New DIFC Employment Law - top 10 changes

This article identifies the top 10 differences between the old DIFC Employment law and the new DIFC Employment Law (Law No. 2 of 2019). It also provides further detail on some of the key changes to the law.
  • Submitted 17 June 2019
  • Applicable Law United Arab Emirates , United Arab Emirates (Dubai International Financial Centre) , United Arab Emirates (Dubai) , Middle East
  • Topic Employment, Pensions & Incentives

The DIFC has issued its long-anticipated Law No. 2 of 2019 (the Employment Law 2019), which will come into force on 28 August 2019. The Employment Law 2019 will replace and repeal the old Employment Law (No. 4 of 2005 as amended).

Here are the “Top 10” changes of which DIFC employers should be mindful. The Employment Law 2019:

  1. reduces the potential unfairness to employers of the penalty which is imposed against an employer for delayed payment of outstanding sums to the employee on termination (see below for further detail*)
  2. includes a much shorter 6 month limitation period for pursuing employment claims (can be extended at the Courts’ discretion in cases of discrimination and victimisation)
  3. requires the payment of End of Service Gratuity even when the employment contract has been terminated for cause and includes an additional restriction that an employee’s basic wage must not be less than 50% of the employee’s annual wage for the purposes of calculation of End of Service Gratuity (note that End of Service Gratuity is expected to soon be replaced with a DFSA regulated employee savings plan)
  4. permits employees to waive employment rights when entering into settlement agreements with their employer (subject to certain conditions)
  5. defines categories of temporary workers as part-time or short-term employees and allows secondees to work for an employer in the DIFC, provided they hold a secondment card
  6. expands anti-discrimination provisions and adds age, pregnancy and maternity as grounds on which an employer must not discriminate and introduces a new section on victimisation
  7. introduces minimum notice periods
  8. introduces a five day statutory paternity leave, expands ante-natal rights to the father and introduces nursing breaks to female employees returning from maternity leave
  9. includes a list of contraventions and fines up to USD 10,000 that can be imposed against employers who breach certain provisions of the law, and
  10. expressly lists employee duties which include duties of faithfulness, confidentiality, following the employer’s reasonable instructions and acting with due skill and care.

*Key Change for Employers - The DIFC Penalty

Under the current employment law, employers are required to pay all wages and outstanding sums to the employee within 14 days of the termination of employment. If the employer fails to make payment beyond those 14 days, a penalty in the sum of the employee’s daily wage is payable to the employee for each day delayed. The DIFC Courts’ strict interpretation of this provision of the law has had potentially unfair and often controversial consequences for employers. In Frontline Development Partners Limited v Asif Hakim Adil [2016] DIFC CA 006 the DIFC Court of Appeal confirmed that penalties for late payment would be imposed even in circumstances where the employer disputes liability to pay the employee, or where the penalty was grossly disproportionate to the amount owed to the employee as it was not possible to interpret the law differently. Strictly speaking, even if the employee was owed only one dirham, the employer would still be liable for the full penalty amount.

The Employment Law 2019 takes a more balanced approach. There is still an obligation on the employer to pay all remuneration to the employee within 14 days of termination, and a penalty is still payable for late payment in the sum of the employee’s daily wage. However, the Employment Law 2019 provides that such a penalty will only be awarded if the amount due exceeds the employee’s weekly wage. This sum includes payments such as unpaid salary, end of service gratuity and untaken vacation leave, however, it excludes “Additional Payments” such as discretionary bonus and commission. Due to the new six month limitation period, the penalty will be effectively capped at 6 months wages. Furthermore, the Courts can now waive payment of a penalty if the employer has disputed payment of the penalty in Court, or if the reason that the employee has failed to receive the amount due from the employer is due to the employee’s own unreasonable conduct.

The Employment Law 2019 has improved the position for employers with respect to the penalty, however, the threshold for the penalty is set low at one weeks’ wages. Employers are likely to find themselves in a difficult position if there is a dispute and where there is even a small chance that an employee is owed more than the equivalent of one weeks’ wages at termination. The employer would be left with three primary options in this scenario: (1) pay all claimed amounts to the employee exceeding the equivalent of the employee’s weekly wage if there is any doubt as to the sums owed; (2) wait for the employee to bring a claim for the alleged outstanding sums and penalty; or (3) make an application to the Court for declaratory relief with respect to the amount due to the Employee.

For further information regarding the Employment Law 2019, and how you can best prepare for its enactment, please contact David McDonald.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.