For any company in the UAE, onshore or in a free zone (with the exception of Dubai International Financial Centre), the requirements of Federal Law number 8 of 1980 and its amendments, otherwise known as the Labour Law, are compulsory
It is administered by the Ministry of Labour and covers every aspect of employment from working hours, sick leave and holidays, to termination of contracts.
Some of the main considerations for firms include requirements to grant a month’s holiday along with the 10 national holidays; the payment of sick leave for an employee who has been at the company for more than three months; payment of a gratuity lump sum to staff at the end of their employment; and a requirement to ensure working hours do not exceed 48 hours a week. Female employees are entitled to 45 calendar days of maternity leave with full pay, provided they have served a minimum of one year’s continuous employment.
These terms and conditions compare very well for employees, but many companies are not so keen on them, particularly the requirement to pay a gratuity to departing staff. This is calculated at 21 calendar days of basic wages for every year of service, and 30 calendar days for every year after the first five. The sum is capped at two years’ wages in total.
Samir Kantaria, partner and head of the employment department at UAE law firm Al Tamimi & Company, warns that attempts to avoid such requirements are futile. “You cannot get around local labour law provisions, no matter how hard you try. A lot of employers here do not like the concept of a gratuity, so they try and contract out of it, whereby they agree with the employee that the employee is not entitled to anything, or they try and pay it out as part of an annual bonus. But all of these arrangements would be in violation of the Labour Law,” he says.
Breaching the requirements opens a company up to the prospect of litigation from its employees and Kantaria says this is on the rise in the UAE. In the example of gratuity payments, the courts will side with the employee and force the company to pay the entitlement.
“If you are found to be regularly in violation, the authorities could blacklist you, which could hinder an employer’s ability to apply for new visas or work permits, or renew existing visas,” he says. “You are then on the radar, so you are also more likely to be inspected by the authorities for compliance.”
The lawyer says there are other misconceptions that can get companies into trouble. One such issue involves the practice of employing individuals on an independent contracting or consulting basis, rather than hiring them formally, in an effort to reduce overheads.
“In the UAE, you cannot bring someone in as an independent consultant or contractor unless they have set up here as a company in order to provide those services,” says Kantaria. “If the person does already have a resident’s visa and enters into a consultancy agreement with you, the chances are that it is in breach of the laws.”
Another common error occurs when firms bring in existing employment contracts from their international home jurisdictions and simply change the company details to try to make these contracts locally compliant. These contracts often do not conform and thereby certain provisions in them are deemed unenforceable or illegal under UAE law.
Finally, Kantaria points out that overseas companies without a locally established and licensed presence in the UAE cannot hire individuals to work in the country.
“A company may [decide not to] come here, but they want to hire individuals here to do business for them,” he says. “The issue is that the employee will need sponsorship for residency purposes and that can only come from your employer [who must be licensed]. We often find companies have entered into employment contracts that are not valid. It happens regularly.”
In addition to the requirements of the Labour Law, onshore companies must also meet Emiratisation requirements set by the Ministry of Labour. In general, these are set at 4 per cent of staff for any company with more than 50 employees. For banking and insurance firms, the targets are far higher and are separately set by the UAE Central Bank and the Insurance Authority, respectively. They increase year by year so a new institution’s quota of national staff will be far lower than one that has been established for many years.
The Emiratisation targets are monitored closely by the government, and firms meeting their requirements will find their fees for visas much lower than for those that do not comply. Meeting the quotas and having a culturally diverse workforce saves those firms (categorised as Class 1 by the ministry) money as they do not have to pay bank guarantees for employees of AED3,000 ($1,100) a person. These classifications were updated at the end of 2010 and companies that perform less well on Emiratisation face higher fees and are categorised as Class 2 or Class 3.
The terms and conditions of the Labour Law are regularly updated by Ministerial Resolutions. With Ministerial Resolution number 25 in 2010, the government acted to waive the ban on employees seeking a new job until six months after their previous employment terminated. It also introduced five new categories for internal work permits.
There are a range of visa options for visitors to the UAE, but getting a visa for employees has specific requirements. Getting visas for expatriate staff to join a new company can be done either through the free zone authority or, in the case of an onshore company, through the local naturalisation and residency office.
A company must have acquired its trade licence before applying to bring in staff from abroad. It must also be able to show that the expatriate staff have particular skills, or would be performing functions that UAE nationals would not be able to carry out.
The first step is to approach the local Ministry of Labour office with an application for a work permit, as well as the passport details of the employee. Once a work permit has been issued, a labour card can then be requested, also from the Ministry of Labour. The employee can then enter the country, but must undergo a medical examination at a local health centre within 60 days of arrival, before the firm can apply for the residency visa.
Residency visas for employees are obtained from the local office of the Ministry of Interior – General Directorate of Residency and Foreigners’ Affairs. Residency visas are granted for two years (onshore) and three years (in a free zone) and are renewable. Residents must also apply for an Emirates National Identity Card in order to guarantee access to services.
Business formation consultants say it is common for individuals to enter the UAE on a visit visa and then exchange this for an employee visa once the business is licensed and the paperwork for a residency visa is complete.
Many firms would like the current employee residency visas and local investor visas to be extended beyond two years. They feel this would give more certainty to businesses and increase the UAE’s attractiveness to international companies.
Most religious festivals and holidays are based on the lunar Islamic Hijri calendar. Dates vary as they depend on the sighting of the new moon. The main holidays revolve around the holy month of Ramadan, at the close of which is Eid. Ramadan lasts for one lunar month, during which Muslims abstain from food, drink and tobacco from sunrise to sunset. Eating, drinking and smoking by non-Muslims in public is not only discourteous, but is also a punishable offence. Most companies allow non-Muslims to drink and eat in separate, hidden areas. Western firms usually take holidays over Christmas and Easter as well.
Office hours vary, with some companies working a six-day week. Friday is a holiday for everyone. The maximum working hours permissible under the Labour Law is 48 hours a week. During the holy month of Ramadan, office hours are shortened. Most international private-sector companies take a weekend on Friday and Saturday.
- Working week: Sunday to Thursday
- Private-sector: normal business hours.
- Government bodies: 7:30 to 2:30
- Public-sector working hours are 9 to 2 during Ramadan
Azlin Ahmad of local law firm Al Tamimi & Company explains that many aspects of UAE commercial law are underpinned by sharia elements
Sharia is derived from Islamic principles and is capable of adaptation, development and further interpretation. It is not a codified law in the UAE, which means it does not prescribe general principles of law. Instead, it deals with specific cases or transactions and sets out rules that govern them.
Among the most important teachings of Islam for establishing justice and eliminating exploitation in business transactions is the prohibition of all sources of unjustified enrichment. This also includes the prohibition of dealing in transactions that contain excessive risk or speculation. Accordingly, Islamic scholars have deduced from sharia three principles that form the benchmark of Islamic economics and which distinguish Islamic finance from its conventional counterpart. Briefly, these are:
- The prohibition of interest;
- The sharing of profits and losses between the parties;
- The prohibition against uncertainty and excessive speculation (this being speculation over and above that which is necessary and unavoidable in a normal business transaction).
The UAE is governed by a civil law system heavily influenced by the French and Egyptian systems, which means all relevant underlying commercial and banking laws are, to a large extent, codified. There is no separate legislation within the UAE that codifies sharia for commercial transactions. In fact, only matters such as inheritance, divorce and child custody are specifically subject to sharia in the country.
In many instances, however, the provisions of the UAE law are reflective of sharia principles, such as the prerequisites relating to capacity to contract, clarity of contractual terms, the absence of coercion and specific conditions governing sale and purchase transactions. In these instances, such transactions are fully compliant with both sharia elements and UAE law from the outset.
In other cases, the provisions of UAE laws are inconsistent with sharia principles. For example, the charging of interest is generally permitted under UAE law as long as it is not unduly excessive (this being reflected by the flourishing conventional banking system in the UAE). However, interest is strictly prohibited under sharia, no matter how small the amount.
As many aspects of sharia rulings have been incorporated into the civil law, it can be said that large portions of the UAE’s commercial laws are influenced by sharia elements and are therefore compatible with sharia principles. The courts are also permitted to refer to sharia principles in the absence of clear legislation and established customary business practices. This is reflected in the approach taken by UAE Federal Law number 5 of 1985 concerning civil transactions (the Civil Code), which, together with Federal Law number 18 of 1993 concerning the Commercial Transaction Law (the Commercial Code), sets out the main provisions for civil and commercial transactions in the UAE.
Azlin Ahmad is a senior advocate at law firm Al Tamimi & Company.
Tel: (+971) 2 813 0444
Key feature of internal work permits
- Employees entitled to 30 calendar days of leave
- Employees entitled to 10 national holiday days (in addition to annual leave)
- Employees must only work for eight hours a day (breaks not included) with a 48-hour weekly maximum, except in hospitality where a nine-hour working day is allowed
- Working hours are reduced by two working hours a day during Ramadan
- Contracting out gratuity payments and any other requirements is not allowed
- Emiratisation targets only apply onshore
- Emiratisation target for company with more than 50 workers is 4 per cent
- Banking and insurance sector Emiratisation targets are set independently for each company by UAE Central Bank and the Insurance Authority. They are higher than national norms.
Hijri New Year’s Day (1 day)
Georgian New Year’s Day (1 day)
Eid al-Fitr (2 days)
Eid al-Adha (3 days)
Birthday of the Prophet Mohammed (1 day)
UAE National Day