Updating job contracts with the new rule
THERE ARE A NUMBER OF IMPORTANT DEVELOPMENTS WHICH WILL AFFECT THE UAE LABOUR MARKET IN 2023, WHICH WE HAVE SUMMARISED BELOW.
DEADLINE FOR COMPLIANCE WITH THE NEW UAE LABOUR LAW
The new UAE Labour Law, which came into force in February 2022, needs all the employees of companies in the private sector (outside of the DIFC and ADGM) to be working on fixed-term employment contracts. The time limit for transitioning employees onto the requisite fixed-term employment contracts is February 1, 2023.
The 3 year-cap on the duration of the fixed-term, which was originally imposed by the new UAE Labour Law, was removed in October 2022, letting the parties to agree whatever length of fixed-term they wish (although a fixed-term is still obligatory).
The elimination of the maximum cap on the time, together with the fact that either party has the right to dismiss the employment contract prior to the expiry of its term, renders the fixed-term element of the employment contract largely meaningless. For example, if the parties agree a 7 year fixed-term contract, the employment contract is, for all intents and purposes, a permanent employment contract.
EMIRATISATION
New Emiratisation quotas came into force on January 1, 2023
Emiratisation only applies to private sector companies registered with the Ministry of Human Resources & Emiratisation (MoHRE). It does not presently apply to entities located in any of the UAE’s free zones.
With effect from January 1, 2023, at least 2% of a company’s staff must be UAE nationals.
A company’s mandatory Emiratisation quota will increase by 2% each year, until 10% of its total skilled workforce are UAE nationals.
A company which fails to comply with its mandatory Emiratisation quota will be subject to a fine of AED 6,000 per month for each outstanding UAE national employee. These fines will increase by AED 1,000 for each year.
MoHRE has declared that it has already imposed fines of approximately AED400m on companies which have not complied with their obligations.
Remarkably, fines have been imposed on companies for their non-compliance for 2022, including for the period before the initial resolution was issued on 6 June 2022. Most companies had expected the fines to be “forward-looking” i.e. to apply in respect of non-compliance from January 1, 2023 onwards.
It also appears that the MoHRE is calculating a company’s compliance by reference to the size of its skilled and unskilled workforce.
INTRODUCTION OF UNEMPLOYMENT INSURANCE SCHEME
Deadline to comply: June 30, 2023
In October 2022, the UAE government announced the introduction of an unemployment insurance scheme.
From June 30, 2023, all employees in the private sector in the UAE, excluding those in freezones (although that may change), must register with the scheme.
Employees must then pay (i) AED 5 per month into the scheme if they earn less than AED 16,000 per month; and (ii) AED 10 per month into the scheme if they earn more than AED 16,000 per month.
To be eligible to receive unemployment benefits under the scheme, an employee must have (i) been enrolled in the scheme for at least 12 months; and (ii) received 12 months’ worth of contributions made by their employer.
Eligible employees will be entitled to receive 60% of their registered monthly salary, up to a maximum of AED 20,000, for a period of three months following their termination.
Whilst employers are not under any obligation to ensure that employees register and make the requisite contributions, they are encouraged to do so.
WHATS NEXT?
The strict enforcement of the new Emiratisation quotas is one of the most significant changes to the UAE labour market in recent history. It will inevitably have a profound effect on affected companies and the employment of UAE nationals in the private sector. Fines and other penalties for non-compliance, including blocks on affected companies’ ability to obtain new work permits, are significant and are being routinely imposed. All companies need to understand their obligations and need to devise a strategy for dealing with those obligations.
In relation to the unemployment scheme, companies will need to consider how their termination strategy might impact an employee’s ability to claim unemployment benefits.
