Employment law in the Dubai International Financial Centre

Author: Douglas G Smith and Mark Gilligan | Date: 10 Feb 2016

Experts from law firm Squire Patton Boggs explain how different regulations apply in the DIFC

The Dubai International Financial Center (DIFC) is one of the UAE’s many free zones: economic areas created by each of the seven UAE Emirates, which are governed by rules and regulations that are generally different from those governing the ‘onshore’ UAE.
Careful consideration is needed when entering into DIFC employment contracts. Simply copying templates and using employment agreements governed by the UAE federal labour law or the laws of another jurisdiction other than the employment law could lead to misunderstandings, complications and, potentially, legal problems.
The vast majority of employment relationships in the UAE and its free zones are regulated by federal labour law, except in the DIFC where DIFC Law No. 3 of 2012 (‘employment law’) applies to all employment arrangements.
Douglas G Smith and Mark Gilligan of law firm Squire Patton Boggs, Dubai, explain how DIFC employment law differs to standard UAE employment law.
Application of the employment law
The employment law is applicable to those employees working for an employer with a place of business in the DIFC and who are based or ordinarily work in the DIFC. The employment law sets out a number of benefits that are considered the minimum to be afforded to employees, and cannot be waived or reduced by contract. If an employment contract stipulates less favourable terms than the minimum rights afforded by the employment law, then that contractual term is void.
Employment contracts
Employees are entitled to a written employment contract containing certain specific provisions (such as working hours, vacation leave etc) as stipulated in the employment law.
Probationary period
The employment law does not specify probation periods for employees. However, periods of three to six months are not uncommon for junior and mid-level employees. For senior management, it is not unusual for shorter probationary periods, or none at all, to be agreed.
Working hours
Employees shall not work a number of hours exceeding 48 within a seven-day period, unless the employee’s prior consent is obtained. During the Holy Month of Ramadan, the ordinary working hours of a Muslim employee observing the fast shall not exceed six hours per day.
Payment of salary
An employer is required to pay an employee’s wages, including vacation pay, on a monthly basis and must provide a written itemised pay statement.
Unlike the federal labour law, the DIFC employment law specifically prohibits an employer from engaging in discriminatory treatment or conduct on the basis of an employee’s sex, marital status, race, nationality, religion and/or mental or physical disability.
Annual leave entitlement for employees with more than one year of service is 20 working days, in addition to official public holidays. Employees are also entitled to sick leave not exceeding 60 working days in a 12-month service period. Muslim employees who have completed one year of continuous employment are entitled to 30 days of unpaid leave for the Hajj pilgrimage. Maternity leave of 65 working days is also given.
Notice period and termination of employment
1. Notice period
The employer and employee shall have the right to terminate the employment relationship provided either party has given a notice of:
  1. Seven days if the period of continuous employment is less than three months
  2. 30 days if continuous employment is less than five years
  3. 90 days if continuous employment is five years or more
The employment law allows the employer and the employee to agree to a shorter or longer period, or to waive notice or agree to payment in lieu of notice.
2. Termination for cause
An employer or employee shall have the right to terminate employment in circumstances where the conduct of one party warrants termination and where a reasonable employer or employee would have terminated the employment. This is decidedly different than is the case under the UAE labour law, where dismissal for cause is restricted to certain specific causes listed under the federal labour law, which, in practice, are difficult to achieve.
End of service gratuity
An employee who has completed one year or more of continuous service is entitled to an end of service gratuity payment at the termination of employment in accordance with these guidelines:
  1. 21 days’ basic wage for each year of the first five years of service
  2. 30 days’ basic wage for each additional year of service, provided the total of the gratuity shall not exceed the wages of two years of service
  3. The daily rate for the employee’s basic wage shall be calculated based on the number of days in the year
  4. Where the termination occurs prior to the end of any full year of employment, the gratuity payment shall be calculated on a proportionate basis
  5. In cases where an employer has provided employees with a pension scheme, the terminated employee has the option to choose between participating in the pension scheme and receiving the end of service gratuity payment
There are limited circumstances under which no end of service gratuity is payable to an employee, for example, in case of summary dismissal.