DIFC Employment Laws: A Primer for Businesses in the DIFC

The UAE is home for several free zones and each free zone is regulated by its own laws. This article talks about employment laws pertinent to the DIFC. For employment laws relevant to the Abu Dhabi Global Market, see ADGM Employment Regulations: A Quick Overview.

The Dubai International Financial Centre (DIFC) is a financial free zone in Dubai that was established in 2004. It serves as a hub for companies operating in the Middle East, Africa, and South Asia markets. The DIFC has its own independent court system called DIFC Courts, separate from the legal systems of Dubai and the UAE government. This article provides an overview of the DIFC Employment Law, which governs the relationships between employers and employees in the DIFC, discussing some of the key elements of DIFC’s employment laws.

The DIFC Employment Law is designed to regulate the employment relationship between employers and employees in the DIFC, ensuring fair and equitable treatment for all parties involved. The DIFC Law No. 2 of 2019 (“Employment Law”) provides comprehensive provisions relating to various aspects of employment, including recruitment, contracts, working hours, wages, leave entitlements, termination, and dispute resolution. It aims to strike a balance between protecting the rights and interests of employees while promoting a business-friendly environment for employers.

Employment Law Basics

In recognition of the crucial need for thorough regulations, the DIFC embarked on a journey to create a cutting-edge employment law framework, governing the intricate dynamics between employers and employees. This ground-breaking endeavour resulted in the birth of the DIFC Employment Law No. 4 of 2005, commonly referred to as the DIFC Employment Law. The DIFC Employment Law provides comprehensive provisions relating to various aspects of employment, including recruitment, contracts, working hours, wages, leave entitlements, termination, and dispute resolution.

Working Hours and Overtime

One important aspect of DIFC employment laws is the conditions regarding working hours. In most cases, the standard working week in DIFC is 48 hours across seven days a week. This can be exceeded if the employer has obtained the consent of the employee in writing, considering daily and weekly minimum rest limit. During Ramadan, the working hours are typically reduced to six hours a day for all workers. 

Annual Leave

An employee who has been employed for at least 90 days is entitled to paid leave of 20 working days a year. They are entitled to be paid their daily wage during the leave period. They can carry forward their leave for next year; but unused leave will expire after a maximum period of 12 months.

End-of-Service Gratuity

The DIFC Employment Law has an End-of-Service Gratuity provision, where a lump-sum payment is made to the employees who have completed one year of continuous service, when their employment ends. This sum is calculated based on the employee’s final salary and the length of service. It is a significant part of the employment law and something that every worker and employer in the DIFC should be aware of. Article 66 of the Employment Law talks about the end-of-service gratuity.

Termination of Contracts

The DIFC employment laws also lay out clear guidelines about termination of contracts. An employment contract can be terminated by mutual agreement, on the expiration of its term, or by one party (either the employer or the employee), provided proper notice is given. Part 10 of the Employment Law outlines the procedures and requirements for terminating employment contracts. It specifies notice periods, severance pay, and the circumstances under which termination can occur.

Workers’ Rights and Employer Obligations

The DIFC Employment Law provides a strong framework for workers’ rights, including protection against discrimination, the right to a safe working environment, health insurance coverage and a pension scheme. Employers are obliged to respect these rights and failure to do so can result in substantial penalties.

Evolution and enhancement of labour regulations in the DIFC

DIFC Employment Law No. 4 of 2005

In 2005, the DIFC introduced the DIFC Employment Law No. 4 of 2005 to establish a fair framework that protects the rights of employers and employees. In 2012, the DIFC made amendments to the Employment Law to provide further clarity and protection for employee rights. The amendments addressed areas such as discrimination, employment contracts, leave, and end-of-service gratuity provisions.

DIFC Employment Law No. 2 of 2019

A significant milestone came in 2019 when the DIFC introduced the DIFC Employment Law No. 2 of 2019, which repealed the previous law. The new law included changes such as a shorter limitation period for employment claims, protection against discrimination based on pregnancy, age, and maternity, and developments in paternity and maternity leave.

Amendments to DIFC Employment Law No. 2 of 2019 – DIFC Law No.4 of 2020

In 2020, the DIFC made amendments to the Employment Law to require employers to contribute to the DIFC Employee Workplace Savings Plan (DEWS) or an alternative qualifying scheme. This protects employees in case of employer insolvency.

Amendments to DIFC Employment Law No. 2 of 2019 – DIFC Law No.4 of 2021

In 2021, further amendments were made to the Employment Law, extending protection against discrimination and harassment to short-term employees, confirming employer obligations for employees working from home, and making changes to probation periods and carrying forward annual leave.

Key changes and Salient features of the DIFC Employment Law

Applicability

As per Article 4 of the Employment Law, the Employment Law is applicable to:
any person having a place of business in the DIFC who employs one or more individuals;
any individual employed by an employment contract by a person having a place of business in the DIFC or
any individual who is either based within, or who ordinarily works in or from the DIFC.

Limitation Period

Any proceedings with regard to the Employment Law must be initiated within six months following the employee’s termination.

Secondment

Secondment is defined in the Employment Law as the period during which an employee who has a secondment card works for an employer in the DIFC while being employed for a person outside the DIFC but within the UAE. The Employment Law clarifies that a valid secondment arrangement is solely between a DIFC entity, and an entity domiciled outside of the DIFC, but within the UAE. This includes both onshore entities or free zone entities in the UAE. A valid UAE resident visa is required to apply for a secondment card.

If the individual is working for an entity domiciled outside of the UAE, the individual will need to enter into a formal employment relationship with and be sponsored by the DIFC entity in order to work in the DIFC.  The rights extended to the secondees as per the Employment Law includes right to written contract, no false representation, access to payroll records, Ramadan hours and employer’s obligations towards secondees.

Right to a written contract

An employer has the duty to provide the employee with an employment contract and it should contain information as mandated by the Employment Law. The New Law additionally ensures that the contract has clauses such as duration of the employment (indefinite or definite), and reference to any policies and procedures of the employer.

Settlement Agreement

Employees are permitted to waive employment rights during settlement agreements, and they are subject to certain conditions.

Discrimination

As per Article 59 of the Employment Law, an employer must not discriminate an employee on the grounds of sex, marital status, race, nationality, age, pregnancy and maternity, religion, or mental or physical disability. Discrimination on the grounds of age is permitted if the employer can show that the treatment of the employee is a proportionate means of achieving a legitimate aim. In the case of several acts of discrimination which have taken place, the six-month limitation period as mentioned above will start from the date that last of the acts occurred.
Article 60 of the Employment Law prevents victimization of an employee by an employer for committing a protected act as mentioned in the Law.

Working hours

The working time of an employee shall not exceed 48 hours per week. This can be exceeded if the employer has obtained the consent of the employee in writing. However, even with the consent, there must be compliance with the regulations regarding daily and weekly minimum rest limits. During the time of Ramadan, a Muslim employee shall not be required to work more than six hours a day.

Annual leave

An employee who has been employed for at least 90 days is entitled to paid leave of 20 working days a year and they are entitled to be paid their daily wage during the leave period. They can carry forward their leave to the next annual year; but unused leaves will expire after a maximum period of 12 months.

Dispute resolution

The DIFC has its own Employment Tribunal to handle employment-related disputes. Employees can file complaints with the tribunal, which has the authority to hear and decide on employment disputes.

Health and safety

Article 44 of Employment Law requires employers to provide a safe and healthy working environment for employees.The Employment Law also sets standards for workplace safety, occupational health, and welfare measures as mentioned in Part 7.

Employee benefits

The Employment Law provides for mandatory employee benefits, including health insurance coverage and a pension scheme.

Compliance challenges faced by employers

Here is a quick glance at the major challenges that employers face regarding compliance with the DIFC employment law:

Increased Minimum Employment Standards

Minimum employment standards are introduced by the Employment Law and that cannot be waived by agreement between the employer and employee. Employers will need to ensure that they are complying with these minimum standards.

New Entitlements for Part-Time Employees

As per the Employment Law, a part-time employee is entitled to vacation leave, maternity leave, paternity leave, special leave, and sick leave and employers will need to ensure that the part-time employees are provided these entitlements.

New End-of-service Payment Regime

The end-of-service payment regime which was previously in place for (non-GCC) employees employed in the DIFC was changed to a defined contribution scheme. Therefore, the employers will need to ensure that they are complying with the new regime.

Increased Liability for Employers

The new law increases the liability of employers for non-compliance. If the employer fails to comply with any recommendations set by the DIFC Courts and compensation has been awarded, the DIFC Courts can grant additional compensation. Employers will need to ensure that they are complying with the new law to avoid potential fines and other liabilities.

It is important to note that DIFC Employment Law may undergo updates and revisions over time. Therefore, it is essential for employers and employees operating within the DIFC to stay updated with the latest regulations and seek professional advice when necessary to ensure compliance with the law.

The DIFC Employment Law establishes clear guidelines on recruitment, employment contracts, working hours, leave entitlements, non-discrimination, termination, and dispute resolution. It ensures a fair and balanced employment relationship between employers and employees within the DIFC, promoting investor confidence and protecting employee rights.

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 Reshma Rose Jacob

Reshma is a legal consultant at ATB Legal. She is a law graduate from St. Joseph’s College of Law, Bangalore, and is enrolled with the Bar Council of Kerala.

2 comments

  • Idir

    November 15, 2023 at 8:44 am

    I have been with a company since January 2021
    If I leave the company the 5 of January
    I’m entitled to receive my 20 days of annual leave or no ?

    Reply

    • ATB Research Team

      November 17, 2023 at 1:15 pm

      Leave entitlement is subject to the terms and conditions of the employment contract read with the applicable legislation. While the labour law provides for the mandatory minimum requirements, the contract may provide additional benefits to an employee.

      Under Labor Law, if an employee quits their job before taking their vacation days, they are still entitled for payments for unutilized leave days. This rule applies no matter how long they’ve worked there, and it’s based on their basic salary. Employees also get paid for part of the year they worked, even if it’s just a fraction of the year. Remember, this is just a general guide.

      Each case can be different, so it’s important to talk to a labor law expert to ensure you understand everything correctly and avoid any legal implications.

      Reply

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