Contracts and Offer Letters requirements in ADGM

The Abu Dhabi Global Market (ADGM) is a financial–free zone in the UAE, which has its own regulations. Employment Regulations 2019 (the “Regulations”) is the law that deals with employment relates matters in the ADGM, and it applies to ADGM, its authorities, establishments and employees.

Employment Contracts

  • It is a standard requirement in the UAE to have an employment contract in the UAE, be it mainland or any free zones. An employment contract is a document that binds the relationship between the parties (that is between the employer and the employee) in an establishment wherein the terms and conditions of the employment will be stipulated.
  • Under the ADGM Regulations, an employment contract shall be a written contract, in the English language, which is signed by both employers as well as the employees. It is mandatory for both employers and employees to sign the contract without which the employment contract will not be considered as a valid contract.
  • The rules of the employment contract are stipulated under Sections 5 and 6 of the Regulations 2019.
  • It is mandatory for an ADGM registered employee to issue the employment contract to the employee within 1 (one) month after the commencement of employment.
  • It is the responsibility of the employer, prior to the signing of the employment contract, to ensure that the employee understands the terms of the employment contract, this applies to those employees who do not have sufficient competency in the English language.
  • In practice, there are essentially 2 (two) common types of employment contracts, that is a Limited employment contract and an Unlimited employment contract.
  • Limited employment contracts: are issued where the employment is for a specified duration with specific commencement and completion dates (for example, 3 years of a fixed term of employment). Employment automatically terminates at the end of an employment contract period but can be renewed with mutual consent of the parties for a similar period or for a period as determined by both the employers and/or employees as they deem fit. The employment contract may stipulate the period at which the desire to renew/terminate the employment shall be communicated to the other party. 
  • In the case of an unlimited employment contract, only a commencement date will be specified, with an indefinite duration. However, after the recent amendment to the Federal Employment Law, the unlimited employment term has been eradicated. By keeping the Federal Law as a base, the ADGM Regulations, in practical sense, usually prefers a limited employment term.  The unlimited employment contract may be terminated by one of the following methods: 
  1. By mutual agreement between the parties;
  2. if one party wishes to terminate the employment contract, they may do so by giving prior notice of termination to the other party. The notice is normally no less than 30 days; or
  3. for cause as governed by the Regulations.
  • An employment contract shall have the following heads, as a standard term in an employment contract, such as:
  1. The full name and address of the employer as well as the employee;
  2. The date of commencement of the employment (if it is a pre–dated contract, then the date of commencement shall be expressly mentioned);
  3. Wages or remuneration payable to the employee (including the gross and net salary amount);
  4. The applicable pay period (according to the law, the wages must be paid within 7 (seven) days within the relevant date as mentioned in the contract);
  5. Working hours and the terms and conditions relating to the working hours;
  6. Terms and conditions relating to various leave entitlements (such as vacation leave, vacation pay, national holidays, and pay for such holidays, maternity leave, parental leave, and pay for such leave, sick leave and sick pay, etc., )
  7. The notice period obligations that the employee and employer are entitled to give and receive to each while terminating the employment, the duration or length of the notice period;
  8. Title of the employee’s job and a brief description of the job of the employee;
  9. The term of the contract must be stipulated in the employment contract, and it shall be automatically renewed after the end of the fixed period, where an employment contract shall be continued unless terminated in writing;
  10. The place of the work shall be specified, including the branch office;
  11. Any disciplinary rules and/or grievance procedures applicable to the employee;
  12. Probation period details;
  13. The employee’s reporting structure;
  14. The employee’s entitlement to benefits, such as health insurance and pension plan;
  15. The process for resolving disputes;
  16. Termination clauses;
  17. And any other matters that may be prescribed by the employment regulations or by the ADGM Authorities from time–to–time.
  • An Employer shall expressly state in writing in the employment contract that those matters relating to the employment of the Employee shall be subject to the Employer’s policies (if any) which may be changed at the discretion of the Employer from time to time by way of a written notice to the Employee.
  • Any amendment to the employment contract shall be made in writing to the employee, which shall be signed by the employee. The only exception to this rule is where the change is for the benefit of the employee, then the signature and express written amendment is not mandatory. However, it is recommended in the usual scenario to make a written amendment with due execution of the same.
  • The Employment Regulations Compensation Limits Rules of 2019 (the “Rules”) gives an overview of the compensation and fine levels that an employer is obliged to make, upon his failure to comply with any rules or regulations.
  • Therefore, according to Rule 2(4) of the Rules, when an employer fails to give an employee a written employment contract, as required by section 5 of the Regulations, (either because the employer does not give a written employment contract to the employee or because the written employment contract provided does not comply with what is required under section 5 of the Regulations), the following will be the penalty imposed against an employer:
  1. The employer shall be liable for a fine not exceeding level 3 on the standard fines scale; and
  2. the Employee may apply to the Court for a declaration to determine what matters ought to have been included in the written employment contract so as to comply with section 5 of the Regulations, and for the Court to order compliance.
  • Offer letters are not legally required in ADGM, but they are a good practice. An offer letter should set out the terms of the employment offer, including the salary, benefits, and start date. It should also include a clause stating that the offer is subject to the employee’s acceptance and the satisfactory completion of a background check.

Conclusion

  • An offer letter and an employment contract are two different documents that are used in the process of hiring an employee in the employment in ADGM. Prior to the signing of the employment contract, an employer usually issues an offer letter stating the basic terms of employment, which must be signed by the employees.
  • The offer letter outlines the basic terms of employment, such as the job title, start date, duration of the contract, and compensation. On the other hand, the employment contract is a legally binding agreement between the employer and employee that outlines the terms and conditions of employment as per the Regulations.
  • Below gives a summary of what is an employment contract some useful tips for drafting employment contracts and offer letters in ADGM:
  1.  Use clear and concise language (the English language is mandatory);
  2. Be specific about the terms of the employment, such as the salary, benefits, and working hours (as per the Regulations in ADGM);
  3.  Avoid using jargon or legal terms that the employee may not understand (the employer must ensure that the employee understands         the terms and conditions in the employment contract);
  4. Have the employment contract reviewed by an employment lawyer before executing the same.

About ATB Legal

ATB Legal is a full-service legal consultancy in the UAE providing services in dispute resolution (DIFC Courts, ADGM Courts, mainland litigation management and Arbitrations), corporate and commercial matters, IP, business set up and UAE taxation. We also have a personal law department providing advice on marriage, divorce and wills & estate planning for expats. Please feel free to reach out to us at office@atblegal.com for a non-obligatory initial consultation.

by Aparna T Nambissan

Aparna is a legal consultant at ATB legal. She holds a Bachelor’s degree in Law and Commerce from Karnataka State Law University. She is enrolled with the Bar Council of Karnataka.

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