28 Feb 2018


Authored by: Jamie Liddington

The DIFC Authority published a draft of the new DIFC Employment Law (Law No. 6 of 2018) (the “New Law”) and has initiated a one month period of consultation in relation to the New Law. It is expected that there will be further refinements as a result of feedback received through the public consultation process and it should be stressed that until any enactment notice is published, Law No.3 of 2012 – the DIFC Employment Amendment Law (the “Current Law”) remains in force.  In this article, Jamie Liddington, Partner, Head of Employment provides insight into the New Law and highlights the most important of the proposed changes to the Current Law.

Why is the law changing?

The original DIFC Employment Law (No.4 of 2005) and the Current Law has obvious gaps. For example, there is a prohibition on discrimination but no remedy where an employer is found to have discriminated against an employee. More recently, the major cause of concern for employers has been the penalty regime which was introduced under the Current Law. Article 18 of the Current Law provides that, where an employer fails to pay wages and any other amount owing within fourteen days of the termination of an employee’s employment, a penalty payment shall become payable. The penalty is equal to one day’s wages per day that the underlying amount remains unpaid and there is no cap on the maximum penalty payable. In Frontline Development Partners Limited v Asif Hakim Adil [CA 006/2016] the DIFC Court of Appeal upheld the Court of First Instance decision to award Mr Adil a penalty of over USD $1.6 million and confirmed that a strict interpretation must be taken to Article 18; no matter how small the underpayment on termination, the employer is liable to pay the penalty imposed by the Current Law.

In the Consultation Paper published by the DIFC Authority, it is said that the New Law “attempts to balance the needs of Employers and Employees in the DIFC with the emphasis being on providing a framework of minimum employment standards and fair treatment of Employees in the DIFC to enable businesses in the DIFC to thrive, while also ensuring the attraction of human capital to the DIFC.”

Which are the most significant proposed changes?

  1. Article 18 – Penalty Payments

Under the Current Law, Article 18 has been criticised as being too blunt. It is the proverbial sledgehammer to crack a nut. Most would agree that there should be an incentive for employers to pay employees their end of service entitlements without delay. But Article 18 lacks refinement and – as noted by the DIFC Court – can lead to absurd and harsh consequences. The most egregious example of a penalty would be the employer who inadvertently miscalculates a single item due on termination and underpays the employee by one dirham. Under the Current Law, that employee could wait for up to six years to file a claim for the penalty which would then equate to the wages payable over almost the entire period since termination.

When looking at the New Law, it is apparent that the DIFC Authority has identified the defects in Article 18 of the Current Law and has proposed key refinements to prevent harsh examples like the one above.  Firstly, the New Law proposes a de minimis qualification in order to engage the penalty. An employee who claims that there has been an underpayment will have to show that the amount which remains unpaid is in excess of 5% of the full amount due on termination. Secondly, the New Law proposes to introduce a cap on the maximum amount which can be awarded as a penalty payment. The proposal is to impose a maximum award equal to six months’ wages.

The New Law also proposes to grant the DIFC Court with discretion to reduce or waive the penalty where the Court considers the imposition of a penalty to be unreasonable. The New Law provides two examples of what might fall within the category of “unreasonable”: (a) where any litigation has extended over a significant period of time it is likely to be unreasonable to have the penalty continue for the entirety of the same period, and (b) where the Employee is the cause for the delay in payment. Though it is obvious why the Court should be granted discretion to avoid any harsh or absurd outcomes, it is likely that the uncertainty relating to the Court’s interpretation of “unreasonable” will simply lead to more litigation where some employers feel that they had valid grounds for a failure or delay in making payment.

  1. Discrimination Remedies

The proposed changes to Article 58 serve to plug the most obvious gap in the Current Law.  In addition to the existing protected grounds, the New Law proposes to add “pregnancy” and “age” to the list of grounds upon which employers must not discriminate against an employee. 

For any employee who feels that he/she may be the victim of discrimination, the New Law proposes to introduce means by which the employee can request information in order to assess whether discrimination has taken place.  This includes the right to submit questions to the employer in accordance with, as yet, unpublished guidelines to be set out in supplementary Regulations. In the event that the employer refuses to comply with the employee’s request, the New Law proposes to provide the employee with the right to request that the DIFC Courts issue an order compelling the employer to comply with the request.

Should the employee decide to issue a claim alleging that they have been a victim of discrimination, the New Law proposes that any claim must be initiated within six months from the date of the discriminatory act.  Article 60(11) of the New Law envisages a scenario whereby there can be a sequence of discriminatory acts by the employer in which case the six month limitation period shall commence from the end of the period over which the acts occurred.

Finally, the New Law proposes to allow the Court to make a declaration or recommendation (i.e. action to be taken by the employer) or award an amount equal to the employee’s Annual Wage as compensation.  Where the employer fails to comply with a recommendation, the Court may increase an award of compensation to an amount equal to two times the employee’s Annual Wage.

  1. Termination for Cause

We expect that the changes to Article 59A of the Current Law will be the most controversial of all. One of the proposed changes is the removal of the employer’s ability to withhold payment of end of service gratuity where the employee’s employment is terminated for cause. In this instance, this represents a shift away from the Federal Labour Law position but the logic of the DIFC Authority is that gratuity is akin to a pension benefit and it is unfair for employees to lose a pension benefit which may have accrued over many years due to one single act of misconduct – albeit a serious one.

The New Law also goes on to propose that an employee who terminates his/her own employment for cause citing the employer’s unreasonable conduct (i.e. constructive dismissal) may claim an amount equal to his/her Annual Wage as compensation. This proposal represents a significant shift in the approach previously taken in relation to protection from unfair dismissal in the DIFC culminating in the DIFC Court of Appeal decision in Hana Al Herz v The Dubai International Financial Centre Authority [CA 004/2014] where it was conclusively determined that the law does not afford any protection from unfair dismissal. Although this proposed change does not go as far as some jurisdictions, such as England & Wales, the result of this proposed change would be that employees may claim compensation arising out of the manner of their dismissal.  It should be noted that the compensation provision only applies where the employee terminates the employment for cause and not where the employer decides to terminate the employment for cause.

  1. Atypical Working Arrangements

The New Law seeks to clarify the application of the law to Part-Time employees and Short Term employees (see Article 16) while also clarifying that certain categories of employee such as those employed by a local or federal government entity established by decree or those who are seconded to a DIFC establishment shall not gain the full protections afforded by the New Law (see Article 4(2)). Clarification is required as to what will constitute Secondment.  The New Law defines the term Secondment as being a temporary transfer but it is often the case that what starts out as a secondment arrangement becomes permanent employment.

The clarification that the New Law applies to Part-Time and Short Term employees will be welcomed by DIFC employers who, until now, have had some doubt as to the extent of entitlements and obligations which apply to any employee employed in anything less than a full-time permanent role.

  1. Working Time & Leave

In general, the New Law appears to provide greater alignment with the law applicable outside of the DIFC (Federal Law No.8 of 1980 as amended) by reducing the entitlement to paid sick leave (which is very generous under the Current Law) to ten days at full pay and the next twenty days at half pay.

The New Law also proposes to introduce Paternity Leave and Paternity Pay for any male employee who has more than twelve months’ continuous employment prior to the expected or actual week of birth or adoption. The New Law proposes a minimum Paternity Leave of five working days at full pay. Paternity Leave may be taken at any time within the first month of the child being born or adopted.

  1. Vicarious Liability of Employers

Article 51 of the New Law seeks to clarify the liability of employers for the conduct of its employees (i.e. vicarious liability). This is not an entirely new provision but the existing obligation under the Current Law is clarified and brought in line with the position under English law. If the proposed amendments are accepted, in order for the employer to be liable for the employee’s acts, it must be shown that the employee’s act was sufficiently connected with what he/she was authorised or expected to do or that the employer did not take adequate steps to prevent the employee from carrying out that act.

  1. Fines & Penalties Regime

Under the Current Law there are several provisions which impose obligations on employers but where there is no consequence for failing to adhere to the obligation.  Article 9 of the New Law proposes to introduce a fines and penalties regime in order to ensure adherence to the obligations imposed by the New Law.  Schedule 3 of the New Law sets out a list of the potential infractions and the corresponding fine/penalty where the employer fails to comply with its obligation(s).

For example, if the employer fails to provide the employee with a written contract of employment within seven days of the date on which the employment commenced or, if there is a written contract but it fails to comply with the requirements set out in Article 13 of the New Law, the corresponding fine/penalty will be USD $2,000. At the opposite end of the employment relationship, where the employer fails to cancel or transfer the employee’s sponsorship on termination of the employee’s employment, this shall result in a penalty/fine of USD $2,000.

Does the New Law achieve its stated aims?

The New Law strikes a better balance between the rights afforded to employers and employees in the DIFC. In particular, the New Law includes much needed refinement to the penalty payments introduced by Article 18 of the Current Law and provides a sensible and balanced suite of remedies in relation to the discrimination protections which were introduced by the Current Law.

However, there is some concern that the proposed changes to the termination for cause provisions may muddy the waters in an area that has become relatively settled. Since 2014 there has been a clear and consistent approach from the Courts in relation to the absence of any unfair dismissal protection under DIFC Employment Law. We foresee a possibility of a greater number of resignations as a means of pre-empting the employer’s decision to terminate for cause and thereby triggering potential claims for compensation.

Hadef & Partners will produce a detailed response as part of the DIFC Authority’s consultation process.  If you would like to discuss any aspects of this article, the Consultation Paper or the New Law with a member of our team we would be happy to hear from you. Please direct all enquiries to Jamie Liddington, Head of Employment at: j.liddington@hadefpartners.com or 04 429 2892.