News


15/09/2011


In this Hadef Highlight, Mandeep Kalsi provides an overview of some of the key employment rules and provisions applicable to the Jebel Ali Free Zone Authority (JAFZA). 

In Brief
  • In general terms, employment relationships in the UAE are regulated by Federal Law No.8 of 1980, as amended (the Labour Law), with the exception of the Dubai International Financial Centre which is subject to its own employment rules. However, within the various UAE free zones, specific regulations and procedures apply which the relevant free zone authorities are responsible for enacting and enforcing.  
  • JAFZA's employment regulations do not amount to a full scheme of employment legislation. This means that all matters not expressly covered by the JAFZA employment regulations are automatically governed by the Labour Law. Where JAFZA's employment regulations are seen to conflict with the Labour Law (to the extent that they disadvantage the employee) the Labour Law takes precedence.
  • To avoid any doubt, minimum terms of service for all persons employed within JAFZA (e.g. with regard to annual leave entitlement, sick pay, termination after due notice, etc.) are governed by the relevant provisions of the Labour Law.   
JAFZA - Introduction

The concept of a free zone has existed for several centuries with its origins dating as far back as the seventeenth and eighteenth centuries. The objective of a free zone has continually evolved over time but the underlying purpose is to provide a tax-free entrepot and a haven for commercial activity of all kinds. 
 
In the United Arab Emirates (UAE), there is a multitude of free zones catering to various different industry sectors –  from healthcare, information and communications technology to finance, commodities, maritime and air transport.   
 
JAFZA is one of the largest free zones in the world, accommodating some 6,400 companies. Having been established in 1985, it today spreads over an area of 48 square kilometres. In a way that has become a model for the other free zones in the UAE, JAFZA has established a “user-friendly” regime that permits businesses to operate without local participation or agency requirements, offers customs and duties exemptions on imported goods retained within the zone and a 50-year tax holiday. It also offers a “one-stop shop” arrangement whereby a dedicated JAFZA customer service department (Customer Service Department) interfaces with federal government departments and agencies, on behalf of the licensee companies.   
 
EMPLOYMENT RULES
 
Sponsorship
 
In contrast to the position in non-zone UAE, employees of JAFZA-registered entities are sponsored by JAFZA. Licensee companies enter into a Personnel Sponsorship Agreement (PSA) with JAFZA which sets out the terms and conditions under which JAFZA will act as sponsor for staff of the licensee company. The PSA also contains such details as how many employees the employer may engage to work within JAFZA.
 
Licensee companies must also sign a standard form employment contract with each person engaged by the company. The JAFZA standard form contract is similar to that issued by the Ministry of Labour and contains basic terms of service, with a section to permit the inclusion of supplementary benefits. The licensee company must file a copy of the signed contract with the Customer Service Department. Company and employee may also sign a "private" employment contract setting out more detailed terms of service. This private contract need not be filed with JAFZA. 
 
Although the employees of licensee companies may ordinarily only work within the JAFZA zone, they are permitted to live in Dubai and move freely around the UAE. In circumstances where the licensee company has a need for any of its employees to work outside the JAFZA zone, the company must (under JAFZA regulations) obtain prior approval from the Authority.  

 
Remuneration payment

The UAE has since 2009, taken formal steps to ensure that salary payment is properly regulated. In accordance with the Wages Protection System (WPS), payment of employee salaries must be made by direct electronic transfer into a local bank account via a regulated domestic bank. However, as the WPS is applicable only to those companies registered with the Ministry of Labour, its reach has yet to extend to companies operating within the many free zones, including JAFZA.

Notwithstanding this, JAFZA implements its own regime akin to the WPS with its Customer Service Department providing companies on a monthly basis, computer generated reports listing the names of the sponsored employees against which the employees' signatures are required to confirm all emoluments due have been paid for the relevant month in question (Salary Certificates). These Salary Certificates must also be certified by the company and any Salary Certificates not bearing an employee's signature must be annotated with a reason (e.g. "on leave").

 
The signed and certified Salary Certificates must be returned to the Customer Service Department before the 15th of the month. Failure to provide the Salary Certificate by the aforementioned date will result in sanctions and fines being imposed on the licensee company.

 
Medical cover

Since 2009, all JAFZA-licensed entities have been required to provide mandatory medical cover in respect of all their sponsored employees. Medical cover can be arranged through the Department of Health & Medical Services Clinic in Jebel Ali Village on payment of a prescribed fee.
 
Alternatively, an employer may make its own arrangements for the provision of medical insurance cover for its employees. Such insurance must be adequate to cover both out-patient and in-patient hospital treatment.

 
Compensation for injury

Where an employee sustains an industrial accident, he will be eligible for financial compensation from his employer in accordance with the JAFZA regulations.

 
Discipline

JAFZA must be notified of any disciplinary action taken against employees within 10 days of the action being taken. Certain prescribed information must be provided by the licensee company to the Customer Service Department including the date and nature of the offence, the disciplinary action taken and the General Manager's signature.

 
Termination

 
Fixed-term employment contracts come to an end on the expiry of the contract period provided that the party not intending to renew the contract provides written notice to the other party of not less than 30 days. Unlimited duration contracts may be terminated by mutual agreement (subject to approval by JAFZA) or by either party giving written notice to the other in accordance with contractual notice provisions.

 
An employer may terminate an employee without notice for any of the prescribed reasons set down in the JAFZA regulations, which are broadly the same as those set down in Article 120 of the Labour Law. However, the termination of employees without notice is stated to be subject to approval by JAFZA. Correspondingly, an employee who seeks to terminate without notice his employment with the licensee company (as under the JAFZA regulations) must receive prior approval from JAFZA.
 
In cases where the employee is terminated otherwise than "for cause,” he is entitled to compensation as assessed by JAFZA. Such compensation shall not, in any event, exceed 3 months' basic remuneration.
 
Severance

Subject to an employee not being dismissed for a gross misconduct or performance-related offence or resigning before the completion of one year's service, on the termination of his contract, the employee is entitled to be paid an end of service gratuity (ESG) calculated by reference to the level of remuneration as at the contract end date.   
 
JAFZA had, unsuccessfully, in the past (notwithstanding that this would have been constitutionally invalid) attempted to limit the ESG accrual rate to 7 days per annum.      
 
Labour disputes

The Customer Service Department is responsible for resolving any labour disputes arising between the employer and the employee, in accordance with the JAFZA regulations, with JAFZA's decision being expressed as final.
 
In the event that the Customer Service Department is unable to bring about a successful resolution between the parties, it shall transfer the case to the Dubai Courts.

 
Author: Mandeep Kalsi
m.kalsi@hadefpartners.com