Monday, April 30, 2012

Labor Law Changes in U.A.E.

Ministry threat for employers forcing UAE workers to sign settlements

Final settlement proof must to cancel labour card

Six-month ban will be cancelled when employees submit contract with new company

Labour cards of employees will be cancelled only after companies provide proof that all their financial dues are settled, according to the 'Ministry of Labour'.
The ministry official was responding to a query during the weekly meeting, where a worker had the verdict go in his favour. He alleged receiving only Dh24,000 and that his company wanted to cancel the visa, when Dh74,000 was rightfully due to him, according to a report in 'Al Khaleej' newspaper.
If the company refuses to act the worker can move the court, siad the officialas as there will be no delay in judicial procedures.
In a separate case, Labour Ministry committe while addressing the weekly meeting rejected the request of a company to transfer 74 workers from one of its plant to another facility owned by the same employer. According to an earlier rule, companies are required to pay Dh500 fee for the transfer of each worker after meeting all the other conditions set by the ministry.
In case the employee did not complete two years, the company must a transfer fee for work permit and labour card fee for two years of Dh300 in the first category; Dh600 for second category – level A; Dh1,500 for second category – level B; Dh2,000 for second category – level C; Dh5,000 for third category.
However, labourers who were sacked by the company before completing two years can move to another company. The application of skill levels and minimum wages rule will not be applied in such cases.
The six-month ban and cancellation of labour card can be revoked provided the employee submits a new contract of another company that is in accordance with the skills level and minimum wage rules.

The Ministry of Labour will not issue new work permits to companies if there are cases pending against owners who force workers to sign documents stating they received all financial dues.
According to an 'Al Khaleej' report, the ministry will also not allow such owners to open new facilities. However, it will renew labour cards that already exist.
The move aims to ensure the rights of labourers and help them abide by work contracts signed.
The ministry has called on workers to file complaints about employers who force them to sign on financial-receipt documents.

[Proof of final settlement more]

However, the complaints must be filed within 12 months of the documents being signed. Once they receive a complaint, ministry officials will study the case, hear out the employers' version and initiate appropriate legal action only if an amicable settlement is not found.
The Ministry stated that labour cards can be cancelled only if the employer submits documents to prove that all financial dues have been setlled with the respective employee.
All dues even if employee dies outside UAE
If UAE employees happen to die outside the country, then their families are entitled to receive financial dues including gratuity, according to the Ministry of Labour.
In the weekly session, while addressing labour issues, Khalil Khouri, Director of Work Permits, Labour Ministry, said: "If any person were to die outside the UAE, while being legally employed in the country, the financial dues of the deceased as per the employment contract should be handed over to the family."
"Similarly, the labour card of the deceased will be cancelled once the death certificate - duly attested by both the embassy of the country where the person died as well as the Ministry of Foreign Affairs - is presented.
Alternatively, the labour card will be automatically cancelled after six months as per labour laws," Khouri was quoted by 'Al Khaleej' newspaper.
Answering a labour transfer query, Khouri said employees can be transferred to another facility, if the company they were working for is closed. But in such cases, the ministry should be notified of the closure of the company within two months. Following which, the Inspection Department will study the complaint and, if need be, punishment procedures would be initiated against the owner.
End-of-service benefits... time to set up a gratuity fund in UAE
A legal expert has suggested that the UAE should set up a Gratuity Fund to meet the end-of-service benefits requirements in the country.
He also suggested that gratuity payments should be based on gross pay or at least a set minimum percentage of total remuneration (such as 75 per cent).
Shoeb Saher, Senior Associate with Habib Al Mulla & Company, said there are a number of things that need to be considered by the UAE lawmakers to address areas in which the current Labour Law may not be in keeping with the increasingly sophisticated demands of both employers and employees.
He recommended that employers should be obliged by law to keep gratuity funds in a separate account that is independently administrated for the benefit of the employees. Payments into this fund should be made by the employer annually (similar to pension schemes available in other jurisdictions). These funds could be invested in government-backed securities or fixed deposit accounts with local banks, both low-risk options with immediate and ongoing benefits for the local economy.
"There are a number of benefits in making such changes to the law," says Saher. "If the calculation of end-of-service gratuity was more clearly defined in the labour law, this would create more certainty amongst both employers and employees. It would also reduce the amount of litigation in this area, reducing the judicial workload for routine matters."
If separate gratuity funds were established, this money would be protected in the event that the employer runs into financial difficulty or becomes insolvent. The financial sector in the UAE would also receive a boost due to the extra liquidity generated by such funds, Saher pointed out.
Areas of concern
The law expert said there are concerns about the current legislation governing the payment of termination gratuity. He listed them as follows: In cases where the employer is in financial difficulties i.e. they become insolvent, the chances of the employee ever recovering their end-of-service gratuity are limited leaving them with little or no recourse even within the judicial system as there are no funds to make this payment.
The current laws might arguably incentivise employers financially to find ways to terminate an employee for a specific cause and without notice under Article 120 of the Labour Law. Termination under Article 120 bars an employee from claiming any gratuity payment.
Employees with low income do not have the financial means to fight a court case in instances where an employer fails to fulfill its end of service gratuity obligations.
It remains common practice for UAE companies to deliberately allocate an artificially modest basic salary to employees and increase the total salary with additional benefits such as travel and housing, etc., as gratuity is based solely on the basic salary.
Saher pointed out that according to recent reports the combined liabilities of companies in the UAE for end-of-service benefits currently amount to more than Dh14.6 billion.
These figures are believed to be growing rapidly as employees stay in their jobs longer in the wake of the global financial crisis and because gratuities are paid on the basis of an employee's final salary and salaries have generally been on the rise.
"As the UAE continues to progress towards global standards in many areas, it is very important to ensure that laws governing employment are adequate to handle the increasing sophistication of the economy and the UAE business environment, especially if the UAE wishes to continue to attract and retain foreign inward investment and some of the world's best talent," the law expert added.
Gratuity explained
As the name implies, end-of-service gratuity is an amount of money that every employee is entitled to receive, and every employer is liable to pay, upon termination of an employment relationship in the UAE, provided that the employee meets the conditions set out in the Labour Law (UAE Federal Law No. 8 of 1980). End-of-service gratuity forms part of the benefits an employee is entitled to upon termination of their employment contract.
Under the Labour Law employees in the UAE are entitled to the following benefits upon termination:
A notice period or payment due in lieu of the notice period where the contract for an unlimited period;
Payments equivalent to accrued but unutilised leave or any part thereof;
Payments for overtime or any wages due and not yet paid;
End of service gratuity calculated on duration of employment;
Where the contract of employment is for an unlimited period, compensation for unreasonable dismissal if the contract was terminated by the employer for unreasonable cause (generally to a maximum of three months);
Where the contract is limited, compensation equivalent to the period until the end of the contract, or three month's salary whichever is less; and
Repatriation expenses to the employee's country of domicile as per the Labour Law or as stipulated in the contract.
Calculation of gratuity
End of service gratuity is a sum of money payable by an employer to an employee where the employee has completed one or more years in continuous service. Gratuity is calculated as follows:
21 day's wages for each year of service for the first five years 30 day's wages for each additional year beyond 5 years on the condition that the total gratuity shall not exceed the aggregate of two years' wages.
Gratuity is calculated on an annual basis if the employee has completed at least one year of continuous employment with the employer. A day of absence from work without pay shall not be included in calculating the length of service. However, if an employee has completed one year and more in continuous service they are entitled to gratuity as a percentage of the year proportional to the duration of their service.
So for example, if an employee has worked for one year and three months they are entitled to end of service gratuity calculated on the period of 15 months. If they have not worked for the minimum period of one year, they are not entitled to end of service gratuity.
Gratuity is calculated on the basic wage last paid to the employee prior to termination of the employment contract and this wage is the basis for calculating the gratuity for each year of employment.
Determination of basic wage
The Labour Law stipulates that basic wage means anything received by the employee as a wage excluding housing, transport, travel allowances, overtime, family allowances, entertainment allowances or any other allowances or bonuses. According to a recent judgment in the UAE courts, any amount payable to an employee which is classed as their wage (other than allowances or bonuses), and for these purposes wage includes, amounts paid as a percentage, commission or performance-based pay, and therefore are taken into consideration for the calculation of gratuity.
Reduced gratuity
Reduced gratuity payments are calculated in accordance with the employee's length of continued service in instances where the employee resigns.
An employee with a contract for an unlimited period who resigns after continuous service of no less than a year but no more than three years is entitled to one third of the gratuity provided above. If the period of continuous service is more than three years but less than five they are entitled to two thirds of the gratuity. If continuous service is more than five years, the employee is entitled to the full gratuity payment.
Forfeiture of gratuity
The employee may be deprived of gratuity under the following circumstances:
They were dismissed for one of the reasons stated in Article 120 of the Labour Law or left work to avoid dismissal
They are employed under a contract for a specified limited period and resigned of their own free will before the end of the contract (only applicable where continuous services is less than five years)
They are employed under a contract of unlimited period and left the job voluntarily without notice, in cases other than those provided for in Article 121 of the Labour Law.
Note: This article is intended for general information only and should not be considered as legal advice.


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