Legal update

25 October 2016

Author: Charles Laubach


Legal update

Charles Laubach, partner at Afridi & Angell, gives an overview of legislative changes in the GCC that HR professionals need to know about

The UAE's Wage Protection System (WPS) is one of the most significant aspects of its employment legislation and, under a new ministerial resolution, employers' obligations have been tightened, with enhanced penalties for non-compliance.
 
The WPS was first introduced in 2009. Before this, delayed payment and non-payment of salaries by employers was a widely acknowledged problem in the country. The WPS addressed this by requiring all employers to pay salaries by fund transfer through the UAE banking system. Salary payments had to comply with the salary in an employee's registered employment contract.
 
Sanctions for non-compliance included possible recategorisation of an employer from the first category to the second or even third category, resulting in restricted privileges and higher fees for labour transactions; suspension of the right to hire new employees or engage in any labour transactions; and fines. In 2013, the Ministry of Labour was given further power to withhold privileges and impose sanctions on affiliated employers, meaning all businesses owned by the same proprietor could be sanctioned for breaches in any one of them.
 
In practice, the WPS remedied, in short order, one of the most important deficiencies of the local legal system and significantly addressed the protection of employees' rights.
 
The new resolution continues the government's determination to require compliance with the WPS and to sanction non-compliance on the part of employers. It remains the case that all employees must receive their salary through the WPS. The new resolution provides expressly that the ministry shall proceed with no transactions for employers that do not comply with the WPS.
 
The new resolution also distinguishes between late payment and non-payment. A delay past 10 days will be viewed as a late payment on the part of the employer, and a delay past one month will be viewed as a failure to pay.
 
The ministry has been given the right to serve notice on any employer with 100 employees or more that commits a late payment offence, notifying the employer that the granting of any permits will be suspended from the 16th day of the delay in payment.
 
On that day, the ministry may suspend the employer and notify it of additional measures. If non-payment continues until the end of the month, the judicial authorities will be notified of the violation; suspension will be extended to other establishments of the same owner; no new files will be opened for the offending employer; any bank guarantees provided to the ministry may be liquidated; the employer will be demoted to category three; and employees who wish to transfer to another employer will able to do so.
 
If non-payment continues for 60 days, fines may be imposed. The new resolution also states that sanctions imposed as a result of delay will be lifted as soon as payment is made. In contrast, sanctions that are imposed as a result of failure to pay will continue for two months following payment in full of the salaries in question, with this term doubled in the event of any repeats.
 
For an employer that has fewer than 100 employees, the measures taken by the ministry will not change, except for those that commit repeated offences within one year. Such employers will be subjected to the same sanctions as those imposed on employers of 100 or more people.