In 2019/2020, the Dubai International Financial Centre (DIFC) made a number of significant changes to the law and regulations governing DIFC employment relationships. We summarize these below, and recommend that DIFC employers review their employment contracts, handbooks and policies and practices in light of these changes. Failure to do so may expose employers to claims for compensation by employees and/or fines/penalties issued by the DIFC Authority. Norton Rose Fulbright offers a fixed fee for such review upon request.*
Specific changes to the DIFC's employee end of service payment's regime (DIFC Employment Law Amendment Law No. 4 of 2020)
The DIFC has made amendments to the end of service gratuity payment provisions in the DIFC Employment Law (DIFC Employment Law Amendment Law DIFC Law No: 4 of 2020). These amendments came into effect on January 12, 2020. New related employment regulations will come into effect on February 1, 2020. The new law changes the end of service payment's regime which was previously in place for (non-GCC) employees employed in the DIFC, to a defined employer workplace savings scheme (Qualifying Scheme). The new arrangements are modeled on best practices in other leading financial centers.
The changes mean that DIFC-based employers are now required to make monthly contributions to a regulated savings scheme for each of their employees. The DIFC has implemented the changes to achieve the following benefits:
- Scheme coverage for not only (non-GCC) employees of DIFC employers as defined in the DIFC Employment Law (Employee), but also for individuals who may be employed by or in the service of, a DIFC employer, or its holding company, parent company or branch, or for any individual to whom a DIFC employer wishes to extend the benefit of participating in a Qualifying Scheme.
- Employees will now have the security of their benefits being ring-fenced with a regulated third party.
- Employees' benefits are professionally managed in accordance with an Employee's investment choice (the regulations provide for the application of a default investment profile, if an Employee fails to give such directions).
- Employees have the option to save on a voluntary basis under a Qualifying Scheme at cost effective rates.
- Employees have the option to leave their savings in the Qualifying Scheme after their employment terminates, if the Scheme rules allow for this.
- Employers are required to pay potentially lower payments to a Qualifying Scheme than they would have paid under the old end of service payment's regime (payments are paid monthly based on current salary and not on what a salary is at the end of employment).
Key features of a Qualifying scheme are:
- An Employee will still accrue gratuity prior to the commencement date for the implementation of a Qualifying Scheme (which for the majority of employees who commenced employment prior to February 1, will be February 1, 2020). The employer has the option to transfer the value of any accrued gratuity payments (Gratuity Transfer Amount) to a Qualifying Scheme after such commencement date, but, if it does so without an Employee's prior written consent, the employer will be at risk for any difference in value between (a) the value of the benefits acquired in the Qualifying Scheme for that Employee, with the Gratuity Transfer Amount, and (b) the value of the gratuity payment which would have been payable under the regulations on the Employee's termination date, if no transfer had been made.
- The amounts that an employer is required to pay into a Qualifying Scheme (referred to as Core Benefits) cannot be less than that stated in the new rules (the requirements replicate the same financial obligations that an employer had under the previous law) and an Employee's rights to such Core Benefits are not capable of being waived.
- There are time limits within which an Employee must be registered as a member of a Qualifying Scheme.
- The new law maintains the requirement in the previous law that an Employee's monthly basic wage (which is used to calculate an employer's monthly contributions in respect of an Employee) must not be less than 50 percent of an Employee's monthly wage. This is to avoid any manipulation of an Employee's salary so as to reduce his/her end of service benefits.
- The risk in respect of the performance of investments made under a Qualifying Scheme lies with the Employee.
- Employers will be subject to sanctions, including the imposition of fines, for non-compliance with the new law/regulations.
- An Employee's right to take legal action against an employer for breaching its obligations under the new law is maintained.
The DIFC's new rules provide for the establishment of a "Qualifying Scheme" rather than a specific scheme or plan. This facilitates the continuation of employer contributions to schemes which are already in place, and new schemes where an employer has specific requirements, provided in each case, that they meet qualifying criteria.
Key requirements for a "Qualifying scheme" are:
- The scheme must be a money purchase benefits scheme; the amount of benefits are to be calculated solely by reference to the assets of the scheme.
- An employer is required to make mandatory monthly contributions in respect of each Employee (the amount of which is specified in the law and designed to be equivalent to the employer's liability to accrue gratuity for an employee under the previous rules relating to gratuity payments).
- Contributions are for the benefit of the Employee or his/her legal successor in the event of that person leaving the employment or service of an employer.
- A scheme must, at a minimum, have an Operator and an Administrator regulated by the DFSA, or a regulator which is recognised by the DFSA.
- Where a scheme is established in the DIFC, it must take the form of a DIFC Trust, and it must have a Supervisory Body (this body is concerned with the governance and non-regulatory oversight of the scheme, and must not carry out any regulated activity), unless it can satisfy the DIFC Authority in respect its oversight functions.
- An employer must seek a Certificate of Compliance for its Qualifying Scheme from the DIFC Authority; there will only be limited windows to do this; an employer will only be able to do so prior to March 31, 2020, or thereafter, within 60 days prior to February 1 of each subsequent anniversary of the applicable Scheme commencement date.
Other points to note:
- The DIFC has established the DIFC Employee Workplace Saving Plan (DEWS Plan), and this is deemed to be a Qualifying Scheme and to have a Certificate of Compliance.
- Under the new law, an Employee will not be required to work for a year to qualify to participate in, and receive benefits under, a Qualifying Scheme, as was the case under the previous rules relating to end of service gratuity payments.
- It is possible to establish a Qualifying Scheme in a jurisdiction other than the DIFC under the new regulations; the regulations broadly aim to ensure that such a Qualifying Scheme is subject to regulations equivalent to applicable regulations in the DIFC.
- The DIFC Authority may exempt an employer from the application of the new regulations in limited circumstances, provided certain requirements are met; in brief, these include, where an employer is under statutory duty in another country to make employee savings contributions, and where an employer is (with the prior written consent of the Employee) paying defined benefits to an Employee under a scheme which are greater in value than the amount of the Core Benefits required to be paid under the new law.
Other general changes to the DIFC Employment Law (DIFC Employment Law No.2 of 2019)
The DIFC Employment Law was revised last year. DIFC Employment Law No. 2 of 2019 came into force on August 28, 2019 and introduces a number of significant changes to the law. The DIFC's rationale in making the changes is to seek to maintain a balance of providing minimum standards and fair treatment for employees while enabling businesses in the DIFC to prosper. A brief summary of the key changes are set out below.
- It is now possible for a DIFC employer and an individual to agree that the new law will apply to the individual's employment. This provides a mechanism to resolve the uncertain status of certain employees who do not work solely in the DIFC.
- The new law now recognizes secondments in the DIFC and part-time and short-term employees. Not all provisions of the New Law apply to secondees and short-term employees, and a secondee must have a valid secondment card from the DIFC Authority.
DIFC Authority fines/penalties
- The previous law set out a number of requirements and restrictions on employers but had no corresponding fine/penalty or other remedy to encourage compliance. The new law remedies this position by introducing a new fines and penalties regime to be administered by the DIFC Authority. This regime does not, however, limit the rights of an employer or an employee to enforce any rights/remedies it may have under the new law or any other relevant law.
- An employment claim must be brought before the Court within six months of an employee's termination date. The only exception to this is in respect of a "discrimination" claim. In these circumstances a claim must be brought before the Court before the expiry of six months beginning with the date on which the new law came into effect, or, if later, the date of the act or omission which is the subject matter of the complaint. The Court may, however, allow a longer limitation period, where an employee satisfies the Court that there are circumstances which justify this.
- Sick leave is still 60 working days per year; however, only the first ten working days are at full pay. The next 20 working days are at half pay, and any other sick leave during that year will be unpaid.
- Broadly, a male employee who has been continuously employed for at least 12 months immediately preceding the expected or actual week of his wife giving birth, is entitled to five working days of paternity leave.
- Maternity leave rights also apply to a female employee adopting a child who is less than five years old.
- The grounds for discrimination have been expanded to include age, pregnancy and maternity.
- Discrimination includes an employer engaging in unwanted treatment or conduct relating to one of the grounds for discrimination which has the purpose or effect of creating an intimidating, hostile, degrading, humiliating or offensive workplace for an employee, or which violates the employee's dignity.
- An employer must not "victimize" an employee (i.e. subject the employee to a detriment or dismiss the employee) because the employee does a protected act (e.g. makes a claim of, or participates in a claim of, discrimination against the employer).
- A claim for discrimination must be brought before the Court before the expiry of six months from the date of the alleged discriminatory act, or the employer's failure to do something, or the expiry of such other period as the Court considers reasonable.
- Where the Court upholds a claim for discrimination or victimization, it now has remedies that it may apply. It may (a) award compensation which it considers reasonable not exceeding the employee's annual wage, (b) make a declaration of the respective parties' rights, (c) make a recommendation of steps for the employer to take to remove or reduce the adverse effect of the offending act, or a combination of the above remedies. If an employer unreasonably fails to comply with a Court recommendation, where compensation has already been awarded to the relevant employee, the Court may increase the compensation award to 2 times the annual wage of the relevant employee.
- An employer will only be permitted to make a payment of wages in lieu of notice if the employee agrees to such payment in a settlement agreement.
- An employer and employee cannot agree to shorter notice provisions than those set out in the new law (they may, however, agree to longer periods).
- The new law clarifies that an employee is entitled to the following where the employee terminates for cause: (a) payment of wages in lieu of notice period, (b) gratuity calculated for the period up to the expiry of the notice period had notice been given and (c) payment in lieu of accrued but untaken vacation leave for the period up to the expiry of the notice period had notice been given.
Gratuity payment and pensions
- An employee whose employment is terminated for cause is entitled to a gratuity payment up to the employee's date of termination.
- When calculating the gratuity, the employee's basic wage must not be less than 50 percent of the employee's annual wage (broadly, annual wage includes allowances but excludes bonuses, commissions or any discretionary payment made by the employer).
Settlement agreements and waiver of rights
- An employee is permitted to waive any right, remedy, obligation, claim or action under the New Law by entering into a written settlement agreement with his/her employer to terminate the employee's employment or resolve a dispute, provided (a) the employee warrants in the agreement that he/she was given an opportunity to receive independent legal advice from a lawyer registered with the DIFC's Academy of Law (or otherwise recognized by the DIFC Authority), as to the terms and effect of the agreement, or (b) both parties participated in mediation proceedings provided by the Court prior to entering into the settlement agreement.
Penalties for late payments
- The New Law introduces some limitations on the penalties for the late payment of an employee's entitlements. The previous absence of such limitations had been widely criticized, especially in circumstances where the imposition of such fines had been unreasonable.
- The penalty can only be imposed if the amount due and unpaid is in excess of the relevant employee's weekly wage.
- It is capped at six months' wages (because of the new limitation period).
- It may be waived by the Court for any period during which (a) a relevant dispute is pending before the Court, or (b) the employee's unreasonable conduct is the material cause of the employee failing to receive the amount due.
The impact of the DIFC's new intellectual property law on employment relationships (DIFC Intellectual Property Law No. 4 of 2019)
The DIFC's new Intellectual Property law came into effect on November 19, 2019. The new law broadly provides that an employer will be the owner of an invention where such invention is made within the scope of an employee's employment, unless agreed otherwise by the parties. It goes on to describe various scenarios whereby an invention will be "deemed" to have been made within the scope of an Employee's employment.
The new law also sets out more complex provisions as to when an employer will be the owner of an invention even where the invention falls outside the scope of an employee's employment, and sets out an Employee's right to compensation in such circumstances.
The new law goes on to state that if an Employee creates an original work in the areas of literature, art or science, in the scope of his/her employment, or uses the experience, information, instruments or materials of an employer to create such work, the employer will own such work. It describes various scenarios whereby a work will be "deemed" to have been created within the scope of an Employee's employment. It sets out parameters around the working relationship of the employer and employee, and gives the term "employee" a broader meaning for the purposes of these copyright ownership provisions. The new law provides that the parties may agree to treat copyright in work created during an employment relationship differently than as stated in the law, provided they do so in writing.
The new law is of particular significance to employers where the ownership of an invention and/or copyright in work is of specific importance to the business of a DIFC company, or where an employer would like to tailor specific provisions in an employment contract to apply to specific employees. Employers may also want to highlight to employees that their confidential information is now specifically protected under this law.
*We would need to satisfy our standard regulatory requirements before we could offer a fixed fee proposal. Any such fixed fee proposal would be subject to standard assumptions.
About Norton Rose Fulbright Canada LLP
Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.
Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.
Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.
For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.
Law around the world
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.