Amendments to the DIFC Employment Law announced

As our DIFC-based clients may be aware, the DIFC authority announced a consultation on the DIFC Employment Law (DIFC Law No. 2 of 2019, as amended by DIFC Law No. 4 of 2020) (the Old Law) in February 2021. Changes to the Old Law, and to the Employment Regulations dated 1 February 2020 (issued in respect of the changes made to end of service gratuity and the introduction of the Qualifying Scheme), have now been confirmed with the issuance of DIFC Law No. 4 of 2021 (the New Law) and the Employment Regulations 2021 (Qualifying Scheme requirements under Article 66 of the Law) (the New Regulations), respectively.

We summarise the key changes below, all of which are effective immediately as of 21 September 2021.

New Law

Alternative working models

The Old Law specifically provides for an individual employed by a third party to be seconded to a DIFC company, in which case the individual’s employment can continue to be governed by a law other than the Old Law. The New Law now expands certain statutory obligations and protections to secondees; namely obligations in relation to an employer’s confidential information and complying with an employer’s instructions and protection from discrimination and harassment.

Short-term employees (defined by the Old Law as employees whose work does not exceed an aggregate of 30 working days over a 12-month period) are also now entitled to protection from discrimination and harassment under the New Law.

Employer obligations where employees are working from home are confirmed by the New Law, with employers required to:

1. provide information and training to employees working remotely to ensure their health and safety;
2. inform employees in writing at the time of recruitment of any dangers connected with employment and the protective measures employees should take; and
3. comply with their general obligation to ensure, so far as reasonably practicable, the health and safety of all employees (including those working from home).

Employers are not required to ensure any systems are in place at an employee’s home in relation to fire hazards or the transportation or use of dangerous articles and / or substances.

Probation periods for fixed-term contracts

Under the New Law, where an employee is employed on a fixed-term contract for six months or less, the duration of any probationary period may not exceed half of the contractual term. As an example, where an employee is employed on a four-month contract, their probation period may only be up to a maximum of two months.

Limitation periods

The New Law upholds the six month limitation period introduced by the Old Law, and also confirms that employees may bring claims during their employment.

The New Law also clarifies when the six month limitation ‘clock’ starts in relation to claims for unlawful deductions from, or non-payment of, amounts owed to an employee. The ‘look back’ period is confirmed as being two years, save for when the amounts claimed relate to:

1. maternity pay;
2. paternity pay
3. pay in relation to time off for ante-natal or adoption proceedings; 4.
4. sick pay; or
5. end of service gratuity or contributions to any qualifying scheme.

Annual leave

Under the New Law, employers and employees can agree an amount of accrued annual leave to be carried forward provided that this is not less than five working days of annual leave. The New Law also clarifies the slightly ambiguous position that existed under the Old Law and confirms that the parties may agree a higher carry-over amount.

Following the introduction of statutory paternity leave under the Old Law, the New Law also confirms that annual leave shall continue to accrue during paternity leave, whether this be the period of five working days under the New Law or any longer period as may be granted by the employer.

Qualifying scheme benefits

The New Law confirms that multiple successive fixed term contracts will be treated in aggregate when determining an employee’s overall period of employment (which in turn impacts the calculation of an employee’s gratuity entitlement and contributions to be made to a Qualifying Scheme on their behalf).

The New Law also takes steps to limit any potential abuse by employers of the rules around calculation of an employee’s ‘core benefits’ (i.e. the contributions to be made to a Qualifying Scheme on an employee’s behalf). Firstly, it confirms that an employee’s monthly basic wage for a certain month shall not take into account:

1. any lawful deductions made by the employer;
2. any reduced amount paid to an employee whole on sick leave or maternity leave; or
3. the employee being on unpaid annual leave.

The New Law also expressly states that any agreement between an employer and employee which has the effect of reducing an employee’s monthly basic wage by making regular wage-related payments appear discretionary, or appear calculated with reference to the employer (or an affiliate’s) profits, shall be null and void. Whereas under the Old Law, employers and employees could agree that certain payments would not form part of the employees monthly basic wage (Additional Payments) this scope is narrowed by the New Law - these can no longer be excluded by agreement only and must be:

1. discretionary;
2. non-recurring; or
3. calculated by reference to the profits of the employer or any affiliate.

Bonuses and commission payments are expressly included within the statutory definition of “Additional Payment”, provided the above criteria is met.

Separately, the New Law confirms that monthly savings scheme contributions are not required in respect of any drawings, profit distributions or dividends which are received by equity partners from either their DIFC employer or its affiliates (rather than only the DIFC entity). This will be a welcome confirmation for clients operating a model where partners own equity in headquarters based overseas.

New Regulations

Qualifying Schemes

Under the Qualifying Scheme savings regime introduced in February 2020, employers may either utilise the default DIFC Employee Workplace Savings Plan (DEWS Plan) or an alternative scheme (Qualifying Scheme) provided certain requirements are met. However, following implementation, the DIFC Authority and DFSA encountered issues in assessing applications from other qualifying schemes operated by foreign service providers.

As per the New Regulations, a Qualifying Scheme, its trustee and administrator must be established in the DIFC and regulated by the DFSA, save for where:

1. the employer is under a statutory duty in another country to make pension, retirement, saving, gratuity or any substantially similar contributions into a scheme in such other country for those employees; or
2. the employer is making payments to a group scheme on behalf of employees where the value of such payments (not including any payment or contribution made by the employer or the group to the costs of operating the scheme), is in excess of the core benefits payable under the New Law. Importantly, a scheme will only qualify as a ‘‘Group Scheme‘‘ if it is available in at least four countries (although this requirement may be waived by the DIFCA) exclusively to employees of the group and is regulated and supervised by a financial services regulator.

DIFC employers currently using a savings scheme as an alternative to the DEWS Plan which will not satisfy the proposed new requirements (there are only a limited number of DIFC employers who fall into this category) will have a 12-month grace period (from when the new legislative requirements come into effect) to transition to a different employee savings scheme going forward.

Notification of change to employee’s contributions

The New Regulations introduce an obligation on DIFC employers to notify the Operator of a Qualifying Scheme of any change in circumstances that affect the amount of contributions made on behalf of any applicable employee. For our clients using the DEWS Plan, this will be Zurich.

Fees

A fee of USD500 has been introduced for employers applying for a Certificate of Compliance or an Exemption Certificate.

Next steps

We are currently assisting clients with:

1. updating employment policies;
2. amending template employment contracts, and existing contracts where necessary; and
3. general queries on the amendments.

Please let us know if we can assist you with the implementation of any of the changes introduced by the New Law and / or the New Regulations.