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09 December 2020
Penalty payment for late payment of dues on employment termination
Non-employee status of workers recognised under law
Major changes have been made to the employment law in the Abu Dhabi Global Market (ADGM) which took effect on 1 January 2020.
The ADGM Employment Regulations 2019 (the ADGM Employment Law) set out employers' obligations in the free zone and contain important provisions relevant to employment policies and practices, including regarding recruitment and employee entitlement to wages and leave. The aim of the changes is to strengthen the ADGM's employment framework and its reputation as an international financial centre.
This article highlights the main employment law themes of which senior management teams, HR managers and in-house legal teams must be aware under the ADGM Employment Law.
One change in the law is the introduction of overtime provisions. Employees are entitled to compensation for overtime worked, although there is an exception for managers and supervisors and employees "in positions where it is reasonably expected within that industry internationally that overtime compensation is not payable". Given the nature of the businesses incorporated in the ADGM, a large proportion of personnel may be exempt from the law's overtime provisions.
The entitlement to overtime compensation arises when an employee's working time exceeds an average of 48 hours for a seven-day period; employees may no longer agree to opt out of the maximum 48-hour working week through written consent.
Overtime compensation can either be monetary in nature or provided in the form of time off in lieu of the extra hours worked. The regulations state that overtime payments are payable at a rate of 25% of the employee's hourly rate, although this rises to 50% of their hourly rate if the overtime worked was between the hours of 9:00pm and 4:00am. Likewise, time in lieu accrues at 25% or 50% of the overtime worked depending on the time period that the extra hours were worked.
Employers in the ADGM will need to assess whether any employees will be subject to the statutory overtime and consider the applicability of the exclusions.
A welcome amendment for employers has been the introduction of changes to the late penalty payment compensation.
Employers' obligation to pay employees "all wages and any other amounts owing" within 14 days of the employment termination date remains. However, as with under the old rules, employers could face a penalty equal to the employee's daily wage for each day that they were late in paying the employee's termination dues. This runs the risk of creating windfall payments, where large penalties could accrue on what could be a relatively small outstanding sum.
While the penalty payment risk remains, the ADGM court will exercise its discretion to make an award that is just and equitable. Unlike other jurisdictions, such as the Dubai International Financial Centre (DIFC), there is no cap on the level of the penalty payment. However, it is reasonable to assume that the court will seek to avoid disproportionate compensatory awards.
The regulations make provision for when employees take sick leave. Employers have the right to terminate the employment of employees that take in excess of 60 sick days in any 12-month period, unless the sick leave was on account of a disability.
Employees who take sick leave are entitled to sick pay under the regulations. Sick pay is payable at different rates, referenced against their daily wage, depending on the length of time that they spend off work and whether those days off are taken consecutively or not over the 12-month period. Employees are entitled to full pay for their first 10 working days off on sick leave and half-pay for their next 20 working days off.
Employees are not entitled to sick pay for the remaining 30 working days of sick leave taken during the same 12-month period.
The statutory entitlement to sick pay has been reduced in comparison with the position under the old law. This change reflects the trend adopted in the DIFC Employment Law and is more in line with the position under the United Arab Emirates' onshore labour law.
ADGM employers will need to review their policies and employment contracts in light of these updates to sick pay.
The obligation under the old law for parties to serve a minimum of 90 days' notice to terminate an employment relationship where the employee had five or more years' service has been removed. Instead, the ADGM Employment Law provides for the following minimum periods to terminate employment relationship:
It is still open to employers and employees to agree longer notice periods than those prescribed in the regulations or waive or accept a payment in lieu of notice. In these ways, the ADGM Employment Law gives the parties increased flexibility in relation to the arrangements surrounding notice periods.
The ADGM Employment Law specifically prohibits employers from discriminating against employees and prospective employee on the basis of certain protected characteristics – namely:
Unlike the DIFC Employment Law, maternity and pregnancy do not amount to a protected characteristic under the ADGM's employment statutory regime.
There are three ways in which employers might be said to discriminate on the basis of any of the protected characteristics under the ADGM Employment Law:
Where there is a positive finding of discriminatory treatment, the court can:
The Employment Regulations 2019 (Compensation Awards and Limits) Rules 2019 sit alongside the ADGM Employment Law. Those rules provide for employers to be issued with fines if they breach requirements regarding:
In May 2020 the ADGM Employment Regulations 2019 (Engaging Non-Employees) Rules 2020 came into force. The rules introduce new categories of workers which should provide ADGM employers with more flexibly for resourcing their business operations.
Under the rules, ADGM entities can engage the following categories of non-employees:
The rules do not go so far as to exclude these categories of workers from the ADGM Employment Law. However, and for the workers who are defined as non-employees, it is reasonable to assume that they will not benefit from all of the employee statutory entitlements under the ADGM Employment Law.
The ADGM Employment Law and the rules are a positive development for the business community within the free zone. They will assist companies in recruiting and engaging a modern and progressive workforce and will help the business community to attract world-class talent into the jurisdiction.
For further information on this topic please contact Luke Tapp, Ruth Stephen or Michael Chattle at Pinsent Masons by telephone (+971 4 373 9700) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Pinsent Masons website can be accessed at www.pinsentmasons.com.
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