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 ADG Legal

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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

2. 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)).

3. 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.