The DIFC Authority has published a draft of the new DIFC Employment Law (proposed DIFC Law No. 6 of 2018) (the “New Law”) for public consultation for a period of one month. The New Law is intended to replace Law No. 4 of 2005, as amended by Law No.3 of 2012 (the “Existing Law”). The Existing Law shall remain in full force and effect until further notice.
The initial aim of the DIFC Authority was to bring the DIFC Employment Law more in line with the UAE Labour Law, and to reduce the gulf between them. The New Law attempts to balance the needs of employers and employees in the DIFC with strict emphasis being placed on providing a framework of minimum employment standards and fair treatment. The aim is to foster employment practices that will contribute to the prosperity of the DIFC.
The DIFC Authority has acknowledged that the Existing Law needs to change and that such changes impact each and every employee within the DIFC. To that end, the proposed amendments have gone through several iterations during the course of 2017 culminating in the launch of the Consultation Paper. Given the interest in this piece of legislation and the potential for further proposed changes, I would anticipate the law coming in to force later this year.
There were a number of proposed changes put forward to the DIFC Authority to consider including the introduction of an unfair dismissal provision similar to the UK; however, this was viewed as quite a draconian measure and was rejected. Similarly, there have been discussions around the introduction of the Wage Protection Scheme (WPS) in the DIFC however this has been parked for the time being.
There have been a number of changes to the Existing Law:
There is no stipulation within the New Law as to what the length of probation should be. However, if a probationary period is agreed between the employer and employee, then this must form part of the employment contract. Also, minimum notice periods will not apply during the probation period.
The New Law sets out guidance on an employee’s duty to their employer, which shall include the following:
Article 18 of the Existing Law caused a number of issues on payments at termination and was the key driver behind the development of the Existing Law. Its application has seen harsh consequences for employers within the DIFC. For example, where an employer unintentionally miscalculates a payment due on termination, this could trigger the penalty clause under the Existing Law – the consequences could be devastating and in some instances have led to restructuring of businesses and closure of operations.
The Existing Law provides that where an employer fails to pay wages and any other amount owing within 14 days of the termination of an employee’s employment, a penalty payment shall become payable. Such a penalty would be equivalent to the employee’s daily wage whilst the amount remains unpaid and there is no cap on the maximum liability of the penalties to be applied.
The New Law, creates certainty on how penalties are to be applied for late payment of any remuneration and/or end of service gratuity.
The key changes to Article 18 are as follows:
As such, the provision under Article 18 shall now operate within certain boundaries with the intention to curb any irrational penalties being applied and any unscrupulous claims being made.
Family Friendly Rights and Benefits
The Existing Law provided for 60 days statutory sick pay; however, under the New Law, the entitlements to be awarded have been reduced as follows:
This section of the Existing Law has undergone a significant overhaul.
The key changes are :
The New Law seeks to introduce the concept of constructive dismissal. A Court will have the discretion to award an employee up to 1 year’s salary, which shall include allowances but exclude commissions, bonuses and any other payments, which are discretionary, do not to form part of the employment contract and/or those that are non-recurring.
Payment in Lieu of Notice
The New Law permits an employer to make a payment in lieu of a notice period; however, if this amount is paid, the employer will have the opportunity to require the employee not to work for any third party for the duration of that notice period.
End of Service Gratuity (“EOSG”)
There has been extensive discussion surrounding the future of end of service benefits and whether as the DIFC matures as a jurisdiction, we start to move towards the introduction of a pensions law. Whilst a Working Pensions Group has been set up to look into the abolishment of the end of service gratuity provision, and to replace this with a more conventional pension arrangement, for the purposes of the New Law, there are some key changes, which will affect the way in which EOSG works and how and when it will be paid:
The New Law attempts to clarify the liability of employers based on the conduct of its employees. As such, the New Law sets out the following test to determine whether or not the employer is liable for the acts of its employees:
A person who makes a disclosure of information in good faith and in accordance with the DIFC Companies Law shall be protected from:
Any breach of these provisions could result in a fine of up to USD30,000.
Fines for Contraventions
One of the key issues with the Existing Law was the inability to apply any fines and/or penalties for contraventions by the employer. This has now changed and the DIFC Authority (under the New Law) has the ability to impose sanctions for breaches of the New Law. A separate Schedule 3 has been incorporated into the New Law, which sets out these penalties. For example, penalties can now be applied in the event the employer does not pay salary within 7 days from the pay period, which would attract a fine of USD2,000. Similarly, if an employer fails to provide health insurance to its employee, they would be subject to a USD2,000 fine. These amounts are payable to the DIFC Authority.
The New Law has now clarified the position on visas and permits. An employer is responsible to obtain and maintain (at their own cost) the requisite sponsorship documentation. An employer is not permitted to recoup any costs and expenses incurred from the employee in relation to visa and permits. In addition, an employer is not permitted to retain the passport of an employee. Visas must also be cancelled by no later than 30 days from the termination date.
The New Law refers to a set of Employment Regulations, which will be a secondary layer of legislation and should be read in conjunction with the New Law. These have been drafted and are undergoing some review before being released. At present however, there is no indication nor is there a definitive date as to when these Regulations shall be released.
If you would like to provide feedback on the New Law, you can either do so directly to the DIFC Authority (email@example.com) in the prescribed form. Alternatively, we would be happy to receive your feedback and share this in our collective response to the DIFC Authority.
If you are concerned about how the New Law will impact your business/organization and want to learn more about the new proposed changes and what you should be doing now in readiness for the New Law, please feel free to get in touch.