News

News

Viewing posts from the News category

Roberto Cornetta and John Leopoldo Fiorilla Join the Team

We are pleased to announce that Al Dahbashi Gray will be joined in February by Roberto Cornetta, a senior Italian lawyer of over 30 years’ experience, as an Of Counsel Partner in our Dubai office and his long-time colleague John Leopoldo Fiorilla di Santa Croce, a senior US and Italian lawyer with vast corporate experience, as Of Counsel.

Roberto graduated in Law at Yale Law School and worked for six years in New York City. He then went on to become the founder and CEO of Norton Rose Italy, where he remained for 12 years in their European PF group. 8 years as CEO of Paul Hastings in Italy followed, where his focus was on large real estate, hospitality, finance and cross border M&A in Europe, India and China and Africa.  He also spent six months in Hong Kong and six months in Colombia for the Italian Electricity Company. Roberto has had several referrals from large US law firms and clients and has been appointed by Stanford University as the sole European member of their “Seeds for Africa” program in recognition of his experience in both professional and pro bono work.

John received a J.D. from the University of Pittsburgh School of Law, where he was Managing Editor of the University of Pittsburgh Law Review, and a Master of Laws in International Legal Studies from New York University School of Law. Before joining Al Dahbashi Gray, John practised in the New York and London offices of Sullivan & Cromwell, as well as with Brosio, Casati e Associati in Milan. In addition to his new role with Al Dahbashi Gray, John will still serve as Managing Partner of the Arabian Gulf Fund, a boutique private equity firm based in Nassau and New York City, and holds a number of other notable posts.

“The addition of Roberto and John to Al Dahbashi Gray is a great contribution to our goal of becoming a world-class local firm with a truly international service. Their considerable experience will be a boon to our clients and will expand the breadth of the Firm’s transactional practice.” – Co-Managing Partner Mohammed Al Dahbashi

“We believe that Roberto and Join will prove a great fit with our expansion into Africa and look forward to continuing our developments in the region with new energy and experience.” – Co-Managing Partner Peter Gray

New Employment Regulations Issued by ADGM

By Dennis Varghese

On 28 October 2019, the Abu Dhabi Global Market (“ADGM”) published its new employment regulations (“New Regulations”) which will come into effect on 1 January 2020. In this article, we examine the key changes and contrast them to the current employment provisions in operation in the ADGM (“2015 Regulations”).

The changes are aimed to strengthen ADGM’s employment framework in the interests of both employers and employees, in order to meet international best practices. The Dubai International Financial Centre (“DIFC”) took a similar step in August of 2019 when it also adopted an updated employment law. For more information on the new DIFC employment law, please click here.

ADGM’s New Regulations can be read in full here.

Summary of Key Changes

Overtime Payment

2015 Regulations: The Regulations stipulate that the maximum working week is 48 hours “unless the Employer has first obtained the Employee’s consent in writing”. There is no provision for overtime pay for hours worked in excess of 48 hours.

New Regulations:

  • Employees are now entitled to overtime compensation in respect of time worked in excess of 832 hours over a period of up to 4 months. Calculations are done on a pro-rata basis;
  • Overtime compensation can either be monetary or by time in lieu, as decided by the employer. Monetary overtime is the employee’s daily wage plus 25% of the hourly rate (or 50% of the hourly rate for overtime between 9.00 pm – 4.00 am);
  • Employees in positions where it is reasonably expected within that industry internationally that overtime time compensation is not paid (such as managers and supervisors), are exempted from overtime compensation.

Sick Leave/Pay and Repatriation Flight Tickets

2015 Regulations:

  1. An employee is entitled to 60 business days paid sick leave in any 12-month period;
  2. No provision with regard to repatriation flights.

New Regulations:

  1. The number of sick leave days remain at 60 business days. However, amendments have been implemented to reduce the sick pay to the following (the change matches the minimum requirement under DIFC employment law):
  • full pay for the first 10 business days;
  • half-pay for the next 20 business days; and
  • no pay for the remaining 30 business days.
  1. The New Regulations now require employers to provide, upon the termination of the employee, with a one-way repatriation flight ticket to the employee’s home country unless:
  • the employee obtains an alternative employment or visa sponsorship in the UAE within 30 days; and
  • the employee has been dismissed with cause.

Discrimination

2015 Regulations: Prohibited discrimination against an employee on the grounds of sex, marital status, race, nationality, religion and disability.

New Regulations: The New Law has widened the scope of the previous anti-discrimination provisions by including discrimination on the basis of ‘colour’.

Termination

2015 Regulations: Required the Employer to submit a notice to the employee prior to termination of employment in the following manner:

  • 7 days’ notice if the period of continuous employment is less than 3 months;
  • 30 days’ notice if the period of continuous employment is 3 months to 5 years’;
  • 90 days’ notice if the period of continuous employment is over 5 years’.

New Regulations: A written notice is now required to be submitted by the employer. Additionally, employers are no longer required to submit a 90 days’ notice in cases of over five years of employment; as such employer or employee need only give 30 days’ written notice. Hence, notice is now required in the following manner:

  • 7 days’ notice if the period of continuous employment is less than 3 months; and
  • 30 days’ notice if the period of continuous employment is more than 3 months.

Powers of ADGM Board

2015 Regulations: Stated that the ADGM Board may make rules setting out applicable fines.

New Regulations: Now expressly refers to powers of the ADGM Board to issue rules setting out fines. These rules have been issued alongside the New Regulations and will also come into force on 1 January 2020. A full copy of the rules can be viewed here.

Data Protection

2015 Regulations: Included comprehensive data protection provisions.

New Regulations: Data protection provisions set out in the 2015 Regulations have now been removed as ADGM does not have a stand-alone data protection law.

Youth Employment

2015 Regulations: Prohibits employers employing a youth below 15 years of age.

New Regulations:

  • New Regulations provide clarity on the employment of youth: employers can now hire youths between 15 and 18 years of age;
  • New Regulations also widen the scope of protection offered to youth employees, obligating employers to take all appropriate measures to ensure the conditions of employment are safe and reasonable.

Conclusion

Changes introduced by the New Regulations are not substantial in terms of the number of amendments but it is important that companies in the ADGM review their existing policies, procedures and employment contracts and make any necessary amendments to ensure the provisions in the New Regulations are complied with before 1 January 2020.

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

New Decision Allows Some Cases to Stop at Prosecution

By Abdulrahman Junaid

The UAE is always striving to develop and improve its legal process, making it more efficient and less burdensome on its residents. On 1st October 2019, the Attorney General issued an amendment under Decree No. 119 of 2019 against penalties the law criminalizes under the current Penal Order, meaning that fewer cases are required to go to court.

What is a Penal Order?
A Penal Order is a judicial decision issued by a Public Prosecutor to decide whether a fine is an appropriate punishment for a criminal charge, without referring it to the relevant Court (a ‘Table of Schedules’ has been included below for more information on crimes that fall within this scope).

The Recent Amendment to the Law
From 1st October 2019 the Attorney General assigned Prosecutors the right to have authority to decide the outcome of certain cases. After investigating each individual case, the Prosecutor will decide whether to issue a Penal Order, depending on the type of crime, or refer the case to the Criminal Court. The Prosecutor can only authorise fines to those offenses listed in the Table of Schedules below.

The Attorney General, or the Prosecutors acting under the Attorney General’s authorization, may amend the ‘Decision of the Penal Order’. For example, the Penal Order may be cancelled or replaced with community service if deemed appropriate.
The Decision of the Penal Order shall be applied only to Federal Prosecutors, namely:

a. Abu Dhabi Federal Prosecution
b. The Prosecution of the Emirate of Sharjah
c. Ajman Prosecution
d. The Emirate of Umm Al Quwain Prosecution
e. Prosecution of the Emirate of Fujairah

Benefits of the Recent Amendment
The most identifiable benefits of the amended Decree are:

a. Faster judicial process
b. Greater clarity around fines and reduced fine amounts
c. Offences listed in the Table of Schedules will not incur jail time

Table of Schedules
The Tables of Schedules below set out the Articles applicable to the above revised Penal Order.

First: Federal Penal Code

Item Charge Article Fine
1 Intentionally causing inconvenience to others using wireless or non-wireless communication devices 298 AED 3,000
2 Accidentally burning something owned by others 310 AED 3,000
3 Consuming food or drinks in a public place during fasting during the month of Ramadan 313/1 AED 2,000
4 Forcing a fasting person to consume food or drinks in public during fasting during the month of Ramadan 313/2 AED 2,000 plus the outlet must be closed for a period of one month
5 Responsible for operating a food outlet during the day during the month of Ramadan without permission 313, 313/2 AED 3,000
6 Attempted suicide 335/1 AED 1,000
7 Accidentally jeopardizing the safety of another person (limited to minor injuries) 343/1 AED 1,000
8 Defamation of others (excluding public servant) 372/1 AED 5,000
9 Public insult (excluding public servant) 373/1 AED 3,000
10 Defamation or insult by telephone or in the presence of the victim and in the presence of others
(excluding public servant)
374/1 AED 3,000
11 Defamation and insult by telephone with no one present or in a written communication sent by any means (excluding public servant) 374/2 AED 2,000
12 Unauthorized use of a car, motorbike or the like without the permission or permission of the owner or owner of the motor vehicle 394 AED 1,000
13 Consuming food or drinks in a licensed shop and refusing unjustifiably to pay what is due

OR

Occupying one or more rooms in a hotel or leasing a vehicle or trailer at a licensed shop and refusing unjustifiably to pay what is due

395 AED 1,000 (Claims less than AED 20,000)

OR

AED 2,000 (Claims between AED 20,000 and AED 50,000)

14 Giving a check in bad faith with a value less than AED 50,000 401, 403 AED 2,000
15 Giving a check in bad faith with a value between AED 50,000 and AED 100,000 401, 403

 

AED 5,000
16 Giving a check in bad faith with a value between AED 100,000 and AED 200,000 401, 403 AED 10,000
17 Destroying or damaging third party property, whether movable or immovable, and making it unusable or disrupting it in any way whatsoever (when the act occurred in error) 424/1, 43 AED 1,000
18 Accidentally cutting, uprooting or destroying a tree or plant, owned by others, in a deadly way

OR

Accidentally destroying an existing plant or any plant or seed, owned by others, by spraying a harmful substance

OR

Accidentally destroying agricultural machinery or tools, owned by others, or making them unusable

425/1, 43 AED 2,000
19 Exhausting, torturing or abusing a domestic animal

OR

Refusing to take care of an animal whose care is your responsibility

432 AED 1,000
20 Accidentally causing the death or injury of a domestic animal owned by others 433/1 AED 500

Second: Federal Law No. (6) of 1973 on the entry of foreigner’s residence and its amendments

Item Charge Article Fine
1 Staying in the country illegally for a period not exceeding 90 days 1, 2, 1/21, 3 AED 1,000
2 Failure of the guardian or guardians to confirm the residence of a child within the period provided for by law 1, 2, 21 AED 1,000
3 Assisting someone to stay in the country illegally 1, 2, 1/21, 3, 36 AED 1,000

Third: Federal Law No. (21) of 1973 regarding traffic, traffic and amendments

Item Charge Article Fine
1 Driving a vehicle when suspended from driving by a Court Order or an Order from the Licensing Authority 50 AED 3,000
2 Driving without a driving license

OR

Driving a vehicle without the appropriate license for the vehicle type

51 AED 3,000
3 Transferring a license plate to another vehicle without the approval of the Licensing Authority 1/52

 

AED 2,000
4 Leaving the scene of a traffic accident, in which injuries have occurred, without an acceptable excuse 2/52 AED 2,000
5 Refusing to give name or address or giving incorrect data to police officers 56 AED 1,000

Al Dahbashi Gray can assist you. If you need any help in understanding the changes and the potential impact of the recent amendments, please contact us on info@adlegal.com.

UPDATE – DIFC Issues New Amendments to its Employment Law (Law No. 2 of 2019)

By Dennis Varghese

On 17 October 2019, the DIFC issued a consultation paper proposing amendments to its Employment Law No. 2 of 2019 (DIFC Employment Law). The consultation is open to all stakeholders (including employers, employees and advisors) until 18 November 2019, after which the DIFC will review comments and finalise/enact the legislative amendments.

The new DIFC Employee Workspace Savings (DEWS) scheme will replace the existing End of Service Gratuity (ESG) regime. For a detailed overview of the new DEWS scheme, review our article here.

In short, the introduction of the DEWS plan will allow DIFC employers to account for their End of Service liabilities on a monthly basis. Meanwhile, employees will have secure benefits, irrespective of an employer going out of business, while having the option to earn a return on an employer’s monthly contributions and to make their own contributions in a very cost-effective and simple way.

The amendments are expected to come into effect on 1 January 2020 (Commencement Date). This short document sets out a summary of the main amendments.

Is the new DEWS plan mandatory?

Yes, the DIFC proposes to replace the current ESG regime with a DEWS plan, whereby all DIFC employers will be required to make mandatory monthly contributions.

An employer wishing to use an alternate Qualifying Scheme instead of DEWS will need to obtain a Certificate of Compliance. The requirements for the Qualifying Scheme are set out in the new employment regulations, which will be introduced under Article 66 of the DIFC Employment Law, and are as follows:

  • it must be an Employee Money Purchase Scheme based on the definition provided in the UK Pension Schemes Act 1993;
  • it must provide for the payment of contributions by the DIFC company for each eligible employee at no less than the core benefits. Under the current ESG scheme, employers have to pay 21 days of an employee’s basic wage for each year of the first five years of service and 30 days of the wage for each additional year of service. This now amounts to 5.83 per cent and 8.33 per cent respectively. These percentages will now be paid by the employer to the DEWS plan scheme or another Qualifying Scheme on a monthly basis;
  • it must provide for the payment of benefits in the event that the employee leaves the company’s employment or service, or is otherwise entitled to withdraw their benefits (including where the individual reaches 65 years of age);
  • it contains stipulations which require that each Operator, Administrator, Investment Adviser and Fund Manager of the Scheme in question be regulated by a ‘Recognised Regulator’ (Recognised Regulators are financial services regulators who have approved status with the DIFC Board); and
  • the Qualifying Scheme must be a DIFC Trust, if the Qualifying Scheme is established in the DIFC.
    What are some of the main features of the DEWS plan?
  • The employer will be required to contribute to the DEWS plan on a monthly basis. The DEWS plan applies only to expatriates and does not include UAE or GCC nationals;
  • The employee’s accrued ESG pursuant to the current DIFC Employment Law can either be paid to the employee on termination of their employment, or alternatively it can be transferred into a Qualifying Scheme in favour of the employee at any time following its Commencement Date;
  • For any individual who commences employment with a DIFC company after the Commencement Date, they will need to be enrolled in a Qualifying Scheme by the 15th day of the month (for example, if an individual commences employment on 3 February 2020, their employer will need to enrol them in a Qualifying Scheme no later than 15 February 2020);
  • Employees will have the option to make their own contributions to DEWS if desired and will be given a choice as to how their contributions are invested;
  • Employees have the option to choose from five risk-profiled funds: low, low/moderate, moderate, moderate/high and high. The low/moderate risk fund will be the default fund. There will also be Sharia-compliant options available. The fee has now been settled at 1.33% per annum for the low and low/moderate options. It is still unclear whether the fee will be higher for the higher risk option and the Sharia-compliant option;
  • The funds of the DEWS plan will be legally held by Equiom as Trustee for the benefit of the employees, as opposed to the funds remaining under the control of the employers;
  • Zurich Middle East will be the administrator, whose role will be to facilitate employees enrolling into the DEWS plan.
    What are the next steps?

    It is advised that the DIFC employers undertake the following:

  • review the consultation paper and submit feedback, which can be done by completing the comments template and emailing it to consultation@difc.ae. The deadline is 18 November 2019;
  • determine their approach and enrol into the DEWS plan or consider a Qualifying Scheme;
  • consider strategy regarding accrued ESG benefit to 31 December 2019;
  • begin communicating any potential changes to employees at the earliest.
    For a full review of the consultation paper and the relevant regulations, click here.

    Al Dahbashi Gray can assist you. If you need any help in understanding the changes and the potential impact of the recent amendments, please contact us on info@adlegal.com.

The DIFC modernises Insolvency Law as its status soars

The DIFC modernises Insolvency Law as its status soars

by Josh Kemp and Dennis Varghese

The new Insolvency Law (DIFC Law No. 1 of 2019) (the “New Law”) and its expanded set of Insolvency Regulations came into effect on June 13, 2019.  The New Law replaces the 2009 Insolvency Law and aims to modernise the insolvency regime by simplifying cross-border insolvency proceedings and improving the balance between all stakeholders in situations of distress and bankruptcy. With the DIFC soaring up the rankings of the Global Financial Centres Index – now in 8th position as of September 2019 – the new regime only serves to bolster the DIFC’s reputation amongst the world’s best.

We take a look at the key changes below.

Cross-Border Insolvency Coordination

Part 7 of the New Law adopts the United Nations Commissions on International Trade Law (UNCITRAL) Model Law to facilitate cooperation between insolvency proceedings taking place within the DIFC and in foreign jurisdictions. Similar to the concept of recognition under Chapter 15 of the US Bankruptcy Code, the Model Law will apply where assistance is sought: (1) in the DIFC by a foreign court or foreign parties, in relation to foreign insolvency proceedings; (2) in a foreign state in connection with proceedings under the New Law; (3) in relation to parallel proceedings (in respect of the same debtor) in the DIFC and a foreign court; or (4) where foreign creditors or other interested persons in a foreign state have an interest in requesting the commencement of, or participating in, a proceeding under the New Law.

Introducing Rehabilitation Plans

Part 3 of the New Law introduces the concept of Rehabilitation. Distressed companies in the DIFC are now eligible to apply for Rehabilitation by submitting a Rehabilitation Plan to the Court which aims to restructure the business to ensure the company can meet its debts.

Rehabilitation is only available to a company if it is or is likely to become unable to pay its debts and there is a reasonable likelihood of a successful Rehabilitation Plan being reached between the company and its creditors and shareholders.

The process is as follows:

1  The company appoints one or more insolvency practitioners (“Nominee”).

2  The directors notify the Court, through the Nominee, that they intend to make a Rehabilitation Plan proposal to the company’s creditors and shareholders.

3  Unless the Court orders otherwise, an automatic 120-day moratorium will take effect (“Moratorium”). Key features of the Moratorium are:

    • restrictions on actions to be taken against the company, e.g. prohibitions against submitting a petition for wind-up, or enforcing a security interest, among other restrictions.
    • that it applies to all creditors, whether secured or unsecured, irrespective of consent, and extends to the company’s assets wherever located.
    • the company may still enter into new contracts provided it offers adequate assurances to the contracting party as to curing defaults and future performance.
    • the directors remain in control of the company (subject to exceptions discussed below).

4  Creditors may apply to the Court to obtain relief from the Moratorium. Relief is discretionary, and the court will balance the potential for imminent irreparable harm to the creditor as against that of the company.

5  The directors produce the proposed Rehabilitation Plan for it to be considered by the company’s creditors and shareholders. The proposal must, among other things:

  1. separately classify secured creditors, unsecured creditors and shareholders, and set out the notice period and voting procedures for the proposal;
  2. explain the effect of the Rehabilitation Plan; and
  3. explain any potential alternative outcomes for creditors and shareholders if the proposal is not sanctioned by the Court.

6  The Court will convene a directions hearing, at which it will either approve, reject or modify the notice and voting procedures in the proposed Rehabilitation Plan.

7  Creditors and shareholders will then meet and vote on the Rehabilitation Plan in accordance with the Court’s directions. Notably:

  1. all members of a class are deemed to accept a plan if at least 75% in value of the class agree with the plan;
  2. creditors unimpaired by the plan are deemed to accept it.

8  If any creditors or shareholders consider that the Proposal submitted by the company is unfairly prejudicial, it has not been proposed in good faith or, has violated the voting procedures approved at the Directions Hearing, that party may apply to the Court to challenge the proposal.

9  The Court will hold a Post-Plan Hearing to determine whether to approve or reject the proposal. The Court will sanction the proposal if it finds that, among other things:

  1. it complied with the New Law and is proposed in good faith;
  2. it is not unfairly prejudicial to each class of creditors and shareholders;
  3. either (A) all classes of creditors have voted to accept the Proposal (or are deemed to accept it) or (B) at least one class of creditors which would be impaired by the proposal approves it; and
  4. no creditor or shareholder is worse off than they would have been in a winding-up of the company.

Additionally, the Court may sanction new finance during the Rehabilitation process, whilst ensuring that existing secured creditors are protected.

10  If at the Post Plan Hearing, the Court rejects the proposal, the Court shall immediately proceed to take steps to wind-up the company.

Administration

In cases where there is evidence of fraud, dishonesty, incompetence, or mismanagement or offences under Part 6, Chapter 7, against the company or its management, directors, officers, the Court may appoint an Administrator that will take over management of the company’s business and its assets.

Winding-up procedure

The New Law adopts a more expedited winding-up procedure, including a more rapidly convened creditors’ committee, and dissolution procedures.

Conclusion

The new cross-border cooperation provisions seek to streamline multi-jurisdictional insolvency proceedings and bring the DIFC closer in line with the most sophisticated insolvency regimes. The changes are expected to produce a more favourable environment for trade and investment by allowing local and foreign companies to better handle cross-border insolvency matters where a party is incorporated in the DIFC.

The new Rehabilitation scheme attempts to balance the interests of all stakeholders in respect of distressed companies and represents an enhanced set of insolvency tools to maximise returns. These developments form part of a regional wave of insolvency reform, including in the UAE and Saudi Arabia, as these jurisdictions have sought to modernise their insolvency legislation to encourage the development of a debtor-led recovery culture. The amendments are also in line with developments across Europe, and particularly in the UK, which is currently in consultation to introduce similar laws.

Although it is perhaps too early to judge whether the use of the New Law matches expectations, a modernised regime will do the DIFC no harm as it seeks to enhance its reputation alongside the world’s leading financial centres.

Will the DIFC’s New Workplace Savings Scheme be a Positive Change?

By Dennis Varghese

With the recent introduction of its New Employment Law, which came into effect on 28 August 2019 (for an update on DIFC Law No. 2 of 2019 (“New Employment Law”), click here), the Dubai International Financial Centre (DIFC) is at the forefront of cementing its position as the leading financial hub in the Middle East, Africa, and South-Asia region.

The DIFC is now working on replacing its end-of-service gratuity (“ESG”) benefits scheme with a defined contribution scheme known as the DIFC Employee Workplace Savings (“DEWS”) trust scheme. This article aims to provide everyone, especially employers and employees based in the DIFC, with a brief overview of the current ESG scheme and the highly anticipated DEWS scheme which is expected to come into effect on 1 January 2020. At the end of this article is a Q&A section which aims to respond to any queries readers may have about the upcoming changes.

What is an End-of-Service Gratuity (ESG) Payment in the DIFC?

It is worth noting that ESGs are not unique. The UAE and the other five countries in the Gulf Cooperative Council (GCC) – Saudi Arabia, Bahrain, Kuwait, Qatar, and Oman – all operate similar ESG schemes (albeit with certain variations in calculations and specific termination conditions). But it has been a topic that has been causing much debate over the past decade, both in the DIFC and the GCC as a whole.

ESG schemes were introduced to ensure that when an employment relationship was terminated, employees without pension benefits received a lump sum payment to assist them during the period following termination or for them to put towards their savings.

The DIFC is regulated by a common law system and adopts an independent court system. The DIFC currently implements the defined-benefit ESG scheme. The minimum criteria for an employee to qualify for the ESG scheme is one year of continuous service. The ESG payment is calculated at 21 days basic salary for each year of service, for up to five years of service, and thereafter 30 days basic salary, for each subsequent year of service.

Key Takeaways of ESG in the DIFC

The ESG payment cannot exceed the amount equivalent of two (2) times the annual wage of an employee. It is calculated as follows (Article 66 of the DIFC Law):
a) An amount equal to twenty-one (21) days of the employee’s basic wage for each year for the first five (5) years of service; and

b) An amount equal to thirty (30) days of the employee’s basic wage for each additional year of service.
Employees have the option to receive pension contributions into a non-UAE retirement fund (or substantially similar scheme) instead of an ESG scheme payment, provided the aggregate contributions made by an employer is not less than the ESG payment the employee would have been entitled to receive (Article 66(7) of New Employment Law).

Why has the DIFC decided to shift away from the ESG?

Data provided by a leading international law firm revealed that the combined ESG liability of all employers operating in the GCC is estimated at more than AED 54.75bn (USD 15bn). Another survey, by Wills Towers Watson, which covered 300 firms, pointed out that a fifth of UAE companies face ESG liabilities of over US$15 million, with 88% of GCC companies surveyed having no plan to fund gratuities.

While the concept of being paid a lump sum of money at the end of employment may seem very attractive, ESG schemes cannot always be relied upon.

The Chartered Institute of Personnel and Development (CIPD), the professional body for HR and People Development, provided that one of the reasons ESG is seen as high-risk is because businesses keep employees’ gratuities in the corporate bank account and use the monies as working capital until it is due to be paid. This means the risk of an organisation not having access to the gratuity when it is required is very real. Worse, it is not currently mandatory for companies in the UAE to set aside payment for the ESG scheme. Therefore, where an employer is in financial difficulties and/or dissolves, employees may have limited prospect of recovering their full entitlement to an ESG. This can be a particular cause for concern during an economic crisis when many businesses may experience financial difficulties

The ESG scheme also does not take into account the full lifespan of an employee – only the years they have worked in each period of employment. This becomes a problem, especially for expatriates, when they reach their retirement age and are relying on the ESG payment to supplement their retirement fund.

A survey carried out by Insight Discovery disclosed that around 49% expatriates in the UAE are only able to save five (5) per cent or less of their monthly income, and only sixteen (16) per cent of expatriates have a fixed retirement plan. In comparison, the savings rate is much higher in other countries, for example, Switzerland, where the savings rate is forecasted to reach approximately eighteen (18) per cent in 2019/20. The survey also made it indisputable that UAE expatriates are eager to start a savings plan.

The move towards the DEWS scheme comes in line with the recent global employee benefits trends – see figure 1.

Figure 1: Source – The DIFC Employer’s Meeting: The Proposals for Reforming the minimum end of Service Gratuity (May 2019)

Highlights of the Proposed DEWS Scheme

Put simply, the DEWS Scheme is an opportunity to boost an employee’s retirement savings using a workplace pension scheme. The aim is to create a default position whereby all employees are signed up to a workplace pension in order to increase the proportion of employees saving for retirement.

The DIFC DEWS scheme will eventually eliminate the ESG scheme by offering employees a portfolio of global funds to invest their money in. The word ‘invest’ is key here, as employees will be able to allow their money to grow, instead of sitting idle in a bank account. It is expected that employers will contribute a percentage of the monthly salary to DEWS (the contribution rate is set to be the same as the current gratuity accrual rate), while the employees will also have the option to top up to their portfolio by making voluntary contributions through their salary. Employees will also be able to pick how their contributions are invested, choosing between low, medium and high-risk options. When leaving employment in the DIFC, employees will then receive both ESG scheme for service up until the date of the proposed change (1 January 2020), as well as the benefit from the new DEWS scheme.

Key Points to Note

1. A DIFC supervisory board will oversee the establishment of the DEWS Trust;

2. DEWS will be managed by Equiom, an international professional services group, as the master trustee and Zurich Insurance as the scheme administrator;

3. The DFSA will regulate the trustee and the administrator. The trustee will oversee the governance of the trust. The administrator will perform the operations of the trust;

4. The DEWS Trust will operate on a funded, defined contribution basis, investing contributions on behalf of employees and paying benefits on leaving service later, if requested.

The proposed changes also benefit employers by allowing them to know what their exact liabilities towards employees are at any given point. For example, in 2016, the DIFC Court of First Instance awarded a penalty of USD$ 1.5million against a company in breach of Article 18 of the DIFC Employment law, for failing to pay the employee his benefits within fourteen (14) days of termination of employment (a doctrine that has been partially overturned recently; you can read more about the recent change under Section-5 of our article on the DIFC’s New Employment Law: https://adglegal.com/news/difc-employment-law/).

Under the new DEWS scheme, employers will be required to make contributions every month, meaning cash-flow will be smoothed out over the entire employment cycle of an employee, rather than lump-sum payments having to be determined at the date of termination. The terms of existing ESG arrangements – for example, employees’ eligibility, the definition of the basic wage and the timing of payments — would remain in place to ease the administration of the DEWS. Failures by employers to comply with their obligations will likely lead to fines and other potential sanctions. It is also anticipated that outside of the DEWS scheme, employers will be able to establish their own qualifying schemes, the rules of which are expected to be announced by the end of September 2019.

Meanwhile, employees will benefit from:

  • Receiving their full end-of-service gratuity, irrespective of an employer going out of business;
  • Having their contributions professionally managed, cost-effectively and flexibly;
  • The chance to earn a return on their contributions through investments, which is currently not the case. DEWS contributions could be invested in a range of funds with varying risks;
  • Visibility and a choice as to how their savings will be managed, catering to a range of risk appetites and including sharia-compliant options;
  • Voluntary savings options on top of employers’ contributions and investments, offering an incentive to save more towards their retirement, of up to 100% of their salary and other forms of compensation via payroll.

A similar initiative, the Workforce Protection Program, is under discussion to be implemented by the Jebel Ali Free Zone (Jafza) soon. It is considered likely that the change to the ESG regime within the DIFC will spread to other free zones and the UAE mainland in order to modernise and standardise employee benefits and entitlements.

Question & Answers
1. What happens if my employer shuts down?

Any pension contributions you and your employer make will be held with the pension provider – not your employer. If your employer dissolves or becomes bankrupt, your pension fund will be ring-fenced, so your retirement savings will not disappear.

2. Is the scheme voluntary?

No, all DIFC employers and employees are required to participate in the DEWS scheme unless an employer operates a qualifying system of their own.

3. Who makes contributions to the scheme?

Employer contributions will be mandatory under the DEWS scheme. Employees will also be able to make voluntary contributions to it, up to 100% of their salary and other forms of compensation via payroll. As it stands, based on a fixed statutory formula based on the employee’s years of service and final salary, the contributions are expected to be cost-neutral compared to the existing gratuity system. These have yet to be finalised but are expected to be around 5.83% of basic salary for where service is below 5 years and around 8.33% above 5 years of service.

4. Can employers still provide a defined-ESG payment on leaving service?

From 1 January 2020, DEWS will be the minimum benefit basis. Employers can, however, choose to top-up DEWS benefits, if they wish to do so.

5. Can an employee undertake investments?

Yes, employees will be given the option to make investments or use the trustee’s default investment option, which is set according to the employee’s risk appetite. A Shari’ah investment option will also be available.

6. Who will influence or make the decision on the risk profile of the investments made in DEWS?

It is currently envisaged that the employers will be able to dictate a default risk profile option for investments made using employer contributions to ensure the investments undertaken by the employees are safe. It is also our understanding that employees will be able to choose their risk profile for investments, however, this is yet to be confirmed

7. What happens to the existing benefits?

The default position is that the ESG will accrue up to the changeover date (31 December 2019) between the current scheme and DEWS but will only be payable to the employee on their eventual termination and will be based on the employee’s final salary on termination.

8. Will the funds in the new scheme be forfeited if the employee is terminated for cause?

No, the funds will not be forfeited, and will continue to be the property of the employee. Contributions will be made from day one of employment. This will, however, require an amendment to the existing DIFC Employment Law, which currently does not entitle ESG payment to an employee who has not completed a minimum of 12 months of employment.

9. Will employees have the option to withdraw funds from the DEWS if they are still in DIFC employment?

No, whilst the employment with the contributing employer continues employees will not be able to withdraw funds. Withdrawing funds will only be possible when employment is terminated.

10. What happens when an employee leaves employment or transfers his employment?

When an employee leaves DIFC employment, they will receive ESG for service up to the changeover date i.e. 31 December 2019 and thereafter the benefit from the new scheme. If the employee decides to resign or transfer employment, the employee can elect to withdraw or leave their funds in DEWS, but no further employee contributions towards the plan will be possible. The decision to leave funds in the DEWS scheme would see a management fee applied.

11. How will an employee be updated about ongoing activities relating to their contributions?

It is currently predicted that employees will have full transparency on their investment portfolios in real-time (via an app on their phone, tablet or computer).

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

Legal Update: DIFC DEWS Scheme

Will DIFC’s New Workplace Savings Scheme be a Positive Change?

by Dennis Varghese  – Al Dahbashi Gray

With the recent introduction of its New Employment Law, which came into effect on 28 August 2019 (click here for an update on DIFC Law No. 2 of 2019 (“New Employment Law”), the Dubai International Financial Centre (DIFC) is at the forefront of cementing its position as the leading financial hub in the Middle East, Africa, and South-Asia region.

The DIFC is now working on replacing its end-of-service gratuity (“ESG”) benefits scheme with a defined contribution scheme known as the DIFC Employee Workplace Savings (“DEWS”) trust scheme. This article aims to provide everyone, especially employers and employees based in the DIFC, with a brief overview of the current ESG scheme and the highly anticipated DEWS scheme which is expected to come into effect on 1 January 2020. At the end of this article is a Q&A section which aims to respond to any queries readers may have about the upcoming changes.

Al Dahbashi Gray can assist you – If you need any help in understanding the changes and the potential impact it may have on you, your organisation and/or your employees, please feel free to contact us.

First, what is an End-of-Service Gratuity (ESG) Payment in the DIFC?

It is worth noting that ESGs are not unique. The UAE and the other five countries in the Gulf Cooperative Council (GCC) – Saudi Arabia, Bahrain, Kuwait, Qatar, and Oman – all operate similar ESG schemes (albeit with certain variations in calculations and specific termination conditions). But it has been a topic that has been causing much debate over the past decade, both in the DIFC and the GCC as a whole.

ESG schemes were introduced to ensure that when an employment relationship was terminated, employees without pension benefits received a lump sum payment to assist them during the period following termination or for them to put towards their savings.

Regulated by a common law system, and with an independent court system, the DIFC currently implements the defined-benefit ESG scheme. The minimum criteria for a DIFC employee to qualify for the ESG scheme is one year of continuous service. The ESG payment is calculated at 21 days basic salary for each year of service, for up to five years of service, and thereafter 30 days basic salary, for each subsequent year of service.

Key Takeaways of ESG in the DIFC

The EGS payment cannot exceed the amount equivalent of two (2) times the annual wage of an employee. It is calculated as follows (Article 66 of the DIFC Law):

  1. An amount equal to twenty-one (21) days of the employee’s basic wage for each year for the first five (5) years of service; and
  2. An amount equal to thirty (30) days of the employee’s basic wage for each additional year of service.

Employees have the option to receive pension contributions into a non-UAE retirement fund (or substantially similar scheme) instead of an ESG scheme payment, provided the aggregate contributions made by an employer is not less than the ESG payment the employee would have been entitled to receive (Article 66(7) of New Employment Law).

Why has the DIFC decided to shift away from the ESG?

While the concept of being paid lump-a sum of money at the end of employment may seem very attractive, ESG schemes cannot always be relied upon.

Data provided by a leading international law firm revealed that the combined ESG liability of all employers operating in the GCC is estimated at more than AED 54.75bn (USD 15bn). Another survey, by Wills Towers Watson, which covered 300 firms, pointed out that a fifth of UAE companies face ESG liabilities of over US$15 million, with 88% of GCC companies surveyed having no plan to fund gratuities.

The Chartered Institute of Personnel and Development (CIPD), the professional body for HR and People Development, provided that one of the reasons ESG is seen as a high-risk is because businesses keep employees’ gratuities in the corporate bank account and use the monies as working capital until it is due to be paid – which means the risk of an organisation not having access to the gratuity when it is required is very real. To make it worse, it is not currently mandatory for companies in the UAE to set aside payment for the ESG scheme. Therefore, where an employer is in financial difficulties and/or dissolves, employees may have limited prospect of recovering their full entitlement to an ESG. This can be a particular cause for concern during an economic crisis when many businesses may experience financial difficulties

The ESG scheme also does not take into account the full lifespan of an employee – only the years they have worked in each period of employment. This becomes a problem, especially for expatriates, when they reach their retirement age and are relying on the ESG payment to supplement their retirement fund.

A survey carried out by Insight Discovery disclosed that around 49% expatriates in the UAE are only able to save five (5) per cent or less of their monthly income, and only sixteen (16) per cent of expatriates have a fixed retirement plan. In comparison, the savings rate is much higher in other countries, for example, Switzerland, where the savings rate is forecasted to reach approximately eighteen (18) per cent in 2019/20. The survey also made it indisputable that UAE expatriates are eager to start a savings plan.

The move towards the DEWS scheme comes in line with the recent global employee benefits trends – see figure 1.

Figure.1: Source – The DIFC Employer’s Meeting: The Proposals for Reforming the minimum end of Service Gratuity (May 2019)

 

Highlights of the Proposed DEWS Scheme

To put simply, the DEWS Scheme is an opportunity to boost an employee’s retirement savings using a workplace pension scheme. The aim is to create a default position whereby all employees are signed up to a workplace pension in order to increase the proportion of employees saving for retirement.

The DIFC DEWS scheme will eventually eliminate the ESG scheme by offering employees a portfolio of global funds to invest their money in. The word ‘invest’ is key here, as employees will be able to allow their money to grow, instead of sitting idle in a bank account. It is expected that employers will contribute a percentage of the monthly salary to DEWS (the contribution rate is set to be the same as the current gratuity accrual rate), while the employees will also have the option to top up to their portfolio by making voluntary contributions through their salary. Employees will also be able to pick how their contributions are invested, choosing between low, medium and high-risk options. When leaving employment in the DIFC, employees will then receive both ESG scheme for service up until the date of the proposed change (1 January 2020) as well as the benefit from the new DEWS scheme.

Key points to note

  1. A DIFC supervisory board will oversee the establishment of the DEWS Trust.
  1. DEWS will be managed by Equiom, an international professional services group, as the master trustee and Zurich Insurance as the scheme administrator.
  1. The DFSA will regulate the trustee and the administrator. The trustee will oversee the governance of the trust. The administrator will perform the operations of the trust.
  1. The DEWS Trust will operate on a funded, defined contribution basis, investing contributions on behalf of employees and paying benefits on leaving service later, if requested.

The proposed changes also benefits employers by allowing them to know what their exact liabilities towards employees are at any given point. For example, in 2016, the DIFC Court of First Instance awarded a penalty of USD$ 1.5million against a company in breach of Article 18 of the DIFC Employment law, for failing to pay the employee his benefits within fourteen (14) days of termination of employment (a doctrine that has been partially overturned recently; you can read more about the recent change under Section-5 of our article on the DIFC’s New Employment Law.

Under the new DEWS scheme, employers will be required to make contributions every month, meaning cash-flow will be smoothed out over the entire employment cycle of an employee, rather than lump-sum payments having to be determined at the date of termination. The terms of existing ESG arrangements – for example, employees’ eligibility, the definition of the basic wage and the timing of payments — would remain in place to ease the administration of the DEWS. Failures by employers to comply with their obligations will likely lead to fines and other potential sanctions. It is also anticipated that employers will be able to establish their own qualifying schemes outside of the DEWS scheme, the rules of which are expected to be announced soon. We shall continue to monitor developments and keep you informed in due course.

Meanwhile, employees will benefit from:

  • receiving their full end-of-service gratuity, irrespective of an employer going out of business.
  • having their contributions professionally managed, cost-effectively and flexibly.
  • the chance to earn a return on their contributions through investments, which is currently not the case. DEWS contributions could be invested in a range of funds with varying risks.
  • visibility and a choice as to how their savings will be managed, catering to a range of risk appetites and including sharia-compliant options.
  • voluntary savings options on top of employers’ contributions and investments, offering an incentive to save more towards their retirement, of up to 100% of their salary and other forms of compensation via payroll.

A similar initiative, the Workforce Protection Program, is under discussion to be implemented by the Jebel Ali Free Zone (Jafza) soon. It is considered likely that the change to the ESG regime within the DIFC will spread to other free zones and the UAE mainland in order to modernise and standardise employee benefits and entitlements.

Question & Answers

  1. What happens if my employer shuts down?

Any pension contributions you and your employer make will be held with the pension provider – not your employer. If your employer dissolves or becomes bankrupt, your pension fund will be ring-fenced, so your retirement savings will not disappear.

  1. Is the scheme voluntary?

No, all DIFC employers and employees are required to participate in the DEWS scheme unless an employer operates a qualifying system of their own.

  1. Who makes contributions to the scheme?

Employer contributions will be mandatory under the DEWS scheme. Employees will also be able to make voluntary contributions to it, up to 100% of their salary and other forms of compensation via payroll. As it stands, based on a fixed statutory formula based on the employee’s years of service and final salary, the contributions are expected to be cost-neutral compared to the existing gratuity system. These have yet to be finalised but are expected to be around 5.83% of basic salary for where service is below 5 years and around 8.33% above 5 years of service.

  1. Can employers still provide a defined-ESG payment on leaving service?

From 1 January 2020, DEWS will be the minimum benefit basis. Employers can, however, choose to top-up DEWS benefits, if they wish to do so.

  1. Can an employee undertake investments?

Yes, employees will be given the option to make investments or use the trustee’s default investment option, which is set according to the employee’s risk appetite. A Shari’ah investment option will also be available.

  1. Who will influence or make the decision on the risk profile of the investments made in DEWS?

It is currently envisaged that the employers will be able to dictate a default risk profile option for investments made using employer contributions to ensure the investments undertaken by the employees are safe. It is also our understanding that employees will be able to choose their risk profile for investments, however, this is yet to be confirmed

  1. What happens to the existing benefits?

The default position is that the ESG will accrue up to the changeover date (31 December 2019) between the current scheme and DEWS but will only be payable to the employee on their eventual termination and will be based on the employee’s final salary on termination.

  1. Will the funds in the new scheme be forfeited if the employee is terminated for cause?

No, the funds will not be forfeited, and will continue to be the property of the employee. Contributions will be made from day one of employment. This will, however, require an amendment to the existing DIFC Employment Law, which currently does not entitle ESG payment to an employee who has not completed a minimum of 12 months of employment.

  1. Will employees have the option to withdraw funds from the DEWS if they are still in DIFC employment?

No, whilst the employment with the contributing employer continues employees will not be able to withdraw funds. Withdrawing funds will only be possible when employment is terminated.

  1. What happens when an employee leaves employment or transfers his employment?

When an employee leaves DIFC employment, they will receive ESG for service up to the changeover date i.e. 31 December 2019 and thereafter the benefit from the new scheme. If the employee decides to resign or transfer employment, the employee can elect to withdraw or leave their funds in DEWS, but no further employee contributions towards the plan will be possible. The decision to leave funds in the DEWS scheme would see a management fee applied.

  1. How will an employee be updated about ongoing activities relating to their contributions?

It is currently predicted that employees will have full transparency on their investment portfolios in real-time (via an app on their phone, tablet or computer).

UPDATE – DIFC Wills Expand Outside of Dubai

By Ahmed Ragab AlKotby and Dennis Varghese

In the summer of 2019, the DIFC issued a new law which has finally allowed DIFC Wills to include assets outside the closed vicinity of Dubai and Ras Al Khaimah (“RAK”).

Recap on Wills in the UAE and the DIFC

For expatriates in the UAE, the laws and procedures related to wills can be daunting. The country’s inheritance laws are based on Sharia law, which prescribes a fixed share allocation of assets. Prior to 2015, if non-Muslims wanted to circumvent this allocation, they had to request that the law of their home country be applied in accordance with the UAE’s personal status law. This came with a heavy process in courts and costs that put heirs in a difficult position.

However, since 2015, non-Muslims have been able to circumnavigate the Sharia law by registering a “DIFC Will”. A DIFC Will is a legally recognised document that allows a non-Muslim testator (the “Testator”) to explicitly provide for the distribution of assets such as property, financial assets, and businesses to named beneficiaries. This was made possible with the development of the DIFC Wills Service Centre (“Centre”), which implemented the DIFC Wills and Probate Registry Rules (the “Rules”), a joint initiative of the Government of Dubai and the DIFC Dispute Resolution Authority.

Recent Changes

The Rules have been recently amended by the enactment of Order No. 3 of 2019 on 30 June 2019.

Two main amendments will be of particular interest to non-Muslims in the UAE:

  1. The limitation to Dubai and RAK assets has been removed and DIFC Wills can now relate to the Testator’s worldwide assets.
  2. A major procedural change was also put in place so a Probate Director / Authorised Officer (who had to be a DIFC employee) can now no longer act as a second witness to a DIFC Will. Testators will need to bring 2 witnesses (aged 21 or over) to the Centre to sign the will (and note that such witnesses cannot be a beneficiary to, or a guardian named in, the will)

The decision to allow assets from outside of Dubai and Ras Al Khaimah to be bequeathed under a DIFC Will is an exciting new development and opens the door for worldwide assets to be included, eliminating the need to have separate wills in multiple jurisdictions. This should greatly simplify the process of estate administration and considerably enhance the efficiency of DIFC Wills.

What are the different types of DIFC Wills available?

The DIFC has a DIFC Wills Service department (“Service”), which is an end-to-end service that deals with probate matters through the DIFC Courts, rather than just will registration.

The Service offers five different types of wills:

  1. Full Will – encompasses all assets, both movable and immovable;
  2. Guardianship Will – covers guardianship provisions for minors below the age of 21 years old;
  3. Property Will – can apply up to 5 real estate properties;
  4. Business Owners Will – covers shares in up to 5 different companies and can be located in either a free zone or the UAE mainland;
  5. Financial Assets Will – covers shares in up to 10 different bank accounts.

What is the cost of a DIFC Will?

In addition to the legal fees of drafting a DIFC Will (which will vary from firm to firm), the Centre will charge a one-time fee at registration. The fees listed in the table below are exclusive of VAT:

 

Full Will

 

Single Will – AED 10,000.00

 

Mirror Wills – AED 15,000.00

 

 

Guardianship Will

 

Single Will – AED 5,000.00

 

Mirror Wills – AED 7,500.00

 

 

Property Will

 

Single Will – AED 7,500.00

 

Mirror Wills – AED 10,000.00

 

 

Business Owners Will

 

Single Will – AED 5,000.00

 

Mirror Wills – AED 7,500.00

 

 

Financial Assets Will

 

Single Will – AED 5,000.00

 

Mirror Wills – AED 7,500.00

 

Note: Mirror Wills apply to a married couple who wish to register their wills at the same time.

Further Points to Note Regarding the Changes:

  1. The Rules have guardianship provisions which cannot be altered, and such provisions will continue to be valid for minor children who are habitual residents of either Dubai or RAK;
  2. Testators who wish to register wills for their Dubai and / or RAK assets may continue to do so as before;
  3. Since 30 June 2019, the Centre is no longer required to store hard copies of registered wills. Testators who already have a registered will and would like to collect the signed hard copy of their wills from the Centre’s office will have to do so before 31 December 2019. After this date, the Centre will destroy all hard copies. It’s important to note that only the Testator, or a lawyer with a Power of Attorney (POA), with a valid photo ID, may collect the hard copy of the will;
  4. Testators who already have a registered DIFC Will, but would like to extend the jurisdiction to include assets in other Emirates or global assets, will have the opportunity to amend their wills by making appointments via email (appointments@difcwills.ae). The Centre’s fee for this service will be AED 550.00 + VAT;
  5. DIFC Wills can only be registered by non-Muslims who have never been Muslims. If a Testator becomes a Muslim after registration of their will, the will and the estate will be administered according to the UAE laws.

For more information on DIFC Wills and the amendments, please view the DIFC Wills and Probate Rules document here.

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

Announcing ADG’s New Egypt Office

ADG is pleased to announce that it has extended its practice to Egypt with Ahmed Ragab AlKotby Law Firm.

With a full disputes team, headed up by our managing associate Ahmed Ragab AlKotby, we are delighted to now provide all our clients with specialist and expert Egyptian law advice and guidance directly from Alexandria, Egypt. The Firm in Egypt will work seamlessly with our headquarters in Dubai and our representative London office, ensuring that businesses and individuals receive responsive, bespoke and expert advice in and across multi jurisdictions.

We have always considered Egypt to be a major partner to the UAE. We believe the decision to extend our practice to Egypt is a great step towards our goal to consistently provide world class international legal advice from a UAE firm” commented Co-Managing Partner Mohammed Al Dahbashi.

If you have an Egyptian law matter and wish to speak with Ahmed in detail about how ADG can help, he will be delighted to hear from you. Please email him –

UPDATE – Snapshot Of Changes Under New DIFC Employment Law

Snapshot of changes under the New DIFC Employment Law

Written by Josh Kemp and Dennis Varghese of Al Dahbashi Gray

Background

On 12 June 2009, the Dubai International Financial Centre (“DIFC”) enacted DIFC Law No.2 of 2019 (the “New Law”) which repeals and replaces the existing DIFC Law No.4 of 2005 (the “Old Law”).

The New Law comes into effect on 28 August 2019.

In announcing the New Law, His Excellency Essa Kazim (Governor of DIFC) said:

“The DIFC Employment Law enhancements are integral to creating an attractive environment for the almost 24,000-strong workforce based in the DIFC to thrive while protecting and balancing the interests of both employers and employees.”

This update looks at the most significant changes coming into effect, to update employers and employees on their rights and obligations, and to enable employers to ensure that their employment contracts, policies and business practices are ready for commencement of the new regime.

Positives for Employees

  1. Paternity/Maternity Leave

Old Law: No provision for paternity leave.

New Law:

  • Male employees who have been employed for over twelve (12) months will be entitled to five (5) working days paid paternity leave, provided the conditions are satisfied.
  • The conditions are that the employee has provided written notice to his employer eight (8) weeks before the expected week of childbirth or date of adoption (only if the adopted child is less than five (5) years old).

The New Law also expands the rights of female employees returning from maternity leave, for example, by entitling them to nursing breaks if they work for more than six (6) hours a day.

  1. End of Service Gratuity

Old Law: No entitlement to gratuity if terminated for cause.

New Law:

  • Increases the protection given to employees by obligating employers to make a gratuity payment, even if the employment is terminated for cause.
  • Where an employee is terminated before completing twelve (12) months, the gratuity payment will be calculated on a pro-rata basis.
  • Employees may also opt to receive pension contributions as an alternative to the gratuity, provided the pension contributions are not less than the expected gratuity payment.

The changes to gratuity entitlements are perhaps the most controversial changes under the New Law, as the new provision drifts away from the stance taken by the UAE Labour Law, under which employers are not required to make gratuity payments where termination is subject to article 120 of the UAE Federal Labour Law (including “for cause”). However, the lifespan of “end of service” gratuity payments may be short-lived due to the proposed migration of the gratuity regime to a cash accrual regime in 2020.

  1. Part-time Employees

The Old Law: Did not recognise the concept of part-time and short-term employees.

The New Law:

  • The New Law formally recognises part-time employees as those who work less than eight (8) hours per day or less than five (5) days per week (or if the terms of the employment do not constitute full-time employment), with specific statutory entitlements to vacation leave, sick leave and maternity/paternity leave on a pro-rated basis.
  1. Discrimination

Old Law: Protected characteristics of discrimination under sex, marital status, religion, race, nationality and mental and/or physical disability. It did not provide any specific statutory remedy for a contravention.

New Law:

  • Widens the scope of the previous anti-discrimination provisions to include age, pregnancy and maternity.
  • Provides remedies in response to a positive finding of discrimination, by giving DIFC court the power to

i. make a declaration as to the rights of the complainant and respondent;

ii. make a recommendation (which, if not complied with, will lead to increase in compensation), and

iii. order the employer to pay compensation (which may include for injured feelings) capped at one (1) year’s wages (or two year’s wages for a repeat offence for the same employee) (Article 61).

  • Introduces protection for victimisation of employees in relation to claims for breach of the anti-discrimination provisions, which is very largely replicated from s.27 of the Equality Act 2010.

The most notable introduction is arguably the statutory right to compensation for discriminatory conduct. Overall, the changes bring the DIFC into closer alignment with international standards. Case law under the UK Equality Act will continue to be persuasive, but there are limits to the extent of its application, as UK Employment law has greatly been influenced by EU law, which has no legal effect in the DIFC.

  1. Penalties

Old Law: Employers are obligated to pay all wages and other amounts owing to an employee within fourteen (14) days of the employee’s termination date. Failure to make the payment within 14 days requires the employer to pay the employee a penalty equivalent to the employee’s daily wage for each day the entitlements remain unpaid.

New Law:

  • Retains the obligation to pay wages to an employee within 14 days.
  • Introduces a new system for penalty payments:

i. no penalty applies if the outstanding payment after 14 days is less than one week’s wages;

ii. the penalty will be capped at six month’s wages;

iii. no penalty accrues during the time a dispute is pending before the Court; and

iv. the Court may waive the penalty where the employee’s unreasonable conduct is the material cause of the failure to receive the amount due

The new regime strikes a greater balance of rights between employer and employee. The former provisions were generally regarded as draconian due to the potentially unlimited duration of the penalty and the fact that any penalty would continue to accrue during the course of litigation.

  1. Contracting-out

Old Law: Any waiver by an employee of any of the statutory employment rights was void, unless the Old Law specifically permitted it.

New Law: An Employer and Employee may now enter into a written agreement to terminate the Employee’s employment or to resolve a dispute, in which the employee agrees to waive certain entitlements, provided the employee (a) warrants that he/she had an opportunity to obtain independent legal advice; or (b) the parties took part in court-ordered mediation prior to the agreement.

Positive Update for Employers

  1. Sick Leave

Old Law: Employees are entitled to sixty (60) days of paid sick leave in an aggregate twelve (12) month period.

New Law:

  • Retains sick leave at sixty (60) days.
  • However, changes have been introduced to amend the calculation of paid sick leave:

i. first ten (10) working days of sick leave: full pay;

ii. next twenty (20) working days of sick leave: half-pay; and

iii. last thirty (30) working days of sick leave: unpaid (Article 35).

The changes quite significantly favour the employer when compared to the both the Old Law and the normal application of the UAE Labour Law, which requires employers to make full payments for the first fifteen (15) days, and half-pay for the next thirty (30) days.  Nonetheless, at a global level, the minimum rights under the New Law remain favourable to the employee – for example, when compared with the statutory minimums in the US (in which not all states provided for any paid sick leave at all) and the UK.

  1. Limitation Period

Old Law: Does not specify a limitation period to bring a claim against an employer.

New Law:

  • Introduces a six (6) month limitation period effective from the employee’s termination date.
  • In cases of discrimination, the claim must be brought six (6) months from the date of the alleged discriminatory act. However, the court has the power to disapply the limitation period if “there are circumstances which justify” or “such other period which the court considers reasonable” (Article 61(1)).
  1. Vicarious Liability

Old Law: Employers are vicariously liable for an act of an employee committed in the course of employment unless it is proven that the employer took reasonable steps to prevent it.

New Law:

  • While there are substantial wording changes, the substance merely reflects the English common law position as developed by recently decided cases. In relation to discrimination or victimisation, the changes align with the statutory defence of an employer in the UK Equality Act (ie where the employer took all reasonable steps to prevent the discriminatory conduct).
  • The changes are that an employer will be held vicariously liable:

i. for claims relating to loss, damages or compensation arising from an employee’s conduct, if it is shown that the conduct is sufficiently connected with the employee’s employment and it is “fair and just” to hold the employer liable; and

ii. for claims relating to discrimination or victimisation, if it is shown that the employer did not take adequate steps to prevent the employee from carrying out the conduct.

Other key changes:

  • “Opting in”- the Old Law was restricted to employees that were either based in the DIFC or were operating within or from the DIFC. Employers and employees outside of the DIFC can now contractually “opt-in” to the New Law.
  • “Minimum recruitment age” – the New Law has amended the minimum recruitment age from 15 years to 16 years of age.
  • Secondments – the New Law Recognises the concept of employee secondments as employees working temporarily within the DIFC for no longer than 12 months or such period approved by the DIFC.
  • Unpaid Special Leave – the New Law reduces the allotment of unpaid Special Leaves to a Muslim employee from thirty (30) days to twenty-one (21) days. Special Leave is only applicable if the employee has completed at least one (1) year of continuous employment.
  • Probation – The New Law formally recognises the concept of probation periods (not specifically recognised under the Old Law) of up to six months, provided they are included in an Employee’s Employment Contract.
  • Short-term employees – the New Law recognises the concept of short-term employees as those whose period of employment does not exceed an aggregate of thirty (30) days over a twelve (12) month period. Article 17(5) provides several provisions in the New Law, which do not apply to short-term employees, including sick-leave and end-of-service gratuity.
  • Paid time off – the New Law removes an employee’s right for paid time off to look for alternative employment during their notice period.
  • Carrying forward leave – employees will only be permitted to carry over five (5) days of accrued leave (not 20 days as per the Old Law) to the following year.

Shifting the balance towards the employee?

While the New Law does purport to strike a balance between the rights of employers and employees in, arguably it is employees that stand to benefit most from the New Law, as a result of more family-friendly provisions surrounding leave, the strengthening of anti-discrimination provisions, the expansion of gratuity rights to employees terminated for cause, and the prescription of fines for general contraventions of the Law by employers.

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this. You can find out more information on the way we use cookies in our privacy policy.

Close