The new Dubai International Financial Centre (DIFC) Employment Law has now been published and will come into force on 28 August 2019. This article discusses what this means for employers in the DIFC and the impact of the key changes being introduced. DIFC employers should familiarise themselves with the new law and ensure that their employment contracts, policies and business practices are in line with the new regime.
Redundancy is a sensitive and challenging topic in any jurisdiction. For companies operating in the United Arab Emirates, the issue is particularly complex as the UAE Labour Law does not set out any express statutory definition of 'redundancy' or 'redundancy procedure'. A company which fails to engage in a reasonable process or retain sufficient evidence to support a dismissal will always face an element of risk.
After a busy 12 months for the development of labour laws in the United Arab Emirates, the authorities look set to continue to focus on modernisation efforts in 2019. The reforms focus on, among other things, employment law, gender equality and multiculturalism, with the authorities announcing 2019 as the 'Year of Tolerance'.
The UAE authorities have been focusing on the development and modernisation of the employment law landscape over the past 12 months and look set to continue to do so in 2019. Of particular note is that 2019 has been declared the 'Year of Tolerance', with a particular focus on establishing the United Arab Emirates as a global reference point for a tolerant culture. Further, the authorities are expected to continue to consult on legislation to support women in the workplace in the short to medium term.
In collaboration with the courts, the Abu Dhabi Ministry of Human Resources and Emiratisation recently launched a summary court to complement the One Day Labour Court. The new court is designed to speed up the process of litigating labour-related matters, including issues relating to the return of a passport or an emirates ID card, health insurance, accommodation and the cancellation of work visas. However, this fast-track system is designed to consider straightforward disputes only.
Non-cash employee benefits can create a value added tax (VAT) headache for businesses. Even fully taxable businesses in the United Arab Emirates may find that VAT recovery is blocked for certain activities. Further, even if input VAT is recoverable on the cost of the benefit, providing it to employees may trigger an obligation to account for VAT on the deemed supply of the benefit to the employee. For many benefits, the VAT treatment will vary depending on the circumstances.
The Dubai International Financial Centre (DIFC) has been reviewing and undertaking consultation on an entirely new Employment Law throughout most of 2018. The proposed amendments are likely to have a significant impact on key elements of the existing Employment Law and on employment relationships within the DIFC in general.
The gig economy is developing and expanding worldwide and has already had an impact on the UAE regulatory framework. Moreover, it is likely to become more central to the landscape of employee and workforce relationships within the next five to 10 years. It is certainly an area that in-house legal teams, HR professionals and senior managers should pay close attention to in the short to medium term.
Part-time and flexible working arrangements are a fundamental part of workforces in western jurisdictions and serve as a significant incentive that employers can use to recruit and retain their talented employees. While these arrangements are not currently offered by many employers in the United Arab Emirates, this may be about to change in light of a significant statutory development. This development is a win-win for all parties, and businesses should consider creating roles for part-time employees.
There is a huge amount of uncertainty and misunderstanding surrounding the legal approach to redundancies and restructures in the United Arab Emirates. Redundancies were particularly prevalent during the 2008-2009 crash and the more recent oil price slump in 2015-2016. During those periods, many UAE employers received judgments against their businesses after they failed to understand or comply with the legal position and expectations of the local courts when undertaking internal processes.
The Abu Dhabi Global Market (ADGM) has announced the establishment of the ADGM Arbitration Centre, which will include the Middle East and North Africa representative office of the International Chamber of Commerce International Court of Arbitration. The centre is forecast to be fully operational by January 2018. This marks an important development for arbitration in the region and provides users of arbitration in the Middle East with greater choice.
As a result of the economy experiencing an upswing over the past year, there was an increase in transactions and deal values in the first half of 2017. Further, because the United Arab Emirates put its plans to diversify its economy away from a dependency on oil into action, M&A activity outside the oil sector has been bolstered. In particular, there has been growth in the healthcare, education and retail sectors.
Decree 19/2016 established a judicial committee tasked with resolving conflicts of jurisdiction between the Dubai courts and the Dubai International Finance Centre (DIFC) courts. Just over six months after the issuance of Decree 19/2016, the committee rendered its first decisions, which have made it clear that an arbitral award rendered onshore in Dubai cannot be enforced in the DIFC courts where proceedings in respect of the same award have been commenced before the Dubai courts.
The Ministry of Economy recently issued Ministerial Resolution 694/2016, which waives the requirement for limited liability companies, joint liability companies and limited partnerships to amend their memoranda of association, as per the new Companies Law. That said, it is advisable for exempt companies to amend their memoranda of association in due course for ease of reference.
Clients often ask how to conduct legal due diligence or background checks on another party in the United Arab Emirates. Unfortunately, there is no straightforward answer. With no centralised company register, and over 40 different free zones, obtaining basic information about UAE free zone companies may pose a daunting challenge. Even so, there are still effective tools available to uncover the necessary information.
The competition law regime established by Federal Law 4/2012 and Resolution 37/2014 has been criticised – in particular, for being ambiguous in relation to merger control, making the law unenforceable in practice. Most notably, the regime lacked defined thresholds for the application of merger control provisions. These issues were recently addressed through two cabinet resolutions. However, considerable ambiguity remains in the interpretation and application of the UAE competition law regime.
The much-awaited new bankruptcy law in the United Arab Emirates is a complete legal framework designed to help financially troubled companies to avoid collapse. The new law recently took effect after being decreed by President Sheikh Khalifa. It is part of the global wave of insolvency reform referred to as the 'rescue culture' and has been warmly received by local and international stakeholders.
A recent unexpected change to the Penal Code which criminalises arbitrators' and experts' violations of their duties of integrity and impartiality has stunned the arbitration community. While steps are underway to lobby the UAE government to repeal or amend the new Article 257, it has cast a shadow over the significant efforts in recent years to promote the United Arab Emirates as a regional hub for resolving disputes.
Investors seeking to acquire an enterprise must consider the liability arising from a multitude of legal engagements. While the nature and complexity of existing contracts that should be reviewed in legal due diligence may differ considerably depending on the area of business in which the target is engaged, employment relationships will be a significant factor in most corporate transactions. As such, recent amendments to the employment regime are highly relevant to M&A transactions.
International business companies incorporated or proposed to be incorporated in Ras Al Khaimah must note the recent establishment of the Ras Al Khaimah International Corporate Centre which, going forward, will be the sole authority responsible for the incorporation of international business companies. While the existing advantages of incorporating an offshore company in the United Arab Emirates remain, the system is now more flexible and simplified in terms of bureaucracy.