Employment Law: What's New in 2016
Authored by: Jamie Liddington and John Stamper
Ministerial Resolutions 764, 765 and 766 of 2015 (together, the “Resolutions”) came into effect on 1 January 2016. When the Resolutions were first announced in September 2015, the Minister of Labour stated that they were intended to “bring greater transparency, clarity and tighter monitoring of labour contract conditions and ensure both employer and employee enter into fully voluntary relationships”. In this article, Jamie Liddington (Head of Employment) and John Stamper (Senior Legal Consultant) summarise the key changes brought about by the Resolutions and identify some of the challenges employers may face.
MINISTERIAL RESOLUTION 764 OF 2015 – ON MINISTRY OF LABOUR APPROVED STANDARD CONTRACTS
Ministerial Resolution 764 of 2015 (“MR 764”) seeks to provide greater protection for expatriate employees by ensuring that the employment contract is consistent with the terms originally offered to the employee.
The Ministry of Labour (“MOL”) refers to the ‘unified labour contract’ providing employees with “a comprehensive description of their rights and duties as well as terms and conditions prior to employment, all printed in their language to ensure transparency and rights preservation of both parties”.
This suggests that the whole process includes a suite of employment documents which set out the respective rights and obligations of the parties. The offer letter itself takes on significance as a source of terms which must apply and be honoured in the standard form MOL labour contract. The MOL has published a number of documents variously referred to as “Annexes” to limited and unlimited term labour contracts. The documents are important because they identify relevant provisions of the Labour Law which apply to the respective contracts. It appears from the MOL press release (issued on 7 December 2015), that the comprehensive explanatory documents are to be provided to all new employees receiving an offer of employment on or after 1 January 2016.
Article 1 is primarily focused on ensuring that employees recruited overseas do not arrive in the UAE having accepted an offer of employment only to then receive a contract which contains terms which differ from those which were previously offered and accepted. This is a significant change designed to reassure employees that their rights and obligations will be entirely transparent from the outset.
The new system ensures that, from the outset, the MOL has a record of the offer as a pre condition for the issue of the work permit/entry visa. The added security for the employee is the fact that the Wages Protection System (“WPS”) is administered by the MOL. This will give a basis of verifying that the wage payments properly accord with the terms offered.
Following execution of the contract, terms may not be added unless they are consistent with the existing law and do not “contradict” the remaining clauses of the contract.
The contract may not be altered unless the employee has agreed to any such change and even where changes are agreed they will be subject to the MOL’s approval so as to ensure that they are not be to the detriment of the employee.
Potential challenges for Employers
Whilst the Resolutions collectively are not a formal change to Federal Law No. 8 of 1980 (as amended) (the “Labour Law”), their practical impact is not to be underestimated. With any new legislation, inevitably there are a number of uncertainties as to its application. MR 764 introduces several provisions which represent a shift in the practical application of the Labour Law.
- MR 764 states that “the standard contracts attached to the Resolution shall be adopted for use”. However, it remains unclear if this means that the historic MOL standard contract format itself will be changed. Whilst MR 764 does not expressly state that the offer letter itself must be in a standard format, the MOL has produced a number of standardised annexes to the various forms of contract. These are referred to as annexes to the “Offer” in each case, save that the MOL is yet to publish a standard form offer. Article 4 of MR 764 simply states that the standard contract must “fully conform to the offer signed by the labourer”.
- The new system raised a further significant practical issue concerning the requirement to produce the offer (and annexed guidance) in Arabic and English, and (where necessary) in a third language understood by the employee. The MOL has now confirmed that the annexed guidance is to be published in a number of languages to ensure that the prospective new employees fully understand their rights and obligations. This is particularly important because the various annexes published on the MOL website are typically up to 23 pages long. The annexed guidance is to be regarded as incorporated into the contract.
- MR 764 is silent as to whether or not the prohibition on altering or amending the ‘Unified Labour Contract’ includes the imposition of additional terms via a separate private or company contract. It is our view that the existing practice of an employee entering into a separate contract will remain a permissible mechanism for agreement of more detailed terms between the parties. However, there may be varying opinions as to how far employers can continue a practice of making the offer of employment conditional upon the employee’s agreement to the private/company contract.
- For employers concerned about the effect of MR 764 on existing contracts, there is no retrospective effect save that the standard contracts (under Article 1) will have to be adopted upon renewal of any contracts in existence at the time that MR 764 came into force (1 January 2016). An unlimited term contract will not be “renewed” as such, by contrast to a Limited Term contract (see further below). Therefore, MR 764 will not be an issue for employers whose employees are already engaged on unlimited term contracts at 1 January 2016.
MINISTERIAL RESOLUTION 765 OF 2015 – ON RULES AND CONDITIONS FOR TERMINATION OF EMPLOYMENT RELATIONS
Ministerial Resolution 765 of 2015 (“MR 765”) focuses on the obligations of the parties when terminating a contract of employment. Specifically, MR 765 addresses the circumstances in which the employment relationship may be terminated which include:
- expiry of a limited term;
- by mutual consent; or
- unilaterally by either party (either with or without notice).
Article 2 of MR 765 provides three further circumstances in which the employment relationship will be deemed to have been terminated, namely:
- where the employer breaches its legal obligations (statutory or contractual) including non-payment of wages for 60 days,
- where an employee files a complaint that the employer has closed its business and is failing to employ him, and
- following the issuance of a final judgment of the Courts in favour of an employee who has filed a labour complaint.
MR 765 also provides that where the employee is employed under a limited term contract, the parties may agree the amount of compensation payable by the party who terminates the contract prior to its expiry.
Potential challenges for Employers
The following potential issues have been identified since the implementation of MR 765:
- MR 765 makes provision for notice periods both in relation to limited term and unlimited term contracts. When the Labour Law came into force, it was clear that the concept of limited term employment meant that the parties would be constrained in their ability to terminate the employment contract prior to the expiry date but after the expiry of any probationary period. In theory, following the completion of any probationary period, the contract should continue until the expiry date and therefore the concept of a notice period was inconsistent with the intention of the parties. By including provision for an agreed period of notice within limited term employment contracts, it is now possible that MR 765 may blur the distinction between limited and unlimited term contracts thereby detracting from the Minister of Labour’s intended aim of creating more clarity in labour relations;
- MR 765 states that the maximum notice period may be “no less than one month and no more than three months”. The introduction of a maximum length of notice period is likely to create difficulty for employers when dealing with senior staff terminations. Often, senior employees will be contractually obliged to give six months’ notice in order to provide the employer with sufficient time to find a suitably qualified and experienced replacement. However, it appears that any departing employee whose contract provides for a period of notice in excess of three months may rely on MR 765 to break himself out of the obligation to provide anything more than three months’ notice. Conversely, if an employer seeks to rely on MR 765 by terminating an employee’s contract on three months’ notice despite the contract including a notice period of six months, this may lead to an award of compensation in favour of the employee. Where there is a conflict between the rights afforded to employees under legislation and/or the standard form employment contract versus the rights afforded under a private employment contract, the Labour Courts in the UAE may allow the employee to rely on whichever of the two conflicting sources is most favourable. In the circumstances described above, the employee may wish to remain in employment for the full six months (so as to find another source of income) in which case the private employment contract term is more favourable; and
- Article 4(c) of MR 765 provides that the parties may agree to the amount of compensation in the event that a limited term contract is terminated prior to the expiry of the limited term. It states that this compensation shall not be more than three months’ pay (including allowances). However, this creates a conflict with the Labour Law which provides that any early termination compensation payable by an employee to the employer shall be limited to a maximum of 45 days’ pay. It remains to be seen how the UAE Courts will address this apparent conflict between the existing Labour Law provisions and the terms of Article 4 (c) of MR 765.
- Employers need to be aware that MR 765 will apply to contracts which terminate on or after 1 January 2016 (i.e. it is not simply applicable to contracts entered into from 1 January 2016) and will need to be ready to terminate upon three months’ notice where an existing (pre January 2016) limited term contract is silent as to any notice period. It is anticipated that the vast majority of limited term contracts in existence prior to MR 765 will not include any notice provision.
MINISTERIAL RESOLUTION 766 OF 2015 – ON GRANTING LABOURERS NEW WORK PERMITS TO MOVE FROM ONE FACILITY TO ANOTHER
Ministerial Resolution 766 of 2015 (“MR 766”) (like Ministerial Resolution No. 1186 of 2010 before it), continues to relax the legal requirements which employees must satisfy when moving between employers. From 1 January 2016, an employee who is at skill level 1, 2 or 3 (i.e. secondary/high school graduate or above) will avoid any ban provided that he has satisfied all contractual obligations (e.g. providing and serving the required period of notice). If the employee does not satisfy his contractual obligations, a 12 month ban may be imposed which would prevent the employee from legally working for another employer in the “onshore” area (i.e. outside any of the free zones). For employees who are at skill level 4 (or higher) – typically blue collar workers with no formal education - it remains the case that a ban may be imposed if the contract is terminated prior to the expiry of its term or where the employee has not satisfied his contractual obligations.
Potential challenges for Employers
It is too soon to determine whether MR 766 will effectively achieve its intended aim. MR 766 lends a great deal of support to the stated intention of ensuring that the employment relationship should be entered into voluntarily and it directly addresses unscrupulous practices whereby employees (often blue collar workers) would be threatened with bans simply for refusing to renew their contracts. In the past this has frequently contributed to criticism of the UAE and the surrounding region for having so called “bonded” or “forced” labour systems. The MOL should be commended for progressing the law and employee protections in this manner.
The Resolutions were conceived against the backdrop of ongoing negotiations between the governments of the UAE and the nations which have, in recent years, supplied the largest number of expatriate employees (i.e. India, Pakistan, Bangladesh, Nepal and the Philippines). It was widely reported that there were concerns raised by the governments of those nations about the welfare of their nationals who emigrate to the UAE to take up employment (often providing manual labour). Whilst the driver for change may have been a need for greater transparency in order to protect blue-collar workers, the reality is that the new provisions (other than those in MR 766) do not distinguish between categories of employee.
It is likely that the challenges identified in this article will be outweighed by the benefits of having clearer and more flexible rules governing employment across the entire “onshore” workforce. However, it is advisable to prepare for those challenges by considering the practical means of dealing with them if they arise.
This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the developing jurisdiction of the UAE.