Legal Lowdown

12 April 2016

Author: Jamie Liddington


Legal update: Sarah Lawrence, senior legal consultant at DLA Piper in Dubai, gives an overview of legislation and case law HR professionals should be aware of

Jamie Liddington, head of employment at Hadef & Partners in Dubai, on the latest legislation and advice affecting HR professionals

The war on talent retention
 
Economic conditions, combined with the relative ease in which the laws of the UAE allow employees to move from one entity to a competing business, may have created the ‘perfect storm’ of talent retention challenges for employers in 2016 and beyond.
 
Volatile oil prices have led many employers in the oil and gas and support sectors towards a period of consolidation, which has included restructures and redundancies. But as businesses start to recover from this downturn, attracting employees from competitors could be an effective means of increasing profitability and market share.
 
Meanwhile, the UAE legal framework affords limited protection to employers that are looking for a means of prevention rather than a cure. For example, even where an employee is in the process of committing the most flagrant breaches of a post-termination restriction, there is no means of obtaining any form of injunction to stop the harmful act from taking place or continuing.
 
The solution lies in being forewarned and taking action at an early stage. It is sensible to consider the introduction of deferred benefits schemes. These can act as a means of deterring key employees from leaving in circumstances where their actions may constitute a breach of the employment contract, thereby resulting in the loss of unvested deferred awards. If it becomes clear that a key employee intends to join a competitor, act quickly in investigating the threat that may go beyond the employee in question and involve others who have worked closely with them. A fast and thorough investigation often improves the prospects of preventing or reducing the damage.
 
Clarity needed on penalty payments
 
Article 18 of the DIFC Employment Amendment Law requires employers to pay “all wages and any other amounts due” within 14 days of the termination of an employee’s employment. Where it is proven that any wages or other payments remained unpaid at the cut-off date, a penalty payment of one day’s wages is due for each day that the employer is in arrears. Article 18 may give rise to significant payments.
 
Since its introduction in December 2012, the Court of First Instance has not yet had the opportunity to consider Article 18. The DIFC Small Claims Tribunal has taken an inconsistent approach to the application of the article, which has left many desiring higher court (Court of First Instance) authority to clarify matters.
 
As People Management went to press, the Court of First Instance was expected to publish its judgment in Pierre-Eric Daniel Bernard Lys v Elseco Limited. It is hoped that this will clarify the courts’ interpretation of Article 18, which will then result in binding authority and a more consistent approach being taken by the Small Claims Tribunal.
 
Clamping down on excessive risk-taking in the financial sector
 
In February, The National reported that the Central Bank of the UAE is in the process of introducing regulations intended to curb the type of excessive risk-taking in the financial sector that led to the financial crash in 2009.
 
The announcement contained limited detail on the specific measures that are being considered, but it is thought the changes will replicate the enhanced regulatory approach adopted by the Basel Committee on Banking Supervision in its latest round of reforms (known as Basel III). This includes a focus on the implementation of sound compensation practices, and encouraging methods that result in employees’ pay being made more sensitive to risk.
 
The implementation of similar measures in the UAE may trigger the introduction of risk-adjusted pay, either by reducing bonus awards relative to risk (possibly in combination with ‘claw back’ measures) or by making the ultimate amount of deferred payouts sensitive to the outcomes of that employee’s own risk choices.