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2021 in Review: The Legal & Regulatory Changes Impacting Employment in the UAE

It is without a doubt that the pandemic had a significant economic impact globally, impacting businesses in many ways, which led to the perhaps inevitable rise in employment cases.

We have witnessed queries from employers about their right to terminate employees immediately due to the financial distress sustained by the company, employees enquiring about their rights to reject arbitrary salary reductions and deductions to their annual leaves, and other benefits due to the overall impact of the pandemic.

Several ministerial decrees and resolutions have been issued to provide clarifications and guidance on the mechanism of dealing with such exceptional circumstances.

Federal Law No. 33 of 2021 – Regulation of Labour Relations

On 20 September 2021, the UAE Federal Government issued Law No. 33 for the year 2021 that completely repeals the previous Employment Law. The new Employment Law is more explicit, concise and elaborative in certain parts, and has drastically departed from the previous Employment Law in regard to certain provisions and topics.

Below we discuss the key changes brought forward by the new Employment Law, which will come into force on 2 February 2022.

What does this change?

Prohibition on Discrimination

The Employment Law has become more explicit regarding prohibiting discrimination. Article 4 of the Employment Law makes it clear that any form of discrimination based on race, colour, sex, religion, national origin, social origin, or disability is strictly prohibited. Moreover, the Employment Law makes it clear that women and men are to be equally financially compensated when the work involves the same duties and responsibilities. With the above mentioned in mind, hiring nationals based on “Emiratization” program implemented by the government is not considered a form of discrimination.

Types of Work

The Employment Law sets out the different types of work available for employees to undertake and what the employers can offer. This includes the following: (i) full time employees; (ii) part-time employees; (iii) temporary work; (iv) flexible work; and (v) any other type of work prescribed or set out in the Executive Regulations.

Duration of Employment Contracts

A significant change in the Employment Law is the duration of employment contracts. Prior to the Employment Law, employment contracts could have been limited in duration or unlimited in duration. However, Article 8 of the Employment Law makes it clear that all employment contracts must be for a limited duration that does not exceed three years and is subject to renewal for another similar period or a shorter period several times.

Probation Period

It was the law previously that an employee and/or employer had the right to terminate their employment relationship without any prior notice during the probation period. With the Employment Law that is no longer the case. The Employment Law makes it harder for one to keep switching between jobs easily during the probation period given the great expense the employer incurs in hiring an employee. Article 9 prescribes the following conditions for one to end their employment relationship rightfully during probation:

  1. The employer has the right to terminate an employee during their probation period provided fourteen days written notice is given to the employee;
  2. In the event an employee during its probation period wants to join a different employer within the country, the employee initially is obligated to provide its employer with at least one month written notice and additionally, the employee and/or the new employer is obligated to compensate the previous employer for the expenses incurred in hiring the employee. However, if the employee during its probation period wants to resign in order for them to leave the country, the employee is obligated to provide its employer with at least fourteen days written notice. However, if the employee returns to work in the UAE within three months, the employee and/or the new employer is obligated to compensate the previous employer for the expenses incurred in hiring or bringing the employee; and
  3. In the event an employee fails to abide by Article 9, the employee will not be granted a working permit for a duration of one year from the date in which they left the country.

What impact will the new Employment Law have on businesses in the UAE?

Given that the previous Employment Law was entirely repealed, and certain provisions drastically changed under the new Employment Law - especially those relating to the duration of employment contracts - such amendments could either see employers paying out the end of service benefits to its existing employees, or reaching an understating whereby these new limited duration contracts are an amendment to their previous contracts to comply with the requirements of the new Employment Law; hence, their end of service entitlements remain unaffected.

Although, it is unclear how the format of these new employment contracts would be and how an employer would deal with end of service entitlements, if employers were required to pay out end of service entitlements to its employees in bulk this will increase the financial burden on employers.

Nevertheless, in our opinion it is likely that employers and employees would need to amend existing employment contracts without the need of settling previous end of service benefits to ensure economic stability.

Expectations for 2022

The recent Federal Law no. 33 for 2021 on the Regulation of Labour Relations (also known as the “Employment Law”) does not address the mechanism of its implementation and how its provisions would impact ongoing employment contracts, and cases.

Several provisions in the newly issued Employment Law refer to the law’s Executive Regulations, which are yet to be issued. Accordingly, certain provisions of the Employment Law lack clarity in terms of its application; hence, it is expected to be further refined and clarified through future legislations.

In 2022, it will be vital for the legislator and relevant ministries to issue Executive Regulation(s) and Decree(s) which will guide all relevant parties affected by this Employment Law, whether it is the UAE Courts, companies, and employees on the application of the Law and how to deal with ongoing employment contracts. This fundamental process will require a high level of coordination between governmental entities and could be promulgated in quarter one (1) of 2022 or sooner.

It is also pertinent to mention that any analysis on the impact of any new legislation comes in phases. The UAE Federal Government, through its legislator, has partially completed the initial phase, being the theoretical aspect of such change, following which, the practical phase can only be opined on in a pragmatic manner when the UAE Courts commence to implement the Employment Law by way of issuing judgments; thus, gradually forming non-binding precedents for the purpose of elucidating the provisions of the Employment Law.

About Employment at BSA

Our Employment lawyers have deep experience covering corporate support, due diligence, compliance, and litigation. We provide advice to multinational and regional companies on policies, procedures and contractual documentation for all levels of staff including service agreements, employment contracts, and secondment arrangements.

Our relationships with regulators across the region mean we are kept afresh of new legal developments when it comes to the rights of employers and employees, covering both onshore and offshore jurisdictions. We have built a strong reputation advising multinational clients on their HR policies and procedures in the region, providing not only an application of the law, but also an appreciation of local cultural considerations, providing integrated solutions to their people strategy and planning.

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