03 Apr 2018

Do Jebel Ali Free Zone Employment Rules supersede the UAE Labour Law?

Authored by: The Employment Team

In Brief

  • Jebel Ali Free Zone Employment Rules issued by the Jebel Ali Free Zone Authority supersede the UAE Labour Law.
  • The Dubai Court of Cassation set a precedent explaining how this is possible.
  • The establishing law of the Jebel Ali Free Zone Authority puts Jebel Ali Free Zone in a unique position amongst free zones in the UAE.

The principle law governing employment relationships in the UAE is Federal Law No. (8) of 1980 (the “UAE Labour Law”). It is often said that the only exceptions are the Dubai International Financial Centre (“DIFC”) and Abu Dhabi Global Market (“ADGM”).

However, is this correct?

This article clarifies a common mis-understanding of the application of the UAE Labour Law.

Simply said, the Jebel Ali Free Zone Employment Rules (“JAFZ Employment Rules”) issued by the Jebel Ali Free Zone Authority (“JAFZA”) supersede the UAE Labour Law within the geographic territory of the Jebel Ali Free Zone (“JAFZ”).

How is this possible?

The Dubai Court of Cassation previously tested this point and determined that – to the extent that they conflict with the UAE Labour Law – the JAFZ Employment Rules take precedent.

That Court of Cassation case involved an employee sponsored by a JAFZ entity. The employee filed a claim against the employer seeking (amongst other entitlements) end of service gratuity under the UAE Labour Law.

Article (132) of the UAE Labour Law provides an entitlement for employees to receive a gratuity payment equal to 21 days’ pay for each of the first five years of service. However, article 9.9.13 of the JAFZ Employment Rules (in effect at the time of the dispute) stated that an employee would be entitled to a gratuity payment equal to only 7 days’ pay for each of the first five years of service.

This created a clear conflict.

Conventional wisdom stated that the Court would disregard the JAFZ Employment Rules and apply the more generous UAE Labour Law.

In this case, the employee had sought to apply the UAE Labour Law on the basis that it is a public law and should, as a matter of policy, prevail. The employee also argued that the more generous provisions of the UAE Labour Law should apply to his employment.

However, the Court of Cassation disagreed. The Court of Cassation applied JAFZ Employment Rules on the basis that the JAFZ Employment Rules are applicable within the geographic territory of JAFZ due to the provisions of Decree No. (1) of 1985 establishing the authority of the free zone in Jebel Ali harbor (“JAFZA Establishing Law”).

The JAFZA Establishing Law granted JAFZA the power to manage the free zone and to issue its own rules and regulations. Accordingly, JAFZA has issued its own Employment Rules which apply to employment relationships between entities registered within Jebel Ali Free Zone and the employees they sponsor.

Based on the Court’s decision, JAFZ Employment Rules will take precedence over the UAE Labour Law in the event of a conflict between the two. However, in order for the Court to address JAFZ Employment Rules, the employer or the employee governed by those Rules should raise the matter of the applicable law before the Court otherwise the Court will automatically apply the UAE Labour Law.

Undoubtedly, JAFZ has a unique position amongst free zones in the UAE. The position in other free zones in the UAE (except for DIFC and ADGM) is either that the establishing law of the concerned authority does not specifically grant the power to issue its own employment rules, or that the authority of the respective free zone decides to adopt the UAE Labour Law rather than issuing its own employment rules.

What does this mean?

It is important to note that since this case, the JAFZ Employment Rules have been amended and JAFZ now calculates end of service gratuity on the same basis as the UAE Labour Law.

However, this case has given us an important principle which is that the JAFZ Employment Rules can still, according to the Dubai Court of Cassation, supersede the UAE Labour Law in other matters involving an employee of a JAFZA entity.

This is particularly relevant in cases relating to types of employment contracts and the termination of employment contracts. For example, JAFZ Employment Rules do not acknowledge unlimited term contracts. Further, they require the employer to carry out specific steps before terminating the employee for performance, conduct or disciplinary matters. A failure to do so could render the dismissal arbitrary.

Moreover, limited term contracts governed by JAFZ Employment Rules can be terminated on or before the expiry of the service period described in the contract, provided that a notice of termination or a notice not to renew is given by either party. On the other hand, there isn’t such a requirement in the termination of a limited term contract governed by the UAE Labour Law.