New regulations in UAE Labour Law aim to liberalise labour market

The aim behind the new labour law that will come into effect on January 1, is to lessen the control of employers over employees and liberalise the labour market, a top government official told .The source clarified that the new law completely scraps the "no objection certificate" (NOC).

"The new laws allow an employee to transfer his sponsorship after the contract with his current employer expires, but the employee must inform his sponsor that he will not be renewing his contract 30 days before its expiry," he added.

"The employee will be granted a period of 30 days once his contract expires to find a new job and sponsor. This period is basically given to the employee to complete procedures such as the issuance of a new visa in accordance with the Ministry of Interior's procedures and signing the contract with the new sponsor. However, if the period expires and the employee's paperwork is not completed, he will be considered illegal," added the source.Once the employer and employee's pact was regulated by a contract, the ministry would not be able to interfere in matters pertaining to both parties in accordance with Law number 129 in regard to regulating the relationship between both parties.

"When the contract expires, the employee is granted a special permit by the ministries of labour and interior, allowing him to stay in the country for 30 days to complete paperwork and finalise procedures for the new work visa under the new job and employer," the government official said.

Under the new system, if an employee completed the two-year working period, the employer had no right to force an employee to stay on the job and would no longer face a six-month ban, since the new system scrapped the NOC.

Humaid Bin Deemas, Acting Director-General of the Ministry of Labour, told once a job contract expired or was legally terminated, the Labour Ministry would have the authority to allow workers to take up new jobs without the consent of former employers or the so-called NOC.

"Workers, skilled and unskilled, who end their job contracts legally and complete at least two years of service, will get a labour permit outright," he said.Previously, these workers had to complete at least three years of service with their previous employers and had to obtain an NOC letter.Professional and skilled workers in the first three categories according to the Uniform Gulf Occupational Classification would also be exempt from the six-month ban.

He estimated these three categories (the first category with university or post graduate degrees, the second with less than university degrees and the third category including skilled workers with high school degrees) included 800,000 workers.

Bin Deemas said even for unskilled and semi-skilled workers, companies would lose the right to stop them from getting other jobs if the firm failed to honour its legal or contractual obligations, for example, by not paying salaries for 60 days and not offering proper accommodation. Workers, he said, could also take up new jobs if the employer stopped the business for economic or technical reasons and these workers reported the closure to the Labour Ministry within 60 days.

Bin Deemas said the UAE as determined to protect the rights and welfare of the workers as well as their employers "but these rights and benefits will be fulfilled in keeping with the law. It is not the employer's right to approve or disapprove switching of jobs. But it is his right that workers complete the job contract in the event of contracts with limited period".

Concerning fees, Bin Deemas said a resolution would be issued shortly determining a complete set of "more affordable fees".

Previously, workers had to pay job-switch fees, which were determined according to service of the worker, the category of the business among other factors and which reach up to Dh14,000.

The government official added that the goal behind the ministry's new law was to bring the labour market's level on a par with that of Germany, Canada, the US and other Western countries, as well as cancelling the employers' monopoly of the labour market. The new rules defined three cases in which the worker shall have the right to get a work permit without fulfilling the condition of working at least two years with the employer:

When joining his new job, the worker should be classified in the first, second or third professional class and that his salary should be not less than Dh12,000, Dh7,000 and Dh5,000 if he is in the first, second and third class respectively. nNon-compliance of the employer with legal and labour obligations towards the worker or in the event the worker has no role in terminating the work relationship

Professional and skilled workers in three categories exempted from the six-month ban -Humaid Bin Deemas, Acting Director-General Ministry of Labour UAE

The new rules defined three cases in which the worker shall have the right to get a work permit without fulfilling the condition of working at least two years with the employer:

When joining his new job, the worker should be classified in the first, second or third professional class and that his salary should be not less than Dh12,000, Dh7,000 and Dh5,000 if he is in the first, second and third class respectively. (these three categories the first category covers skilled workers with university or post-graduate degrees, the second those with less than university degrees and the third category covers those with high school degrees) Non-compliance of the employer with legal and labour obligations towards the worker or in the event the worker has no role in terminating the work relationship;

Workers who complete at least two years of contract period will not need former employer's consent to switch jobs Beginning January 1, 2011, foreign workers switching jobs will not need a no-objection certificate from former employers as the Ministry of Labour will make the decision, a senior official said on Sunday."Workers, skilled and unskilled, who end their job contracts legally and complete at least two years of service, will get a labour permit outright," he said.

Previously, workers had to complete at least three years of service with the previous employers and had to obtain a no-objection letter to avoid a ban.

In the case of unskilled and semi-skilled workers, a company failing to honour its legal or contractual obligations will lose the right to stop them from getting other jobs. This includes not paying salaries for 60 days and not providing proper accommodation.Workers can also take up new jobs if the employer stops the business for economic or technical reasons and these workers report the closure to the Labour Ministry within 60 days.

Bin Deemas said "it is not the employer's right to approve or disapprove switching of jobs. It is his right that workers complete the job contract in the event of contracts with limited period."

No six-month work ban from January 1, 2011 in UAE

Expatriate workers can move to new employment without no-objection certificate if they have served out two-year contract.The Ministry of Labour has issued regulations allowing workers who finish their contracts to obtain new work permits without undergoing the six-month work ban, and allowing them to move to other firms without the employer's approval from January 1, 2011.

A worker with an expired contract can obtain a new work permit and shift to another employer without the passing of the currently legitimate six-month period and consent of his sponsor, according to the new resolution issued by the Minister of Labour Saqr Gobash.

The new regulations on conditions and criteria of issuing new work permit for a worker after the expiry of his service contract and transfer of sponsorship will take effect as of January 1, 2011 in implementation of the cabinet resolution No 25 of 2010 regarding internal work permit at the Ministry of Labour.

Once operational, the new regulations will replace the current formalities of transfer of sponsorship for expatriate workers.

The resolution says that the new employment permit will only be granted to the worker after the end of his work relationship with his employer without consideration of the legitimate six month period which is usually calculated after the cancellation of the worker's labour card.

But it stipulates two must-do conditions. firstly, the two contracting parties must have ended their work relationship cordially and secondly, the worker should have worked with his employer for two years at least- the duration of the new labour card which will be issued by early January.

The resolution defines two cases where the worker can obtain the new work permit after the end of the contractual relationship without the agreement of the two contracting parties.First, when the employer fails to honour his legally or contractual obligations. Second, in the condition of expiry of work relationship where the worker takes no responsibility such a complaint filed by the worker against his firm.

In this case, an inspection report should prove that the firm is out of business for more than two months and that the worker should have reported to the ministry.

The labour dispute should have been referred by the ministry to the court provided that the court hands out a final verdict ordering the employer to pay to the worker salaries of two months at least, compensation for the arbitrary sacking or terminating the contract prematurely, or any other rights.

The resolution also defines three cases where the worker shall have the right to get a work permit without fulfilling the condition of working two years at least with the employer.Firstly, when joining his new job, the worker should be classified in the first, second or third professional class and that his new salary should not be less than Dh12,000, Dh7,000 and Dh5000 in the first, second and third class respectively.Secondly, non-compliance of the employer with legal, labour obligations towards the worker or in the case where the worker has no role in terminating the work relationship.

Thirdly, shifting of the worker to another firm the employer owns it or has stakes in it.Minister of Labour Saqr Gobash said the new measures aim to infuse broader flexibility in the labour market and strike a balance in the contractual relationship between the employer and worker."The Ministry will only interfere in the employer-worker contractual relationship if it detects infringement in obligations stated in the labour contract," he explained, affirming the ministry's determination to guarantee rights of both parties legally as we live in the State of law and institutions.

"Giving the private sector more freedom of movement will have automatic impact on employers by the way of preserving their interests through creating many options for recruiting skillful workers as per the supply-demand equation.

He indicated the new measures were subject to dialogue and consultation with local stakeholders in implementation of directives of the wise leadership for crafting policies and legislations that fit well into the developments in labour market and curb any malpractices.

"The new regulations constitutes key elements of labour reforms which part of them have already executed and the other parts will be in place in the near future," he said.These measures, he said, were expected to play a major role in advancing efforts towards creating an efficient labour market and sharpening competitiveness and transformation towards a knowledge-drive economy.

End of service - Employees in UAE

The End of Service Gratuity: from Article: 132 Labour Law UAE

1. How the End of Service Gratuity is determined? From Article: 132:

The worker deserves the End of Service Gratuity if he completed one year or more in the service…and it shall be calculated as follow:

A- 21 days for each year from the first 5 service years

B- 30 days for each year if his service years have exceeded the same.

However, the total End of Service Gratuity should not exceed the salary of two years.

2. Shall the leaves without pay be calculated within the service period? Article: 132:

The period of leaving the work without pay shall not be included within the service period.

3. I have worked with my employer for two years and 5 months…, shall the End of Service Gratuity be calculated for the parts of years? Article: 133:

The worker shall have the right to have the End of Service Gratuity for the part of the year if he has completed one year of service or more.

4. Shall the End of Service Gratuity be calculated for the total salary? Article: 134:

The End of Service Gratuity shall be calculated according to the last salary, (Basic) obtained by the worker…, this shall be true for all workers getting their salaries on monthly, weekly or daily basis…, and shall be calculated based on the average salary forworkers receiving their salaries based on piece. So the allowances shall be included in the basic salary, such as: the accommodation allowance, transportation, overtime and other allowances…………etc.

* Important: A worker who receives his salary on piece…,e.g. He may receive DHS. 1000 for the piece…,

or DHS. 500 for the piece…, in this case the average salary only should be calculated, i.e. * His total salary for 6 months…, to be divided over 6…to obtain the average salary: Total salary for 6 months = 25000/6 = DHS. 4166 which is the average salary

5. If a worker died, shall his employer pay his End of Service Gratuity? Article: 136:

If the worker died, his employer must pay his End of Service Gratuity to his hires.

6. I have worked with my employer for the year 1975, i.e. before the issuance of the Labor Law in 1980; shall I have the right to claim for the End of Service Gratuity for my service period with my employer before the issuance of the Federal Labor Law in 1980? Article: 136:

The worker shall not be entitled to have the End of Service Gratuity for the period before the issuance of the Federal Labor Law in 1980 unless the worker was a national citizen.

* The Unlimited Period Contract: In case the worker has ceased working:

7. Kindly show how can the End of Service Gratuity be calculated if the worker has ceased working when he is employed under unlimited Period Contract? Article: 137:

1- If the worker’s service period is not less than one year and not exceeding 3 years, he shall be entitled to have 1/3 the value of End of Service Gratuity, i.e. 7 days in each year.

2- If his service period has exceeded 3 years but less than 5 years he shall be entitled to have 2/3 the value of End of Service Gratuity, i.e. 14 days in each year.

3- If his service period has exceeded 5 years he shall be entitled to have 21 days as a value of End of Service Gratuity for each year of service.

* And if the service period has exceeded 5 years he shall have 30 days as End of Service Gratuity for each year of service.

* Example:I have worked with my employer for 2.5 years, how can my End of Service Gratuity be calculated, knowing that I have ceased working on my own will, and I have unlimited period contract with a salary of DHS. 1500?If the service period does not exceed 3 years, this worker shall have 7 days End of Service Gratuity for each year of service…parts of the year shall also be included, i.e. The two years shall be multiplied by the Gratuity’s days: 7x2 = 14 days - In case the employer has dismissed a worker of an unlimited period contract without reason after completing one year of service…, such worker shall have the right to receive 21 days End of Service Gratuity for each year:

* Example: - If the worker has worked for 3 years and 7 months and his employer has then dismissed him, such worker shall be entitled to have: - 21 days for each year if his service period didn’t exceed 5 years. - 21x 3 + 21/12x 7= 75 days

* Other Example: A worker of unlimited Period Contract was dismissed after completing 6.5 years of service , He shall be entitled to have an End of Service Gratuity of: 21x5+ 30+30/6 = 105+ 30 + 15 = 150 days, whereas 21 days were calculated for the first 5 years…, and 30 days each year for the above to this.

* TheLiimited Period Contract: - In case the worker has cancelled his labor contract: Article: 138:

If the worker has willingly ceased working before completing the contract period…, he shall not be entitled to have the End of Service Gratuity…, unless his service period has exceeded 5 years.

* Example: A worker with a limited period contract which has commenced on 4/4/2004 and expired on 3/4/2007, he has submitted his resignation letter on 25/5/2005 and before completing the contract period, the worker has cancelled the contract, such worker shall not have the right to receive the End of Service Gratuity.

* Example: A worker with limited period contract which shall start on 4/4/2001 and expires on 3/4/2004. This contract was renewed for further 3 years ending on 2/4/2007. This worker has submitted his resignation letter on 20/11/2006…, in this case the said worker shall be completing 5 years and 7 months of service. Then he shall have the right to receive the End of Service Gratuity as provided for in Article: 138. This because his service period has exceeded 5 years * 5 x 21 + 30/12 x 7 = 105 + 17 = 122 days

* In case the employer has cancelled the labor contract: In this case the worker shall have the right to receive an End of Service Gratuity if his employer has dismissed him without reason, in amount equal to 21 days for each year provided that he has completed one year of work, and 30 days for each year if his service period has exceeded 5 years.

8. When shall the worker be banned from having the End of Service Gratuity? Article:139:

The worker shall be banned from having the End of Service Gratuity in two cases: * If the worker was dismissed from the service for any reason set forth in Article: 120 of the labor law…, or if he left the work for the purpose of avoiding dismissal for the same reason

* If the worker has willingly ceased working without notice…, and for reasons other than those shown in Article: 121 of the law, and if he is working under unlimited period contract…, or if he didn’t complete 5 years of service with regard to the limited period contract…, and submitted his resignation letter.

9. I have worked with my employer…, whereas present in the establishment a box called the “saving box” in which the employer was used to put in it an amount of money for the account of the workers as an End of Service Gratuity…, in case I have reached my end of service period, shall I deserve to have from such amount? Article: 140:

* The worker shall have the right to receive from this amount, if the employer is depositing the same in the saving box against his legal obligation towards the End of Service Gratuity…, and if it was stipulated in the saving box as such.

* The worker shall have the right to receive What he was entitled for from the saving box in addition to the End of Service Gratuity if the saving box didn’t stipulate that What was deposited by the employer in the said saving box is against the employer’s legal obligation towards the End of Service Gratuity.52. I am working in an establishment, in which the system of pension and insurance is adopted…, in case of my end of service; shall I have the right of option between having the pension and the End of Service Gratuity? Article: 141:

According to Article: 141: The worker may chose between having the pension and the End of Service Gratuity or to have his dues in the pension or insurance box or whichever preferred to him…, (except with regard to nationals, whereas the Pensions and Insurance Authority’s terms shall be valid wherefore)…, Law No. 7 for the year 1999 regarding Social Pensions and Insurances.

Return Tickets

* The return tickets shall be in the worker’s account if he resigned without reason before the expiry of the limited period contract or resigned with respect of the unlimited period contract.

* The return tickets shall be in the employer’s account if he dismissed the worker, without reason or cause provided for in Article: 120

* The return tickets shall be in the employer’s account if the worker has completed the limited period contract.

UAE consider changes to end-of-service gratuity policy for expatriates

Under UAE law, all employers must pay employees an end-of-service gratuity. It is meant to serve a similar role as pension schemes do in the West and parts of Asia.

UAE officials have had preliminary discussions with the International Labour Organisation and several consultants in the region about requiring companies to set aside the money for employee gratuities, instead of paying them out of the operating budgets. This would ensure the funds remain available in case the company encounters financial problems.

An end-of-service gratuity: the name makes it sound so generous, like a tip received from an employer in exchange for outstanding service.In fact, the gratuity foreign workers in the UAE receive is mandated by the UAE Government to compensate for the absence of a true pension scheme. But the payment is not fully guaranteed nor widely understood and as a result, there are talks about reforming the current system.

The UAE is in talks with the International Labour Organisation (ILO) about either establishing a Government-run pension fund for expatriates or requiring employers to set aside employee gratuities in a separate pool to ensure it is available when employees qualify for it.

Currently, almost all companies pay gratuities out of their general operating budgets, which can lead to problems if a company runs into financial trouble.

"It is not always paid. I receive letters every day from employees who say they do not receive their salary or end-of-service benefit," says Maurizio Bussi, the deputy regional director for Arab States at the ILO, who adds that the UAE Government is "looking seriously" at the proposed changes. "There is a commitment from the Government in principle that the workers should be paid."

The combined liabilities of companies in the UAE for end-of-service benefits is more than US$4 billion (Dh14.6bn), according to research last year by the consultancy Watson Wyatt. For the GCC, it totals more than $15bn. Those figures are believed to be growing rapidly as employees stay in their jobs longer after the financial crisis. This is significant because gratuities are paid out based on an employee's final salary, although many employees leave their jobs without knowing what they are owed.

"We are seeing that the employee, more often than not, just does not understand it," says Jahangir Aka, a Dubai-based senior executive officer with SEI, a global investment firm that helps to manage pension funds. "He thinks it is like pension law in the West [and parts of Asia] and it is not."

The current UAE system works like this: each foreign employee earns 21 days' pay for each full year of service for the first five years, and 30 days for each year of employment more than five years. The maximum gratuity is two full years' pay. However, the amount owed is slashed by two thirds if the employee leaves voluntarily before serving three full years, and by one third if an employee leaves before the end of five years.

If employees are made redundant, they qualify for the full gratuity.These rules only apply to foreign workers. Emirati workers are eligible for a Government pension.

These are the minimum requirements as established by the Government. Watson Wyatt recently surveyed more than 100 Gulf companies to see if many were offering enhanced gratuities or formal pensions to recruit and retain staff. Only 30 per cent were offering extra incentives.

"Up until now, cash has been king. The companies have said, 'We are paying you loads of money so you can go out and get your own pension'," says Iain Collins, a Dubai-based senior consultant at Watson Wyatt. "The overriding message was that most companies are simply providing what they are told to provide by the law."

Further, it is common practice for UAE companies to pay a modest base salary to an employee and increase the total compensation with add-ons such as utilities and housing, in part because the gratuity is based solely on the base salary. "Most companies structure their compensation to minimise that final payment," says Mr Collins.

Mr Collins says this is "slowly but surely changing" as companies adopt western-style standards of employee retention. The old model was created in the pre-financial crisis era, when employee turnover was much higher and companies mostly assumed a large portion of the workforce would be moving on in a year or two.

"The hot employees have churned and gone back [to their home countries]. We've got a different employee base than we did five years ago. Most of us are comfortable with a longer-term view now," says Mr Aka.

But as the gratuities get larger, it becomes more important that the money is somehow ring-fenced to ensure that it is available when needed.

The money could be allocated to a fund controlled by the Government or by individual companies. Employees are the obvious beneficiaries of either structure because their gratuities are protected, but the financial industry in the Gulf is also making the case that companies will benefit as well.

"Right now, to pay Dh100, you have to take Dh100 off the balance sheet. If you do it smartly, to pay 100, you only have to take 93 off. We can grow the money for him," says Mr Aka, whose firm administers and manages pension funds.

There are potential ancillary benefits as well. In most emerging markets, there are rules requiring that a certain percentage of the funds are invested within that country (in Oman, for example, only 20 per cent of pension assets can be invested outside the country).

In the UAE, that could provide a much-needed boost to liquidity in the markets. Also, bringing in executives to administer and manage the funds could aid the local financial sector. "You incubate the growth of an asset management industry," Mr Aka says.

At the moment, Bahrain is the only Gulf country with something like a pension plan for foreign workers. Mr Bussi, of the ILO, says the UAE "could set the standard" for Gulf countries if it enacts the proposals being discussed.

Most experts caution that a change in the law is not imminent, not least because most UAE companies are not having difficulty attracting skilled workers."It is still an attractive region to work, given what is going on elsewhere in the world," says Mr Collins.