The New UAE Labor Law Explained
Part 1

The Federal Decree-Law No. 33 of 2021 on the Regulation of Labor Relations (the “New Labor Law”) is one of the largest updates in the labor laws, and it has to bring more protection of the employees and employers, more flexibility in a workplace, and reduce the differences between public and private sectors in the UAE in order to ensure similar entitlements are provided in both sectors.

Following the spread of the pandemic and all the preventative and protective measures which have accompanied it, like lockdowns, remote work, salary reductions, and unpaid leaves, a need has arisen for updated labor legislation that can accommodate all these novel situations and help the UAE in attracting and retaining top talents.

The New Labor Law, which came into effect on 2nd February 2022, will replace UAE Federal Labor Law No.8 of 1980. All private firms in the UAE will be subject to the New Labor Law, except for those in the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) Free Zones.

We will discuss here the major provisions of the New Labor Law that are critical to know for both employers and employees.

As per the New Labor Law, unlimited contracts are no longer permissible and the employment contracts should be for a definite period only, which does not exceed 3 years. Such employment contracts can be renewed or extended by the agreement of both parties, one or more times, for a similar or a shorter period. It is important to note that from the effective date of the New Labor Law (2nd February 2022) employers should convert unlimited contracts into limited employment contracts within 1 year.

According to Article 42 of the New Labor Law, the employment contract may be terminated for the following reasons:

• If parties agreed to terminate the contract in writing;
• In case a contract has expired (unless it is extended or renewed);
• If one of the parties desire to terminate the contract, this is subject to the notice period agreed in the contract;
• In case of employer`s death;
• In case of an employee’s death or total disability;
• If an employee is sentenced to a custodial sentence for a term of not less than 3 months;
• In case of permanent closure of the employer`s company;
• In case an employer becomes bankrupt;
• When an employee cannot meet employment visa renewal requirements for reasons beyond the employer’s control.

The New Labor Law in Article 43 stipulates the provisions about the termination notice. Both parties have equal rights to terminate the employment contract based on a legitimate reason and upon serving a written notice on the other party. The notice period as per the New Labor Law must be not less than 30 days and not exceed 90 days. However, the parties may agree also to waive the notice period or reduce its term.

The party which fails to comply with the notice period must pay compensation instead of notice to the other party. The New Labor Law grants the employee the right to be absent from work during the notice period for one working day per week without pay to have an opportunity to search for another job. The employee shall provide 3-days prior notice to the employer regarding each day of absence in such case.

Articles 44 and 45 have provisions for termination without notice as well by both parties in case of serious misconduct.

Speaking of termination during the probation period, the New Labor Law, unlike the previous law, does not permit termination by either party without notice. In case the employee wishes to terminate the employment contract during the probation period to join another employer inside the UAE, 30-days written notice must be served before the desired date of termination. In this event, the new employer must compensate the current employer for the recruiting costs of the employee unless they agree otherwise.

If the employee terminates the employment contract during the probation period to leave the country, he must serve 14-days written notice to the employer before the desired date of termination. If the employee returns to the UAE and wishes to obtain a new employment visa within 3 months from the date of departure, then the new employer must compensate the previous employer for the recruiting costs of the employee unless they agree otherwise.

Under the previous law non-compete clauses are lawful, as long as there is reasonable limitation for time, the specific type of work and geographical location. However, practically the courts were reluctant to take into consideration limitations for the time more than 6 months as being reasonable, except if an employer could justify the longer period being required to protect the business interests.

Under the New Labor Law, it is permissible to include in the employment contract a non-compete clause, as long as limitations in this clause specify the time/term, geographical location/place, and the nature of specific work that causes serious harm to the lawful interests of the Employer.

Article 10 of the New Labour Law says that non-compete clause term must not be more than 2 years from the expiration date of the employment contract (thus, a maximum time restriction is introduced for non-compete clause). It is important to pay attention also to the fact that the non-compete clause becomes void in case the employer terminates the employment contract in violation of the provisions of the New Labor Law. The lawsuit filed by the employer claiming the employee’s violation of the provisions of Article 10 may not be heard in case such a lawsuit was filed after the lapse of a period of 1 year from the date of discovering such violation.

In the Executive Regulations more details are provided about the non-compete clause, including the following:

• If there is a dispute in connection with the non-compete clause, and the parties could not settle it amicably, then this matter shall be referred to the court and the employer will have the burden of proof of harm.
• It shall be allowed to agree in writing on the non-performance of the non-compete clause after the end of the employment contract.
• An employee shall be exempted from the non-compete clause in case if the employee or the new employer pays compensation to the previous employer that is not more than 3 months` salary of the employee as per the last employment contract. The former employer’s written consent will be required in such a case.
• An employee shall be exempted from the non-compete clause if the employment contract is terminated during the probation period.

The New Labor Law makes it very clear that any forms of discrimination based on race, color, sex, religion, national or social origin, or disability are prohibited. Besides, female employees shall be paid equal salaries as male employees if they perform the same work or another work of equivalent value.

The rules that aim to improve the participation of UAE nationals in the UAE Labor market must not be considered as discriminating rules. The New Labor Law prohibits the employer, managers of an employee, or colleagues from sexually harassing the employee or bullying him/her orally or physically.

Under Article 27 of the New Labor Law, the minimum wages of employees will be specified, while as per previous labor law there was no minimum wage.

As per previous labor law, the wages must be paid in UAE Dirhams in the UAE bank account. As per the New Labor Law, Article 22 states that wages shall be paid in UAE Dirhams or another currency if agreed about the same in the employment contract, thus granting more flexibility to both parties.

On our next blog related to the New Labor Law, we will discuss changes to work models, changes to leave types, gratuities at the end of service, as well as fines for employers and employees that violate the New Labor Law.

If you have any questions or need a consultation regarding the New Labor Law and the Executive Regulations, kindly contact the author of this article, our Senior Corporate Services Manager (LLM in International Business Law) – Svetlana Kursheva at [email protected] or drop a message at WhatsApp Business +971 52 777 0552 right away to avail the best advice.