08 Dec 2013

THE FAST AND THE FURIOUS – WHY FAST DRIVING EMPLOYEES MAY LEAVE EMPLOYERS FURIOUS

Authored by: Jamie Liddington and Reece Leggett

THE FAST AND THE FURIOUS – WHY FAST DRIVING EMPLOYEES MAY LEAVE EMPLOYERS FURIOUS

In October this year, the Interior Ministry announced that new rules have been introduced to prevent expatriates from permanently leaving the UAE until such time as they have paid all their traffic fines. In this article, Reece Leggett and Jamie Liddington take a look at how this announcement is likely to adversely affect employers - by causing delay and even possibly forcing employers to pay the fines on behalf of the departing employee.

In brief:

  • On 31 October, the Interior Ministry announced that procedures to cancel visas for expatriates will be linked with the payment of all their traffic fines.
  • When an employment relationship ends (whether by termination or resignation) the employer must, as a key element of the exit procedure, cancel the employee’s work permit and residence visa.
  • The introduction of the new measures for clearing traffic fines, now put in place by the Interior Ministry, has the potential to act as a clamp on the established “visa cancellation” process.
  • Prior to making any deductions from salary or end of service gratuity, employers should be aware of the relevant provisions of Federal Law No. 8 of 1980 Regulating the Employment Relationship in the UAE (as amended) (the “Labour Law”) or the DIFC Employment Law No. 3 of 2012 (“DIFC Employment Law”), which set out the situations in which an employer is permitted to deduct amounts from an employee’s entitlements and the restrictions that apply in this regard.

The Announcement
 
On 31 October, Brigadier Rashid Sultan Al Khadr, Director of Legal Affairs Department at the Interior Ministry announced that “We have linked procedures to cancel visas for expatriates with the payment of all their traffic fines. This step is intended to ensure that departing expatriates will pay all their financial dues to the state”.
He further stated “This means no application for visa cancellation by expatriates will be approved and they would not be allowed to leave the UAE unless they pay all their traffic fines”.

On the face of it, this announcement is a common sense approach to ensure that expatriates pay their traffic fines. However, looking under the hood, the connection between payment of fines and the visa cancellation process is likely to have unforeseen negative consequences for employers.

And this could be just the beginning. Brigadier Rashid Sultan Al Khadr further stated that “The Ministry is also considering expanding this experience in the near future, so all visa and immigration procedures will be linked to payment of all dues, including traffic, civil defence and other fees”.

The Visa Cancellation Process

When an employment relationship ends (whether by termination or resignation) the employer must, as a key element of the exit procedure, cancel the employee’s work permit and residence visa. This involves the completion and submission (to the Ministry of Labour or relevant free zone authority) of the standard “application for visa cancellation” form together with the (temporarily surrendered) passport of the leaving employee. If the application is granted, the relationship between the employer and employee is effectively severed with the employer having no continuing legal obligations to the employee.

The introduction of the new measures for clearing traffic fines, now put in place by the Interior Ministry, has the potential to act as a clamp on the established “visa cancellation” process. This is regardless of whether the employee intends to leave the UAE, or remain in the UAE and transfer to another company. Until these fines are paid off, the application by the employer for the cancellation of the employee’s work permit and residence visa will be denied.

This is particularly concerning for employers who are granted only a limited number of employee visas. If the employer has reached the limit of its visa allocation, it will either have to (a) ensure the departing employee has settled all outstanding fines before they will be able to engage any new staff or (b) pay the fines itself and then attempt to recover its outlay from the employee.

What happens if an employee refuses or is unable to pay their traffic fines?

If an employee is in financial difficulty, he may have insufficient funds to pay any outstanding traffic fines. The employer will then be left in the invidious position of wanting to complete the “visa cancellation” process as quickly as possible (and so remove the employee from its payroll) but, on the other hand, not wanting to bear the cost of the traffic fines.

One possible solution is for employers to deduct amounts outstanding for traffic fines from any unpaid wages or end of service entitlements.

Deductions

At the end of an employee’s period of service, the employee will typically receive their final salary payment, end of service gratuity (“ESG”) (if the employee has been employed for a period of more than one year), and payment in respect of any accrued but unused annual leave. Prior to making any deductions from salary or ESG, employers should be aware of the relevant provisions of Federal Law No. 8 of 1980 Regulating the Employment Relationship in the UAE (as amended) (the “Labour Law”) or (as the case may be) the DIFC Employment Law No. 3 of 2012 (“DIFC Employment Law”), which set out the situations in which an employer is permitted to deduct amounts from an employee’s entitlements and the restrictions that apply in this regard.

Deductions from final salary

Article 60 of the Labour Law provides that “No amount of money may be deducted from an employee’s remuneration in respect of private claims except in the following cases...(e) Fines imposed upon the employee for any offence he has committed”. (Note: Paragraphs (a) to (d) of Article 60 have no relevance in the present context.)

Article 60(e) appears to give employers the green light to recover from the employee the amount of any fines paid by the employer or from an employee’s salary. However the reference to “fines” is likely to be limited to disciplinary penalties imposed by the employer (see Article 102 of the Labour Law), rather than as a reference to any traffic fines.

The intention of Article 60 (e) is that an employer can make lawful deductions from the employee’s salary to recover sums from the employee as payment in satisfaction of a disciplinary fine.

Notwithstanding this, even if this clause is applicable, the employer is limited to deducting a maximum of 25% of the employee’s monthly wages. In the event that a particular employee had incurred a large number of speeding fines but had no other amounts owing to the employer or any other beneficiary, this cap on the maximum deduction may prevent the employer from recovering the full amount.

Therefore, it is doubtful that an employer will be able to make a lawful deduction from the employee’s final salary entitlements.

The position under the DIFC Employment Law is similar though less prescriptive in relation to what are considered lawful deductions. Article 19 of the DIFC Employment Law provides that:

“An employer shall not deduct from an employee’s wages or accept payment from an employee unless:
(a)   the deduction or payment is required or authorised under a statutory provision or the employee’s contract of employment;
(b)   the employee has previously agreed in writing to the deduction or payment;
(c)   the deduction or payment is a reimbursement for an overpayment of wages or expenses; or
(d)   the deduction or payment has been ordered by the Court.”

Accordingly, the DIFC Employment Law requires that the contract of employment must expressly provide that a deduction may be made from the employee’s wages. Any such clause is more likely to be enforceable where it expressly covers the exact circumstances in which the deduction is made.

Deductions from Accrued but Unused Holiday Entitlement

On the face of it, accrued but untaken annual leave entitlement would seem to constitute an available fund, out of which an employer, who has paid outstanding traffic fines on behalf of a leaving employee, may reimburse itself.

However, there are two possible difficulties to keep in mind.

First, although the position is unclear, accrued annual leave entitlement might be regarded by the courts as equivalent to the employee’s salary in which case, the restrictions regarding deductions from salary will apply.

Secondly, it is conceivable that the employee may have used up all his leave entitlement, in which case there will be no amount payable in respect of accrued annual leave.

Deductions from End of Service Gratuity

Article 135 of the Labour Law provides that “an employer may deduct any amounts owed to him by a worker from the latter’s severance pay”.

Although Article 135 provides a much wider basis on which employers can recover monies owed following the payment of traffic fines, employers would be well advised to regard Article 135 as an amber light and proceed with caution.

Not all employees will be entitled to an ESG as a minimum of one complete year of service is required before an entitlement to ESG accrues. In some cases, employees who would in principle be entitled to an ESG may have elected under Article 141 to forego that entitlement and join the employer’s pension scheme instead.

As regards the corresponding provisions in the DIFC Employment Law (Article 62), this is cast in similar terms to Article 135 of the Labour Law and accordingly the same caveat applies.

A question also arises in relation to both Article 135 (Labour Law) and Article 62 (DIFC Employment Law) as to whether the employer is unilaterally able to determine that the employee owes an amount of money where the employer has itself decided to pay a fine on behalf of the employee. If that were the case, the employer would have extremely wide powers over an employee’s end of service entitlements. It is our view that employers should not view Article 135 (Labour Law) and Article 62 (DIFC Employment Law), as being an impenetrable shield and that instead, they should consider taking the following precautionary measures.

Precautionary Measures

Employers should ensure that they obtain a secondary level of protection in addition to Article 135 (Labour Law) and Article 62 (DIFC Employment Law) by including within the employer’s standard employment contract a clause which permits the employer to deduct any outstanding amounts, owed to the employer by the employee, from either the employee’s end of service entitlements (or final wages in the DIFC). By signing an employment contract containing such a clause, the employee will have consented to the deduction in writing and the contract would then prove to be an almost insurmountable hurdle, in the event that the deduction was challenged by the employee.

Furthermore, as an added precaution, any employer who is in the position of having to make a payment on behalf of an employee might consider drawing up a simple agreement. The agreement should clearly state (i) that the employer has paid out a specific amount on behalf of the employee, (ii) that such payment was made with the employee’s approval and (iii) that the employer may deduct the relevant amount from the employee’s ESG and other end of service entitlements (or final wages in the DIFC) by way of reimbursement. This measure would be especially important in the case of existing employees who were employed under a private employment contract which did not include an express “deductions” clause.

It remains to be seen whether the Interior Ministry’s announcement has the unintended consequences considered above and, meanwhile, the event should be seen as an early warning to employers to ensure that their contracts of employment (and in particular, any “deductions” clause) are in good shape and offer adequate protection should the need arise to rely on them in the future.

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 develop jurisdiction of the UAE.