02 Jul 2019

The most significant changes DIFC employers need to know about the new DIFC Employment Law No. 2 of 2019

Authored by: Rachel Hill

In brief:

  • The new DIFC Employment Law (Law No. 2 of 2019) will come into force on 28 August 2019.
  • The new Law will repeal and replace DIFC Employment Law No. 4 of 2005 and its amendment law, DIFC Employment Law Amendment Law No. 3 of 2012.
  • In this article, we provide insight into the new Law and highlight some of the significant changes that DIFC employers need to know about.

Background

The DIFC Authority has enacted a new DIFC Employment Law (Law No. 2 of 2019) (the New Law) that, from 28 August 2019, will repeal and replace DIFC Employment Law No. 4 of 2005 (the Old Law) and its amendment law, DIFC Employment Law Amendment Law No. 3 of 2012 (the Current Law).

The DIFC Authority has said the New Law is a step toward ‘balancing the needs of Employers and Employees in the DIFC’ and will help create ‘an attractive working environment for the almost 24,000 strong workforce based in the DIFC’.

The changes brought about by the New Law are extensive. In this article, we highlight the most significant changes. However, given the extent of the changes that have been made to the Current Law, DIFC employers are advised to ensure that their employment contracts, together with their policies and procedures, are fully aligned with the New Law and that HR and management are appropriately inducted on the New Law before it comes into effect on 28 August 2019.

Why has the law changed?

It is generally accepted that the Old Law and the Current Law have some 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, a major cause of concern for employers has been the penalty regime which was introduced under the Current Law. In brief, 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 applied to Article 18; no matter how small the underpayment on termination, the employer is liable to pay the penalty imposed by the Current Law.

Which are the most significant changes?

  1. Penalty Payments

As described above, Article 18 of the Current Law provides that an employer must ensure payment of an employee’s end of service entitlements within 14 days of the termination date of the employment, failing which the employer may face daily penalty accruals of the employee’s last daily wage for each day of delay. Under the Current Law, Article 18 has been criticised as being too onerous. Most would agree that while there should be an incentive for employers to pay employees their end of service entitlements without delay, the punishment for a genuine delay is arguably unfair in some circumstances.

The most egregious example would be the employer who inadvertently miscalculates a single item due on termination and underpays the employee by a few dirhams. Under the Current Law, that employee could wait for up to six years to file a claim for the penalty which would equate to their daily wage payable over the entire six year period (less the first 14 days) . Clearly, this could have a significant effect on the offending employer’s cashflow.

Article 19 of the New Law overcomes some of these issues as it:

  • refines the penalty payment by retaining the Current Law’s obligation for an employer to ensure payment of an employee’s end of service entitlements (now expressly excluding any bonus, grant, commission or any other payment made by an employer to an employee that is discretionary or non-recurring) within 14 days of the employment termination date yet restricting the application of the penalty to situations where, the overdue amount exceeds the employee’s weekly wage – a positive step for employers.
  • waives the penalty where the payment entitlement is subject to a dispute pending in a DIFC Court or where the employee’s unreasonable conduct is the material cause of the delay. We assume the DIFC Court will have discretion to determine what is deemed to be ‘unreasonable conduct’ and although it is obvious why the Court should be granted that discretion i.e. to avoid any harsh or absurd outcomes, it is possible that uncertainty relating to the Court’s interpretation of “unreasonable” will lead to more litigation in circumstances where employers feel that they had valid grounds for a failure or delay in making payment.
  • includes a welcome addition of  a six month limitation period for either party to raise a claim (commencing from the employment termination date) in respect of the accrual of penalties.
  1. Discrimination Remedies

The 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 adds “pregnancy and maternity” and “age” to the list of grounds upon which employers must not discriminate against an employee, bringing the discrimination provisions more in line with other developed jurisdictions.

For any employee who is found by the Court to be the victim of discrimination, the New Law allows 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. Should an employer not take the steps ordered by the Court to reduce the adverse effect of the discrimination on the successful employee and where compensation has been awarded, such compensation may be increased by the Court to a maximum of two years’ wage.

The New Law also includes a provision for victimisation. Victimisation is where an employer subjects the employee to a detriment or dismisses him by virtue of the employee doing a ‘protected act’. Such acts include raising a claim for discrimination, assisting in any claim in respect of discrimination, including giving evidence or alleging discriminatory acts against the employer unless such acts are conducted in bad faith.

  1. Termination for Cause

Article 63 of the New Law replaces Article 59A of the Current Law and is arguably the most controversial change of all. Article 59A of the New Law stipulates that an employee terminated for cause remains entitled to receive their end of service gratuity. By removing the employer’s ability to withhold payment of end of service gratuity where the employee’s employment is terminated for cause represents a shift away from the UAE Labour Law’s position (Federal Law No.8 of 1980 as amended) which is the law applicable outside of the DIFC (Federal Labour Law). The logic of the DIFC Authority is that end of service 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 even if it is serious.

  1. Atypical Working Arrangements

The New Law clarifies the application of the law to part-time employees and short term employees (see Article 17) as well as secondees (secondment arrangements are not formally recognised under the Current Law). It also clarifies 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 benefit from all the protections afforded by the New Law (see Article 4(4)).

The clarification that the New Law applies to part-time and short term employees will no doubt be welcomed by DIFC employers who, until now, have had been uncertain as to the extent of entitlements and obligations which apply to employees not engaged in full-time permanent roles.

  1. Working Time & Leave

In general, the New Law provides greater alignment with the Federal Labour Law by reducing the entitlement to paid sick leave (which is very generous under the Current Law) to 10 days at full pay, 20 days at half pay and 30 days unpaid.

The New Law also introduces Paternity Leave and Paternity Pay (five days) for any male employee who has more than twelve months’ continuous employment prior to the expected or actual week of birth or adoption. 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 54 of the New Law clarifies the liability of employers for the conduct of its employees (i.e. vicarious liability). Although this is not an entirely new provision, the existing obligation under the Current Law is clarified and aligned with the position under English law. For an employer to be liable for a claim for loss, damage or compensation arising from an 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, in the case of discrimination or victimisation 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 do not address the consequence of failing to comply with the obligation.Article 9 of the New Law introduces a fines and penalties regime in order to ensure compliance with the obligations imposed by the New Law. Schedule 2 of the New Law sets out a list of potential infractions and the corresponding fine/penalty where the employer fails to comply with its obligation(s).

By way of example, if the employer fails to provide an adequate supply of clean drinking water for all employees in the workplace, this shall result in a penalty/fine of USD $2,000.

Will the New Law achieve its stated aims?

The New Law improves the balance between the rights of employers and employees in the DIFC. In particular, the New Law clarifies and refines the penalty payments introduced by Article 18 of the Current Law and provides a balanced suite of remedies in relation to discrimination and victimisation.

Meanwhile, some commentators have observed that changes to the termination for cause provisions may create uncertainty regarding an area that had become relatively settled. Since 2014 there has been a consistent approach from the DIFC Courts in relation to the absence of any unfair dismissal protection under DIFC Employment Law. In this respect, we foresee the possibility of certain employees (who are seeking to move for whatever reason) considering the tactic of resigning as a means of pre-empting the employer’s decision to terminate for cause which then triggers potential claims for compensation.

 

If you would like to discuss any aspects of this article or the New Law with a member of our team we would be happy to hear from you. Please direct all enquiries to Rachel Hill, Head of Employment at: r.hill@hadefpartners.com or 04 429 2892.

 
 

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.