the pandemic.

Guidance on Navigating the Effects of COVID-19 under Cross-Border Contracts

Many supply, construction, privatization, infrastructure, aviation, transportation and oil and gas agreements are already significantly affected by the occurrence of a catastrophic event which is unprecedented.

Energy and natural resources contracts are generally characterised by lengthy durations and often have international components, as with commodity contracts (including iron ore, coal and copper), LNG contracts, shipbuilding contracts, supply contracts for textiles, foodstuffs and mechanical equipment, contracts for electrical equipment and electronic components and medical equipment manufacturing contracts.

Due to the long-term nature of these agreements, they are highly vulnerable to changes of circumstances within political, economic, legal and even technical spheres. In such cases, comprehensive contracts have proved to be the best shield against the intervention of harsh, sudden and unforeseen contractual distortions and imbalances. Hence, hardship clauses have been developed and inserted in many types of contracts, including power purchase agreements (PPAs), SWAP agreements, concessions, public-private partnerships (PPPs) and sale agreements.

The disruption caused by material shortages, the impossibility for specialized workforces to reach affected countries, lack of coordination on-site and lack of financing granted by banks, will inevitably mean that contracts need to be reviewed and possibly amended to deal with these circumstances, whether or not a force majeure has been triggered.

If your agreement does not provide for renegotiation through a hardship clause, it may be possible to make a case for impossibility of performance or to rely on a force majeure clause (discussed below).

Governing Law and Force Majeure

Most of the contracts referred to above are indeed cross-border contracts, with parties located in different jurisdictions. The choice of governing law for those contracts is highly material, and particularly so for parties established in jurisdictions (such as many in Africa) that lack legislation or an advanced body of case law for dealing with events that may trigger force majeure, hardship and other similar doctrines.

The difference in approaches to these questions can cause great confusion for contracting parties who are called upon to perform certain obligations in jurisdictions that have been more severely affected by the pandemic (with different government responses) and whose legal systems may deal with the consequences more or less favourably to them than the governing law under the contract. This brings significant risk if parties take steps under a particular contract without consideration to the likely position under associated contracts.

Depending on the governing law nominated, the treatment of such a pandemic (force majeure or otherwise) can be radically different. For example:

The UAE and GCC Countries

If there is the permanent impossibility of performance in a bilateral contract, this will lead to automatic cancellation under Article 273. According to the jurisprudence of the Court of Cassation, the relevant event must have been unforeseeable.

  • If there is the permanent impossibility of performance in a bilateral contract, this will lead to automatic cancellation under Article 273. According to the jurisprudence of the Court of Cassation, the relevant event must have been unforeseeable;
  • For partial impossibility, the relevant part is severed, and the affected party may elect to terminate;
  • Where performance is not rendered impossible but seriously more onerous – or if the impossibility is only temporary – the court or tribunal may adjust the obligations of the parties to relieve hardship. However, establishing entitlement to additional costs may be difficult to navigate due to the general principle under the code that the other party will not be responsible for making good the other party’s loss if he played no part in it.

For those contracts governed by DIFC and ADGM law, the position will be similar to English law as discussed below.

Similarly, all GCC countries recognize the legal doctrine of force majeure in some form, when an obligation under a contract is rendered impossible to perform due to an external event. In certain circumstances, even where an event is not a force majeure event, the laws of most GCC countries permit the court to reduce (but not necessarily fully excuse) a parties’ liability where the imposition of a contractual obligation would be onerous due to unforeseen circumstances.
Europe

France and Italy expressly have in their respective civil codes a well-defined concept and procedure for the declaration of force majeure. Germany, however, does not. Rather, force majeure must be construed by reference to other statutes and vast case law.

Common Law Countries, e.g. the UK and the US

In most common law countries, there is no recognised legal doctrine of force majeure and hardship; these are merely creatures of contract. It is therefore up to the parties to negotiate any force majeure provision, the definition of a force majeure event, the notice obligations, and other relevant provisions.

Neither the UK nor the US has any specific legislation dealing with force majeure and hardship. However, certain statutory provisions operate in a similar manner. For example, concerning contracts for the sale of goods, in certain circumstances concepts similar to the force majeure concept may be implied.

In contracts for the sale of goods between countries that are parties to the UN Convention on Contracts for the International Sale of Goods (CISG) (and if the CISG has not been excluded in the agreement), section 79 of the CISG provides a remedy similar to a force majeure clause. It provides that a party is not liable for a failure to perform any of its obligations if it proves that the failure was due to an impediment beyond its control and that it could not be reasonably expected to have taken the impediment into account at the time of the contracting. Similarly, contracts for the sale of goods under the Uniform Commercial Code (UCC) in the US are subject to section 2-615 of the UCC, which excuses performance under a contract if performance, as agreed, has been made impracticable by the occurrence of a contingency, the non-occurrence of which was a basic assumption upon which the contract was made.

Further, the common law doctrine of frustration may be relevant, although under English law is still very difficult to establish. It requires an unforeseen subsequent event outside the control of the parties, rendering it impossible to perform, or so radically different from that intended that it would be unfair to hold the parties to it. The fact that performance has been made more difficult or costly is not enough. Even if it can be established, frustration would rarely be commercially desirable because its effect is to bring all parties under the contract immediately to an end.

For this reason, many English law contracts (and those governed by similar systems) contain force majeure clauses. However, these are variable in quality and breadth and may be construed against the drafting party in “standard terms” cases.

Asia

Hong Kong
Following English law, Hong Kong law does not imply the concept of force majeure into commercial contracts. It is entirely up to the parties to negotiate whether or not there should be a force majeure clause in the contract, and if so, its scope and the circumstances in which it can be exercised.

People’s Republic of China
The PRC can, to a certain extent, be considered a civil law country. Under PRC General Provisions of the Civil Law (promulgated in March 2017), force majeure is generally recognized as an excuse for not performing civil obligations. Force majeure exists as a doctrine under Article 180 of the General Rules on the Civil Law and Articles 117 and 118 of the PRC Contract Law. The regime applies automatically to commercial contracts governed by PRC law where the contract contains no force majeure provisions.

If a contract does not include a force majeure provision, it will be implied. If a contract includes a force majeure provision, a party can rely on the force majeure provision or resort to the protection offered by the general law if the scope of the contractual remedy is considered to be limited. To be eligible for force majeure protection under PRC law, the affected party must demonstrate that the relevant situation is unforeseeable, unavoidable and cannot be overcome, and also that it is the cause of the affected party’s inability to perform its obligations.

However, under the Contract Law, force majeure does not apply: (1) where the contract is entered into after the force majeure event; (2) to non-performance of monetary payment obligations; or (3) if the force majeure event occurs after the affected party delays performance.

The China Council for the Promotion of International Trade has been issuing force majeure certificates to companies that claim they are unable to meet their contractual obligations to protect them from potential breach of contract claims by counterparties. These certificates would not automatically satisfy the “test” for force majeure for a contract governed by English, PRC or another law; these certificates would at best provide evidentiary support for the affected party’s force majeure claim, but the specific requirements of the force majeure provision must still be satisfied.

We understand that there is pressure on the China International Trade Commission to stop issuing force majeure certificates for companies as the Chinese Government is keen to revive the economy as soon as possible. State-owned enterprises have been instructed to resume operations and recall all employees back to work. While these orders may be resisted in some instances, it is widely thought that without governmental support, there will likely be fewer force majeure claims made by Chinese companies. Numerous force majeure claims involving a Chinese buyer or supplier have already been reported in the worldwide media and it seems likely that claims with a wider ambit will follow as the ripple effects of the outbreak spread globally.

Practical Steps for Contracting Parties

Despite the potentially different outcomes under the different governing laws, it is possible to devise a course of action that should be followed to not only react to but to pre-empt the different permutations as the situation continues to unfold.

We recommend that parties consider the following:

  • Carefully review your contract to determine whether the contract includes a force majeure provision and, consider:
    • The definition of a force majeure in that contract to determine whether events such as pandemic situations are included and, if not, whether the general language is sufficient to include COVID-19 and its consequences;
    • The nature of the triggering event and the effects necessary for it to be triggered;
    • The procedure for any renegotiation and the desired outcome;
    • The remedies available if renegotiation fails (these might include resorting to a judge or arbitrator, or termination of the contract);
    • The conditions that must be met to resort to termination.
  • Consider whether the contract provides any form of partial relief from obligations, even if force majeure cannot be invoked;
  • Consider those aspects of the relevant contract that you are not able to perform and satisfy yourself that the inability to perform is due to the consequences (direct or indirect) of COVID-19;
  • Review financing or other related agreements to determine whether there are cross-clauses and notice provisions that must be complied with concerning anticipated or actual force majeure or hardship claims;
  • Determine whether insurances, such as business interruption insurance or force majeure insurance, may cover any of the expected losses;
  • Consider whether you have taken steps to mitigate the effects, such as substitutions in supply;
  • Identify all notice provisions and review whether you have promptly given those notifications and are updating them as the effects evolve.

If in doubt on any of these matters, we suggest immediately taking legal advice. Questions can be submitted to covidqa@adglegal.com.

Further details of our expertise, countries of qualification and geographical coverage are available on our web site at www.adglegal.com.

Written by Roberto Cornetta, Josh Kemp and Shams Elkodama

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