The new UAE Labor Law

Changes, benefits and implications

10 min read

Introduction ^[i]

The UAE has implemented a new Labor Law on 2nd February 2022 (replacing Federal Law No. 8 of 1980) governing the private-sector’s employment relations, titled “Federal Decree Law No. 33 of 2021,” hereinafter, the ‘Law’.

As a result, the changes in the new Law require employers operating in the UAE to take the necessary steps to ensure compliance with the additional or amended provisions.

The issuance of the new Law aims to respond to the challenges and needs of the labor market which has significantly evolved over the recent years. Additionally, the new Law reflects the UAE government’s intention to implement a regulatory and statutory framework that is aligned with global standards.

Scope of application^[ii]

The Law will be applicable to employees and employers within the UAE’s private sector. It will exclude employees of federal and local government entities, members of armed forces, police and security services and domestic employees unless future ministerial decision or decrees carve out exceptions to the provisions of the Law.

Significant changes

1. Work models[iii]

The following working models have been introduced in the workplace under the new Law in addition to full-time employment:

Part-time: working for one or more employer for a specific number of hours or days
Temporary work: work to be completed within a specific duration of time or for a specific task
Flexible work: discretion to perform all or part of the work remotely

Whilst the new Law specifies the definition of the working models, we expect further cabinet or ministerial decisions to outline their contractual terms and benefits.

More importantly, the enactment of the new Law has provided employers with additional options to meet their recruitment needs. It will also enable flexibility for employees who seek non-traditional working models.

2. Introduction of visa categories^[iv]

The Ministry of Human Resources and Emiratization has issued significant changes in the existing immigration landscape. The Executive Regulation of the Law refers to 12 types of work permits to reflect various sponsorship and employment arrangements, including:

Work permit to recruit workers from outside the country
Transfer work permit – a permit under which a non-national worker is transferred to and from the facility registered in the ministry
Work permit for those registered under the residency of their parents
Temporary work permit
Task work permit for companies willing to recruit a worker from abroad to complete a temporary work or a specific project within a fixed term
Partial work permit to employ a worker under a part-time contract
Juvenile work permit for those between the ages of 15 -18 years
Student training and employment permit to train or employ a student who has reached the age of 15 years
Work permit for a citizen/person from the Gulf Cooperation Council countries
Work permit for holders of golden residency
Work permit for a National Trainee to train an Emirati citizen pursuant to his approved scientific qualification
Freelance permit for individuals aiming to engage in self-employment without the sponsorship of a specific employer and without the requirement of a valid employment contract. This is similar to the freelancer visa available to expats in some of the UAE’s free zones.

The Executive Regulation of the Law further specifies that additional work permits may be introduced through a separate decision in accordance with the provisions of the Law. This is important for improving the flexibility of the labor market by ensuring that the working models are best aligned with businesses’ and individuals’ specific and personal circumstances.

3. Employment contracts^[v]

In accordance with the new Law, unlimited term employment contacts are no longer valid and limited term contracts cannot exceed a period of three years. As a result, employers must proceed to amend their existing unlimited contractual agreements to limited contractual agreements within one year of the issuance of the Law.

Furthermore, employers can opt out from renewing the employee’s contract without paying additional end-of-service dues.

Limited employment contracts offer some advantages such as allowing employers to assess employees’ contribution and value to the entity prior to entering a binding contract or hiring subject matter experts for a specific assignment. However, the new Law is expected to help improve employee retention, requiring employers to offer additional incentives including benefits and payouts and a better work culture to attract qualified employees.

4. Scope of employees’ work^[vi]

The Law specifically prohibits broadening the scope of work of employees or assigning responsibilities that are fundamentally different from the work that was detailed in their employment contract, unless the following conditions are met:

Employee’s written consent to additional or revised scope of work is given
Additional responsibility or revised scope of work is limited to 90 days

Therefore, the new Law protects employees from being coerced to accept additional or undesired responsibilities that are not agreed to in the employment contract.

5. Covenant not to compete^[vii]

The new Law outlines the circumstances and period of time under which covenant not to compete clauses can be binding and legal. More specifically, employers can invoke the non-compete clause at the time of the employee’s departure or termination if the following conditions are met:

The employee had access to client information or trade secrets during the course of employment
The duration of the non-compete clause does not exceed two years

However, the Law stipulates that non-compete clauses are not enforceable where the employer unlawfully terminates the employment contract.

In conclusion, although covenant not to compete clauses help employers retain good talent and protect the trade secrets of the organization, they can be viewed as non-competitive when the terms and duration are unreasonable and too restrictive. Hence, the two year limitation imposed on non-compete clauses contributes to a more competitive workforce.

6. Non-discrimination clause

One of the most noteworthy protections of the new Law is the prohibition on discrimination based on gender, sex, religion, age and national origin in the workplace. This provides opportunities to some nationals to enhance their participation in the labor market.

To promote an anti-discrimination culture within organizations in the UAE, the new Law has introduced the following protections:

Employers are required to provide equal pay to female employees for similar work
Employers must protect employees against harassment, bullying and violence

As a result, employers must review their existing employment policies and ensure all requirements under the Law are reflected in their internal policies and employment contracts. Additionally, employers are encouraged to roll out training and awareness sessions within the organization to educate employees of their rights and responsibilities.

More importantly, this will have a significant impact in the workforce because it will protect employees’ rights, promote fairness and positive culture and encourage principles of ethics and integrity. Additionally, non-discrimination, equal opportunity and equal treatment clauses in employment contracts are fundamental individual labor rights that are provisioned by International Labor Organization in achieving market efficiency and economic development.

7. Leave^[viii]

In accordance with the new Law, additional leave provisions are now required to be incorporated in the employment contract:

Female employees are now entitled to 60 days of maternity leave, 45 days at full-pay and 15 days at half pay. In addition, maternity leave is no longer conditioned on the length of the employee’s service.
Employees are entitled to bereavement leave of five working days
Employees who have completed at least two years of employment are entitled to study leave of ten working days if enrolled at one of the UAE’s certified educational institutions
Employees (mothers and fathers) are entitled to parental leave of five working days, either continuously or intermittently, within the first six months of the child’s birth

In addition, although basic annual leave entitlement remains the same, employers are no longer required to pay for employees’ unused leave or allow them to carry over unused days to the following year, unless otherwise agreed to by the employer.

8. Workplace regulation^[ix]

As per the new Law, entities with more than 50 employees must implement internal policies and procedures addressing work-related issues such as working hours, promotions, rewards, disciplinary sanctions and health and safety.

Hence, it is imperative that employers revisit their existing policies and procedures and align their framework with the requirements of the Law. In addition, employers are encouraged to conduct training and awareness sessions on the new policies, procedures and employees’ newly acquired rights and responsibilities.

9. Financial exposure/disciplinary penalties

Under the new Law, employers are required to have an adequate investigation management and case resolution mechanism in place to allow employees to raise complaints and grievances, conclude the investigation in a timely manner and report to the employee the rational for imposing penalties and the results of the investigation.

In addition, the new Law has specified the type of disciplinary penalties for workplace violations, including:

Written notice
Written warning
Deduction from remuneration
Suspension from work
Deprivation of periodical increment
Denial of promotion
Dismissal from service while preserving the worker’s right to an end-of-service gratuity

10. Introduction of an unemployment insurance scheme^[x]

The UAE has recently introduced an unemployment insurance scheme for workers in the private and public sector. The new scheme will take effect in 2023 and will cover 60% of the worker’s basic salary. Insured employees will be compensated with up to AED 20,000 in cash in the event of unemployment. It will be available to workers who intend to receive financial support until they find subsequent employment.

However, investors, domestic workers, employees under temporary work contracts, retired individuals with a pension plan and minors or individuals under the age of 18 are exempted from the unemployment insurance benefit. To take advantage of the unemployment insurance benefits, the worker must also purchase an unemployment insurance coverage which requires him/her to make a nominal annual contribution to the plan.

Unemployment insurance will reverberate throughout the economy and the attractivity of the UAE as a place to live and work is expected to increase, allowing firms to draw global talent. The details of the scheme will be announced later this year.

Looking ahead

The UAE Government, by establishing the new Law, has taken an important step to protect both the employers’ and the employees’ rights and to bring more flexibility into the workplace which will result in increased market efficiency.

In addition, as the UAE entities begin to implement the new Law, it is equally imperative to realize and account for the cost of implementation of the requirements of the Law, including the cost of additional leave granted under the Law:

Maternity leave (15 additional days at half pay)
Study leave (ten days)
Paternity leave (five days)

Furthermore, the equal pay for equal work requirement necessitates organizations to implement a defined strategy and a budget to adjust any gender-pay gaps.

Finally, it is important that the principles and requirements of the new law are detailed in the entity’s Employee Handbook and the Code of Conduct Policy to ensure all employees are informed of the new provisions of the Law.

KPMG will continue monitoring the forthcoming legislation mandates to keep our community abreast of any new developments or guidance.

At KPMG, we can assist you and your organization to develop policies, procedures, a risk-based obligation register and training to ensure compliance with the requirements of the new Law.