COMPARISON OF DIFC AND UAE LABOUR LAW ON KEY AREAS

This article contrasts the provisions of the UAE Labour Law no.8 of 1980 (the “UAE Labour Law”) with those of the DIFC
Employment Law no.4 of 2005 (“DIFC Employment Law”) and highlights the manner in which the Employer or the
Employee is placed in either a stronger or weaker position under each Law. It also addresses the shortcomings of each
Law such as their lack of clarity on the application of certain provisions.

1. Probation

UAE Labour Law, Article 37:

A worker may be engaged on probation for a period not exceeding six months, during which his services may be
terminated by the employer without notice or severance pay: Provided that a worker shall not be engaged on probation
more than once in the service of any one employer. Where a worker successfully completes his period of probation and
remains in his job, the said period shall be reckoned towards his period of service.

DIFC Employment Law, Article 57:

(1) The notice required to be given by an employer or employee to terminate a person's employment, where the person
has been continuously employed for one (1) month or more, shall not be less than:
(a) One (1) week if the period of continuous employment is less than three (3) months.
(b) one (1) month if the period of continuous employment is three (3) months or more but less than five (5) years:
(c) three (3) months if the period of continuous employment is five (5) years or more.
This Article shall not prevent an employer and employee from agreeing to a longer or shorter period of notice nor shall it
prevent either party from waiving notice or from accepting a payment in lieu of notice.

Under the DIFC Employment Law, if the Employee has been employed between 1 and 3 months he can only resign or be
terminated by his Employer upon at least 1 week’s notice. This is a departure from the UAE Labour Law where it is
possible for the Employer to terminate the Employee or for the Employee to resign without notice while he is under
probation. If a person is employed between 3 months and 5 years, he can only resign or be terminated by his Employer
after giving one month’s notice according to the DIFC Employment Law, which is broadly similar to the UAE Labour Law
notice provisions. However, under DIFC Employment Law where a person has been employed more than 5 years he can
only resign or be terminated by his Employer upon 3 months notice. Again this is a departure from UAE Labour Law,
where there is no requirement for long service employees to give or be given longer notice.

Finally, the DIFC Employment law is more flexible as the Parties can agree in the employment contract to have a different
termination notice period than the ones prescribed in the DIFC Employment Law. However, since the Employee does not
have the bargaining power of the Employer, this provision could be seen as slanted in the Employer’s favour.

2. Limited versus Unlimited Contract

UAE Labour Law, Article 38:

A contract of employment may be for an unlimited or for a limited period. If it is for a limited period, this shall not exceed
four years and the contract may be renewed by mutual agreement between the parties for a similar or a shorter period on
one or more occasions.
Where a contract is renewed, the further period or periods shall be deemed to be an extension of the original period and
shall be added thereto when calculating the worker’s total period of service.

DIFC Employment Law:

No distinction is drawn between the two types of contract. Contract of Employment is defined under Schedule 3 Defined
Terms as “any agreement whether for a limited or unlimited period…”

The “Limited Contract” which is special to the UAE Labour Law is quite restrictive for both the Employer and the
Employee. For example, please see below the Termination Notice requirements. Thus DIFC Employment Law is better
than the UAE Labour Law in this respect as it does not distinguish between the a Limited and an Unlimited Contract.

3. Working hours

UAE Labour Law, Article 65:

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The maximum normal hours of work of adult workers shall be eight a day or 48 a week. The hours of work may be
increased to nine hours a day in commercial establishments, hotels and cafes and of guard duties and any other
operations where such increase is authorized by order of the Minister of Labour and Social Affairs. The daily hours of
work may be reduced in the case of arduous or unhealthy operations by order of the Minister of Labour and Social Affairs.
The normal hours of work shall be reduced by two during the month of Ramadan.
The periods spent by a worker in traveling between his home and place of work shall not be included in his hours of work.

DIFC Employment Law, Article 19:

An employee's working time shall not exceed an average of forty-eight (48) hours for each seven (7) day period unless the
employer has first obtained the employee's consent in writing.

The normal working hours are generally the same under both Laws. However, under the DIFC Employment Law, no
exception to the normal working hours is made for commercial establishments, hotels and cafes, etc. In addition, under
the DIFC Employment Law, Ramadan hours are specifically reduced to six working hours and this provision applies to
fasting persons only.

Again DIFC allows the Parties to contract out of this restriction on working hours, which really puts the Employer, who has
better bargaining power, in a stronger position, and as discussed above this is a move away from UAE Labour’s Law style
of non-negotiable minimum rights for the Employee.

4. Overtime

UAE Labour Law, Article 68:

Where the circumstances of the work require a worker to work overtime between 9 p.m. and 4 a.m. he shall entitled in
respect of such overtime to the remuneration stipulated for his normal hours of work, plus a supplement of at least 50
percent of the remuneration.

DIFC Employment Law

Although overtime is mentioned under Article 60(2) with respect to an Employee’s gratuity entitlement i.e. that gratuity will
not include overtime payment, the term “overtime” is not defined anywhere.

Since the term “overtime” is specifically defined under the UAE Labour Law and the Employee is explicitly entitled to
150% of their normal hourly rate the UAE Labour Law is definitely more advantageous to the Employee.

5. Weekly rest day

UAE Labour Law, Article 70:

Friday shall be the normal weekly rest day for all workers except daily-paid workers. Where the circumstances require a
worker to work on this day, he shall be granted another day or receive his basic remuneration for his normal hours of
work; plus supplement of at least 50 percent of the remuneration.

DIFC Employment Law, Article 23:

An employee is entitled to an uninterrupted rest period of not less than twenty-four (24) hours in each seven (7) day work
period.

Both DIFC and UAE require a weekly day off, but DIFC does not specify which day of the week shall be taken off which
could be seen as helpful for Employers that need to coordinate with Western European or other countries where Sunday
is the weekly rest day.

6. Public Holidays

UAE Labour Law, Article 74:

Each worker shall be entitled to official with full pay on the following occasions:
(a) New Year’s Day (Hjira): one day;
(b) New Year’s Day (Christian): one day;
(c) Feast of Lesser Bairam: two day;
(d) Feast of Greater Bairam and Eve of Greater Bairam: three days;
(e) Birthday of the Prophet: one day;
(f) Nocturnal Journey and Ascension of the Prophet: one day;
(g) National Day: one day.

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UAE Labour Law, Article 81:
Where the circumstances of the work make it necessary for a worker to work on public holiday or rest day in respect of
which he is entitled to full partial pay, he shall be granted compensatory leave in respect of such days, together with a
bonus equal to 50 percent of his remuneration. If he is not compensated for such days by leave, his employer shall pay
him a bonus equal to 150 percent of his basic remuneration in respect of the days worked.

DIFC Employment Law, Article 30(1):

Every employee is entitled to the national holidays that are announced in the United Arab Emirates for the public sector (if
the employer is a public sector entity) or the private sector (if the employer is a private sector entity).

DIFC Employment Law, Article 30(4):

Leave to which an employee is entitled under Article 30(1) may be replaced by:
(a) a day in lieu; or
(b) a payment in lieu;
where each of the employer and the employee so agree in writing.

Both laws are in effect the same in terms of entitlement to UAE national holidays.

However, under the DIFC Employment Law, the Employee is given the option of either taking a day(s) off at another time
or payment in lieu but not both and he is only given compensation at the normal rate rather than at an inflated rate
required by the UAE Labour Law.

7. Annual Leave

UAE Labour Law, Article 75

Every worker shall, within each year of service, be granted a period of annual leave of not less than:
(a) two a month, where the worker’s period of service is more than six months but less than one year;
(b) 30 days a year, where the worker’s period of service is more than one year.
Where a worker’s service is terminated, he shall be entitled to annual leave in respect of fractions of the last year.

UAE Labour Law, Article 77

Holidays for which provisions has been made by Law or agreement or any other days of absence from work on account of
sickness shall be reckoned as part of the annual leave if such holidays fall within the annual leave.

DIFC Employment Law, Article 25

(1) Subject to Article 28, an employer shall give an employee an annual vacation of twenty (20) working days to be
accrued pro rata for employees who have been employed for at least three (3) months.

(2) An employer shall ensure that an employee takes an annual vacation within twelve (12)
months after completing the year of employment entitling the employee to the vacation.

(3) An employer shall allow an employee who is entitled to an annual vacation to take it in periods
of one (1) or more weeks.

(4) An annual vacation is exclusive of national holidays to which an employee is entitled.

(5) An employee is not entitled to a payment in lieu of vacation days earned except where:
(a) the employee's employment is terminated; or
(b) the employer agrees otherwise.

The DIFC Employment Law is better for the Employee than the UAE Labour Law for the following three reasons:

1 – The leave days are accrued pro rata after only 3 months of employment rather than 6 months as under the UAE
Labour Law;
2 – To those who require more flexibility, the Employee is specifically entitled to working days off. Under the UAE Labour
Law, leave days are generally interpreted to refer to calendar days.
3 – The annual leave is calculated as exclusive of national holidays.

8. Sick Leave

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UAE Labour Law, Article 83
1- The worker shall not be entitled to any paid sick leave during the probation period.
2- If the worker completed more than three months after the probation period in the continuous service of the employer
and falls ill, he shall be entitled to sick leave not exceeding 90 days whether continuous or otherwise, in respect of every
year of service. Such leave shall be calculated as follows.
a) The first 15 days with full pay.
b) The next 30 days, with half day.
c) Any subsequent periods, without pay.

DIFC Employment Law, Article 33

Subject to Article 34, an employer shall pay an employee sick pay at the employee's normal weekly rate.

DIFC Employment Law, Article 34

(1) The maximum annual sick leave entitlement is ninety (90) days.
(2) Where an employee takes more than an aggregate of ninety (90) sick days in any twelve (12) month period, the
employer may terminate the employment immediately with written notice unless the excess leave taken is attributable to a
medical condition which prevents the employee from effectively performing the duties the employee was employed to
perform.

(3) A medical condition under Article 34(2) shall be certified by a duly licensed physician or other
qualified health care specialist.
(4) An employee is not entitled to carry forward sick leave entitlement not taken in a twelve (12)
month period into the next twelve (12) month period.

The sick leave entitlement is 90 days under both the UAE Labour Law and the DIFC Employment Law except that under
the UAE Labour Law only the first 15 days are paid, the next 30 days would be at half pay and the balance would be
unpaid. Under the DIFC Employment Law an Employee is entitled to be paid at the rate of full pay for the entire period of
sick leave and hence the Employee’s sick leave entitlement under the DIFC Employment Law is much greater. In addition,
unlike the UAE Labour Law, the DIFC Employment Law does not link sick leave entitlement to an Employee successfully
completing the probation period.

9. Termination Notice

UAE Labour Law, Article 113

A contract of employment shall terminate in any of the following cases:….(2) on the expiry of the period prescribed in the
contract, unless the contract is expressly or tacitly extended in accordance with the provisions of this Law…

UAE Labour Law, Article 115

Where a contract of employment is for a limited period of time and the employer revokes it for reasons other than those
specified in article (120) he shall be requited to compensate the worker for any prejudice the latter sustains: provided that
the amount of compensation shall in no case exceed the aggregate remuneration due for a period of three months or the
residual period of the contract whichever is shorter unless the contract contains a provision to the contrary.

UAE Labour Law, Article 116

Where a contract is revoke by the worker for reasons other than those specified in article (121), he shall be required to
compensate the employer for any prejudice the latter sustain as a result: provided that the amount of compensation shall
not exceed half the worker’s remuneration for three months or the residual period of the contract whichever is shorter
unless the contract contains a provision to the contrary.

UAE Labour Law, Article 117

(1)- Both the employer and the worker may terminate a contract of employment of unlimited duration for a valid reason at
any time following its conclusion by giving the other party notice in writing at least 30 days before the termination.

DIFC Employment Law, Article 57:

(2) The notice required to be given by an employer or employee to terminate a person's employment, where the person
has been continuously employed for one (1) month or more, shall not be less than:
(a) One (1) week if the period of continuous employment is less than three (3) months;
(b) One (1) month if the period of continuous employment is three (3) months or more but less than five (5) years;
(c) Three (3) months if the period of continuous employment is five (5) years or more.
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This Article shall not prevent an employer and employee from agreeing to a longer or shorter period of notice nor shall it
prevent either party from waiving notice or from accepting a payment in lieu of notice.

Termination during the probation phase has already been discussed above.

DIFC Employment Law does not distinguish between Limited and Unlimited Contracts. Under the UAE Labour Law, where
an Employer terminates a Limited Contract he must compensate the Employee by paying him 3 months salary whereas if
the Employee resigns he must pay his Employer 1.5 months salary (or in both cases the salary for the balance of the
contractual term if this period of time is shorter).

Otherwise, under the DIFC Employment Law there is a longer notice period required for long service Employees. This
could be seen both as a safeguard for the Employee by giving him more job security and the Employer, since they would
need time to search for and train a suitable replacement where a long serving and hence valuable employee resigns from
his position.

10. Compensation in lieu of notice

UAE Labour Law, Article 119:

Where an employer or a worker fails to give the party notice of the termination of the contract or reduces the period of
notice, the party obliged to give notice shall pay the other party compensation, called “compensation in lieu of notice”,
even where no prejudice has been sustained by the other party as a result of such failure or reduction. The said
compensation shall be equal to the worker’s remuneration in respect of the entire period of notice or the time by which it
was reduced. Compensation in lieu of notice shall be calculated on the basis of the remuneration last received, in the
case of worker remunerated on a monthly, weekly, daily or hourly basis or in the case of a worker remunerated at piece
rates, on the basis of the average daily remuneration referred to in article 57 of this Law.

DIFC Employment Law

Although payment in lieu of notice is mentioned under Article 57, there is no stipulation as to how such payment shall be
quantified.

Although both the UAE Labour Law and the DIFC Employment Law both provide for compensation in lieu of notice, the
UAE Labour Law is clearer on the calculation of such compensation.

11. Dismissal for Misconduct

UAE Labour Law, Article 120:

An employer may dismiss a worker without notice in any of the following cases:
a- If the worker adopts a false identity or nationality or submits forged certificate or documents;
b- If the worker is engaged on probation and is dismissed during the probationary or on its expiry;
c- If the worker makes a mistake resulting in substantial material loss for the employer, on condition that the latter notifies
the labour department of the incident within 48 hours of his becoming aware of its occurrence;
d- If the worker disobeys instructions respecting industrial safety or the safety of the workplace, on condition that such
instructions are in writing and have been posted up at a conspicuous place and, in the case of an illiterate worker, that he
has been acquainted with them orally;
e- If the worker does not perform his basic duties under the contract of employment and persists in violating them despite
the fact that he has been the subject of a written investigation for this reason and that he has been warned that he will be
dismissed if such behavior continues;
f- If the worker reveals any secret of the establishment in which he is employed;
g- If the worker is finally sentenced by a competent court for an offence involving honour, honesty or public morals;
h- If the worker is found in a state of drunkenness or under the influence of a drug during working hours;
i- If, while working, the worker assaults the employer, the responsible manager or any of his work mates;
j- If the worker absents from his work without a valid reason for more than 20 non-consecutive days, or more than seven.

DIFC Employment Law, Article 60(4):

An employee is not untitled to a gratuity payment where the employee has been terminated for misbehaviour. A termination
for such cause exists in circumstances where the employee's conduct warrants termination and where a reasonable
employer would have terminated the employee. An employer may dismiss an employee without notice in such
circumstances

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The UAE Labour Law sets out a set of specific circumstances under which an Employee may be terminated without
notice. The DIFC Employment Law on the other hand is more general and does not define what stands for
“misbehaviour”. It is our opinion that until there is case law establishing what this means, the UAE Labour Law is clearer
and hence better on this matter.

12. Confidential Information

UAE Labour Law, Article 127:

Where the work assigned to a worker allows him to become acquainted with the employer’s clients or to become familiar
with the secrets of his business, the employer may require him to refrain, after the termination of his contract, from
competing with him or participating in any enterprise competing with his own. Such agreement shall be valid only on
condition that the worker is at least 21 years of age at the time of its conclusion that the agreement is limited, as regards
the time, the place and the nature of the business, to the extent necessary to safeguard the employer’s lawful interests.

DIFC Employment Law

There is no such provision in the DIFC Employment Law.

It could be said that the DIFC Employment Law is better for the Employee as it is silent on the issue of whether he has an
obligation not to compete with the Employer. However, at the same time it does not prevent Employers from inserting a
non-compete clause into the employment contract and the UAE Labour Law at least sets out some parameters around the
imposition of such an obligation on the Employee.

13. Severance Pay – General

UAE Labour Law, Article 132

A worker who has completed a period of one or more years of continuous service shall be entitled to severance pay on
the termination of his employment. The days of absence from work without pay shall not be included in calculating the
period of service. The severance pay shall be calculated as follows:
1. 21 days’ remuneration for each year of the first 5 years of service
2. 30 days remuneration for each additional year of service provided that the aggregate amount of severance pay shall
not exceed 2 years’ remuneration.

DIFC Employment Law, Article 60

(1) Subject to Article 60(5) and (7), an employee who completes continuous employment of one (1) year or more is
entitled to a gratuity payment at the termination of the employee's employment.
(2) The gratuity payment shall be calculated as follows:
(a) Twenty one (21) days' wage for each year of the first five (5) years of service.
(b) Thirty (30) days' wage for each additional year of service, provided that the total of the gratuity shall not exceed the
wages of two (2) years of service.

The gratuity calculation shall not include that portion of an employee's wage received in-kind or as allowance for housing,
travel, currency exchange (cashier), children's education, social and entertainment or any other type of allowance, nor shall it
include overtime pay. The employer may deduct from the gratuity any amounts owed to the employer by the employee.

An employee shall not he entitled to receive gratuity if his employment is terminated in the circumstances provided in clause
60(4) of this Law.
(3) Where the termination occurs prior to the end of any full year of employment, the gratuity payment shall he calculated on
a proportionate basis.

(4) An employee is not untitled to a gratuity payment where the employee has been terminated for misbehaviour. A
termination for such cause exists in circumstances where the employee's conduct warrants termination and where a
reasonable employer would have terminated the employee. An employer may dismiss an employee without notice in such
circumstances

(5) Where an employer has established a pension scheme for his employees, he shall provide in writing to the employee,
prior to the employee commencing work, the option to choose between participating in the pension scheme or receiving the
end of service gratuity payment

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(6) Where an employee has received a document under Article 60(5), he shall expressly state his choice in writing and
submit it to the employer.

Both the DIFC Law and the UAE Labour Law take an almost identical position on the issue of severance pay. The only
difference between the Laws is the situation where an Employee resigns voluntarily which results in a significant reduction
in entitlements for the Employee under the UAE Labour Law whether he has a Limited or an Unlimited Contract. This is
explained in further detail under Sections 14 and 15 below.

14. Severance Pay – Unlimited Contract

UAE Labour Law, Article 137

Where a worker who is bound by a contract of unlimited duration leaves his work of his own accord after continuous
service of not less than one year and not more three years’ he shall be entitled to one-third of the severance pay provided
for in the preceding article; where the continuous period of service exceeds three years but does not exceed five years, he
shall be entitled to two-third of such severance pay; where the continuous period of service exceeds five years, he shall
be entitled to the full severance pay.

DIFC Employment Law

No distinction made between limited and unlimited contracts.

The UAE Labour Law reduces the gratuity for Employees who leave voluntarily under an Unlimited Contract to one third
for less than 3 years service, two thirds for between 3 and 5 years service. There is no reduction in gratuity for those who
have been in service 5 years or more.

15. Severance Pay – Limited Contract

Article 138
Where a worker who is bound by a contract for a limited period leaves his work of his own accord before the expiry of his
contract period, he shall not be entitled to severance pay unless his continuous period of service exceeds five years.

DIFC Employment Law

No distinction made between limited and unlimited contracts.

Under the UAE Labour Law, Employees who voluntarily resign prior to expiry of their contract under a Limited Contract
are much worse off than those under an Unlimited Contract as they are only entitled to gratuity if they have been
employed for 5 years.

Conclusion

In conclusion, there are several advantages for an Employee who is subject to the UAE Labour Law. He is entitled to fixed
minimum notice periods and fixed maximum working hours except for Managerial level staff. Overtime payment is defined
and the Employee would be compensated for overtime at an inflated rate. The Employee is given the option of payment in
lieu at an inflated rate for working on a public holiday. In addition, for both the Employee and the Employer, the UAE
Labour Law is clearer on compensation for termination without due notice, on termination of an Employee without notice
for misbehaviour and on the scope of non-competition obligation to be imposed on an Employee upon termination.

As for the DIFC Employment Law, it does away with the distinction between Limited and Unlimited Contracts and the
different rules applying to them. Accordingly, there is no reduction in an Employee’s severance pay for a Limited Contract.
From an Employee’s point of view the benefits of the DIFC Law are that annual leave days consist of working days, they
accrue pro rata and are exclusive of public holidays. In addition, the Employee is entitled to 90 days sick leave and would
be paid at his normal rate of pay for the full 90 days. From an Employer’s standpoint, the benefits are that Ramadan hours
are stated to apply only to those who are fasting. In addition, the DIFC Employment Law does not specify which day of the
week must be taken off as a rest day which is good for those companies that would like to coordinate with the working
week of Western countries or those countries with Sunday as their weekly rest day.

Charmaine Khan
Senior Associate
Trench & Associates