A key part for businesses setting up in the UAE is to ensure they have a thorough understanding of their obligations as an employer and the rights of their employees under UAE Labour Law - Federal Decree-Law No. 33/2021 On Regulation of Labour Relations, the Cabinet Decision No. 1/2022 On the Implementing Regulation on the Federal Decree Law and the decisions, amendments issued thereof (“UAE Labour Law”).

Some UAE free zones (e.g., the Jebel Ali Free Zone) have issued separate rules and regulations governing employers and employees. These rules and regulations are based on the provisions contained in the UAE Labour Law.

The Dubai International Financial Centre and Abu Dhabi Global Market Free Zones are independent financial free zones and do not fall under the purview of the UAE Labour Law’s scope. These free zones have separate employment regulations governing employers and employees.

Employment relationships in the UAE private sector are generally governed by the UAE Labour Law. The UAE Labour Law is supplemented by various ministerial resolutions, decrees and administrative decisions issued by the Competent Authorities in the Country. The UAE Labour Law applies to all establishments, employers and employees working in the private sector UAE.  Employees of federal and local government entities, Members of the armed forces, police and security and Domestic Workers are excluded from the application of the UAE Labour Law.

The UAE Labour Law imposes minimum standards pertaining to the end of service entitlements, working hours, vacation time and safety standards, amongst other aspects governing the relationship between Employees and Employers. These terms will have to be incorporated into an employment contract signed between the Employer and the Employee.

Key Features of the UAE Labour Law

1. Employment Contracts must be in writing and executed between both Employer and Employee

Employment agreements executed between the Employers and Employee shall contain terms covering work duties, remuneration, leaves, benefits, and termination procedures, non–compete etc. are well described in these contracts. Employment contract is of two types they are:

Fixed Term contracts: An agreement between employer and employee for a particular period of time. The limited contracts are typically for project-specific or temporary roles. Often, their predetermined end date is at most two years after the date of employment. This option is standard among fixed-term roles, project, or temporary roles.

Unlimited Contracts are not permissible under the new UAE Labour Law but are not prohibited in DIFC and ADGM.

2. Wages

Under Article 22 of the UAE Labour Law, the amount or type of wage shall be specified in the employment contract and it is broadly mentioned that the salary should cover the basic need of the employee. The salary is paid through WPS (Wages Protection System) therefore it is mandatory for all the employees to subscribe WPS who is registered under Ministry of Human Resources and Emiratization (MoHRE). MoHRE does not process any transactions or deal with the owners of the companies that are not registered with the WPS until they register in the system.

3. Overtime

The standard working hours of an employee in the UAE comprises 8 hours per day and they should not exceed 48 hours per week. Extra time where the employee devote to work than their regular working hour, therefore they are provided fair compensation for the overtime and discourage employer from exploiting the workforce. Overtime working hours must not surpass a maximum of 2 hours per day and If the nature of work requires employees to work beyond their regular working hours, they should receive remuneration calculated on the basis of their basic salary plus an additional 25% for the overtime period. This can increase to 50% if the employee works overtime between 10 PM and 4 AM. In case of employees working on their off days, they must provide a compensatory day off or pay the remuneration of that day along with an additional amount of not less than 50% of the employee’s remuneration for that day (calculated on the basis of basic wage).

4. Leave Entitlement

Workers are eligible for a 30 days of annual paid leave, if they have completed one year continuous employment under the UAE Labour Law;

Sick Leave: Workers are eligible to take 90 days of sick leave annually, with full payment for the initial fifteen days. The next thirty days are half-paid, and the remaining forty-five days are unpaid.

Maternity Leave: Female workers are eligible to take 60-day maternity leave, with 45 days at full pay and 15 days at half-pay and if childbirth-related complications arise, an additional 45 days of unpaid leave is available. Similarly, the employer can grant a paid 30-day leave if the baby is sick or suffers a disability, with the option to extend it for another 30 days without pay.

Parental Leave: Granted to parents of a new born baby with 5 days of fully paid leave, which should be taken within 6 months the child is birth.

Bereavement Leave: Employees are entitled to a paid bereavement leave for five (5) days in case of the death of their spouse, and a leave of three (3) days in the instance of the death of their parent, child, sibling, grandparents or grandchildren.

5. Discrimination and Harassment

The law, expressly addresses discrimination in various aspects, emphasizing the importance of treating employees fairly and equally. Article 4 of the Labour Code prohibits discrimination based on race, colour, sex, religion, national origin, social origin, or disability. This extends to all stages of employment, from recruitment to the continuation of employment, ensuring that every worker has an equal opportunity and is not discriminatory in their job. By addressing discrimination, ensuring fair dismissal procedures, and establishing dispute resolution mechanisms, the law contributes to creating a work environment that encourages mutual respect and compliance.

6. End of Service Benefits

It is required for all the companies in UAE to pay and End of Service Gratuity to all the employees at the end of their employment completed one year of service under the UAE Labour Law. End of Service Gratuity is calculated on the basis of the last basic salary on termination of employment.

One to five years of service period: 21 days of last basic salary for each year of employment.

More than five years of service period: 30 days of last basic salary for each year of employment.

While calculating the basic salary for End of Service Gratuity it doesn’t include any allowance such as Housing, Travelling, and Utility etc. The End of Service Benefits cannot exceed the remuneration of 2 years.

7. Termination

As per the contract the Employment can be terminated by the Employer, Employee or both parties. End of a working relationship between an employer and employer can be considered as termination of employment. The grounds for terminations are;

• Mutual agreement by employer and worker, with the latter consent expressed in writing.
• Expiration of the definite contract duration, unless both parties decide to extend it.

Workers are entitled to full pay corresponding to their last wage in a notice period and must perform their assigned roles. A notice period of 30 days must be respected by both parties, irrespective of who serves the termination letter. Scenarios in which termination without notice are;

1. If the employee assumes false identity, submits forged certificates or documents;
2. If the employee commits an error that cause material losses to the employer or deliberately cause harm to the property of the employer, which is admitted by the employee and the employer notifies the Ministry of Human Resources of the incident within seven (7) working days after being aware of its occurrence;
3. If the employee violates the rules and regulations of the establishment relating to work or safety measures despite being aware of such rules;
4. If the employee fails to perform his or her duties stipulated under the employment contract and the employee fails to remedy such failure despite two warning letters issued by the employer and written investigation against the relevant employee;
5. If the employee abuses his position to obtain personal gains and profits.

Employee may terminate the Employment Contract if:

1. Employer breaches his obligations in the Employment Contract
2. Employer has subjected the Employee to violence or harassment, and the Employee has informed MoHRE within five days of the happening of such an event
3. There is a serious or grave danger that threatens the safety or health of the Employee, the Employee knows of its existence and no measures were taken to indicate its removal
4. The Employer assigns work to the Employee that is fundamentally different from the work agreed upon in the contract, without the Employee agreeing to the same.
5. Probation Period

An Employee can be keep under probation period for a maximum term of 6 months. Employee is not entitled to claim leave benefits under the UAE Labour Law, during probation period. A notice of termination should be provided at least 14 days before the termination date, if the Employee or Employer decide to terminate the Employment Agreement any time during Probation. An Employee will have to provide a 30-day notice to the Company, in the event he decides to move to an Employer within the state.

9. Non-compete Clause

If the work assigned to the employee exposes them to the employer's clients or gives them access to trade secrets, the employer may stipulate in the employment contract that the employee will not engage in competition or participate in any competing project within the same sector after the contract is terminated. The clause must identify the time, location, and type of labor required to protect the employer's legitimate interests, and the non-compete period may not exceed two years from the date of contract termination.

• This clause is null and void if the employer ends the employment contract in contravention of the provisions of this decree by law.
• A lawsuit filed by the employer for an employee's breach of the terms of this article will not be heard after one year from the date of discovery.

10. Worker’s entitlement at the time of death

When an employee dies during an active contract with the employer and has some wages or other entitlements due, the employer is responsible for paying those dues to the family of the deceased employee. All the entitlements should be given to the family of the deceased within 10 days after date of death or 10 days after the news of death is given to the employer and also in case the employee belongs to a foreign country, the employer is responsible for repatriating the employee to his country after death. The employer will bear all the expenses of transporting the dead body of the employee to his native country. According to the provisions of federal law, the ministry or relevant authorities can keep the entitlements if they cannot be handed over to the family of the dead employee until a decision is made.

11. Unemployment Insurance

Federal Decree-Law No. 13 of 2022, Concerning Unemployment Insurance Scheme is a form of insurance/social security that provides Emiratis and residents working in the federal and private sectors a financial support if they lose their jobs, as a result of termination by their employers. In the event that an employee loses their job, the Scheme provides a cash payout for a maximum of three months. Payment of compensation will begin on the day of the employee's termination and be based on sixty percent of their basic wage and workers can receive up to AED 20,000 every month. Workers who have worked and paid into the scheme for at least a year, and who have not been fired, are eligible to receive benefits from it.

12. Emiratization

Emiratization is a strategic initiative in the UAE aimed at increasing the participation of Emirati nationals in the country's workforce, particularly in the private sector. The Ministerial Decision Number 279 of 2022 and the Cabinet Decision Number 18 of 2022 established the rules and regulations for Emiratization.

This program was introduced to address concerns about unemployment among Emiratis and to promote economic diversification and sustainability. Emiratization is mandated by the UAE government through various laws, regulations, and initiatives. Several Government entities, including the MoHRE, play a central role in formulating and implementing Emiratization policies.

There are quotas and targets are set for companies operating in the UAE, particularly in sectors deemed strategic or important for national development. These quotas specify the percentage of Emirati employees that companies are required to hire and maintain in their workforce. These targets were initially applicable to companies employing more than 50 employees, but has now been extended to include companies employing between 20 to 49 employees conducting certain activities. The failure to meet these targets could lead to private companies being penalised heavily for non-compliance.

13. Pension scheme for UAE National Workers

The UAE has introduced a new federal law no. 57 of 2023 on Pension and Social Security which aims to enhance the flexibility of the pension and social security services in the UAE and to mitigate any gaps in services and policies provided to the UAE nationals working in the government and the private sectors. The monthly contribution of the insured is 26 percent of the pensionable salary. The insured employee pays 11 percent and the employer pays 15 percent. For insured citizens working in the private sector, the government pays 2.5 percent on behalf of the employer, if they receive pensionable salaries less than AED 20,000. This initiative by the government is aimed to promote employment of UAE citizens in the private sector.

We have extensive experience in working with labour law regulations and can assist with all legal advisory and corporate compliances required under these regulations to be completed for companies.

We can also assist in providing legal and regulatory guidance to companies wishing to enter this jurisdiction or are already established across different jurisdictions in the UAE.