New UAE labour law rules

Employment Alert

The UAE Ministry of Labour has publicised three new Ministerial Decrees covering key employment law issues. Ministerial Decrees 764, 765 and 766 deal with standard work contracts, termination of limited and unlimited contracts and granting of new work permits. The new Ministerial Decrees are due to come into effect on 1 January 2016 and will apply onshore (ie outside of the free zones) in the UAE.

Whilst the new Decrees have not yet been published in the Official Gazette, their contents have been explained by the Ministry of Labour (Ministry). We have set out below a brief summary of the key points that will interest employers, based on our initial understanding and research into the contents of the new laws. 

Contract terms

  • A new standard form Ministry of Labour contract will apply to new employees starting after 1 January 2016 and to existing employees on contract renewal.
  • Clauses in the new standard form contract may not be altered, substituted or removed unless the changes benefit the employee and are approved by both the employee and the Ministry.
  • No new clauses may be added to the standard contract unless they comply with the Ministry's legal requirements, do not conflict with other clauses of the standard contract and are approved by the Ministry.
Unlimited and fixed term contracts

  • Limited term contracts for new employees must now include a notice period of between one to three months. If either party terminates a limited term contract before the term of the contract expires, then the employee would also be entitled to an indemnity of between one to three months gross wages as agreed by the parties. If renewal occurs of an existing contract before 1 January 2016 and no agreement is reached on the amount of notice and indemnity to be provided then a default notice period of three months and indemnity for early termination of three months will apply. 
  • Unlimited contracts now have a maximum notice period of three months.
  • In respect of both types of contract the parties can reach a mutual agreement to terminate. 

Freedom of movement

  • The free transfer law of 2011 has been further liberalised:
    • Unskilled Workers (i.e. those without a high school diploma) will be entitled to a new work permit with a new employer provided:
      • They have at least 6 months' continuous service; and 
      • They honour the notice period in respect of an unlimited contract or the term of the limited contract together with the payment indemnity if they are on a limited term contract
    • The rules for Skilled Workers remain largely unchanged and there continues to be no minimum service requirement provided they honour:
      • The notice period in respect of an unlimited contract; or 
      • The term of any limited contract or its notice period and pay the indemnity.
    • The definition of a 'Skilled Worker (Levels 1-3)' is not defined in the New Rules but we understand based on the current Ministry classification that the minimum threshold is an employee with a high school diploma. 
  • There are exceptions to these rules for all employees, whereby an employee can change sponsor (without satisfying the above criteria) including where an employer has failed to meet its contractual obligations towards the employee e.g. in respect of payment of salary. 
Key points to note for employers

  • All employers will need to review the new standard form contract when it is issued by the Ministry to ensure that any supplemental terms (such as restrictive covenants, IP clauses and contractual terms contained in handbooks such as ethics policy) can be properly incorporated. It remains to be seen what the mechanism will be for approving supplemental terms. Given the many millions of onshore employees with supplemental terms and conditions the Ministry must be envisaging a fairly streamlined process. 
  • The cap of 3 months' notice in unlimited contracts may present a challenge for senior management contracts who will often be on notice periods of six months plus. It may take longer than 3 months to replace a senior manager. 
  • The use of fixed term contracts should be reviewed and in particular consideration given to correct length of break clauses and the indemnity that should be paid for early termination. In general the move to include break clauses should provide additional flexibility for employers where they require it. 
  • Employers who contract large numbers of 'blue collar' workers will lose the ability to prevent employees moving to another role after six months' service (subject to compliance with notice and payment of indemnity if applicable). Overall this move will create a more flexible and open market for large scale labour. 
We will provide a more detailed update when the new Ministry contract (along with any related regulations or guidance) is issued. In the interim, should you have any queries regarding the New Rules and their effect on employment contracts, please contact a member of our Employment team.