I.

Introduction

UAE Federal Law

No. 8/1980 as amended (the "Labor Law") governs all employment matters apart

from government employees, agricultural and domestic employees, and employees working

in the Dubai International Financial Centre ("DIFC") and the Abu Dhabi Global

Market ("ADGM"). Both the DIFC and ADGM are economic free zones that are

separate jurisdictions and have their own employment laws to which the Labor

Law does not apply. All other free zones located within the UAE have their

respective employment rules and regulations that are in accordance with the Labor

Law.

The general rule

regarding work and residing in the UAE requires a non-citizen to be sponsored

with an applicable visa. Sponsorship for work or residency purposes can be

provided by:

one's employer

one's spouse who is legally employed or

self-sponsorship via setting up in a

free zone company

The sponsorship

process requires several approvals from various government entities to ensure

the prospective employee is not a security risk, is free from certain communicable

diseases, and has the requisite skills for the proposed employment position.

The various entities involved in the process includes approvals from:

Department of Naturalization and

Residency ("DNR")

Health Authority

Ministry of Human Resources and

Emiratization ("MOHRE")

Emirates Identity Authority ("EIDA")

Police - Criminal Investigation

Department ("CID")

Upon completion

of the process, the person will obtain a work permit, residency visa, health card

and Emirates identification card. The entire process takes between two and four

weeks to complete from the date the prospective employee enters the UAE. Once

sponsored, an employee may sponsor his family if he/she earns a minimum monthly

salary.

Employment

contracts are of two types, either limited term (a set start and end date) or

an unlimited contract which continues until either party provides the other

with the required notice period. The main difference between the two kinds of

contracts concern consequences of terminating the employment relationship by

either party.

Compensation is

made of two parts, 50% basic salary and 50% allowances.

Allowances include amounts for housing, schooling and transportation

etc. The basic salary is the amount upon which the end of service gratuity ("ESG")

is calculated. Note: There is no provision in the Labor Law to provide pensions

for non-citizens of the UAE.  However: An

employer is required by law to register its Emirati employees with the National

Pension Plan and contribute to the fund at set rates. Although an employer may

have a pension program in place for its seconded employees, the Labor Law will

still apply, as they are employees of the local UAE entity. It is important to have

an agreement in place which addresses any benefits or conflicts with the

employment terms in the home jurisdiction to ensure that, at the end of the

employment period in the UAE, the Labor Law requirements are met.

The Labor Law

does not require a probationary period term in the contracts. It is

discretionary, however, and can only occur one time during employment, and can

be no longer than 6 months.

I.

Addressing Areas of Concern

Common areas of

concern involve issues regarding:

a.    Continuity

of employment of employment - relocating employee from overseas to local entity;

b.    share

sale transfers;

c.    asset

business purchases;

d.    discipline;

e.    termination

of the employment relationship;

f.     calculation

of the end of service entitlements and

g.    restrictive

covenants

h.   dispute

resolution

a.   Continuity

of employment

This situation

involves an overseas employer who is sending employees from its overseas

company to live and work in the UAE in a locally established entity. The latter

may be a branch of the overseas company, or a wholly new entity which is

incorporated within the UAE and retains a relationship or affiliation with the

overseas company. An employer has two options.

The first option is that the overseas company can continue the

employment relationship between the employee and itself during the relocation

period.  Thus, the employee is employed

by the home overseas entity and the local entity.  The second option is that the employer may

terminate the employment relationship with the overseas company, settle all

existing labor entitlements, and start a new employer/employee relationship

with the local entity in the UAE. The local entity in all instances must comply

with the Labor Law and ensure employee has valid residency visa and work

permit.

It is usually at

the end of employment that cross-border employment issues arise. Employees may

try to bring a claim against both the overseas company and local company for

arbitrary dismissal (i.e., dismissal without a valid reason) and for end of

service entitlements. Employees may attempt to bring a claim in another

jurisdiction if the employment rights and entitlements in that country are more

favorable than those in the UAE. It is prudent to review the legal relationship

between the overseas company and the local entity, as it may impact the

continuity of employment between the overseas company and employee following

the employee's transfer to the local UAE entity. In all cases, the employer

must ensure the employment terms comply with the Labor Law.

b.   Share

sale transfers

In both share sale transfers

and asset or business purchases, due diligence of the target business is

essential regarding the employees and employment issues within the target. All

employees must have valid work permits and residency visa sponsorship through a

locally established entity.  Note: GCC

nationals do not require UAE residency visas, but still require a valid work

permit. Review for any pension plans and end of service entitlement issues for

UAE nationals and ensure proper registration, and employer past payments, into

the UAE Federal Pension plan.

There is no consultation

process required in the UAE to impact either share sale transfers or asset

purchase transactions, but potential creditors must be notified. Also, there

are no trade unions or employee representative bodies in the UAE that must

weigh in on these transactions. In a share sale transfer the individual

employment contracts remain in place and no consent is required from the

employee. It is a straight forward transaction.

c.    Asset

purchases

In an asset purchase, there

is a change of ownership of an asset.  The

employees will be working for a new employer and will need new employment

contracts in the name of the new employer. There is no transfer or undertaking

regulation, but, in an asset purchase, it is necessary to terminate all

existing employment contracts and enter into new ones. Given that this is a

termination of employment, a notice of 30 days and payment of the employees end

of service entitlements, inclusive of the ESG, is required from the transferor

(existing employer). However, in these situations, the employee may be given

the option of payment of the end of service entitlements or continuation of

service rollover to the new owner (employer) in a new employment contract.

It is common practice to

include in the business transfer agreement an indemnity from the transferee to

the transferor on employment claims and request each employee to sign a letter

of continuity, confirming their employment will transfer to the transferee as

if it were continuous and they do not have any claim against the

transferor.  In addition to new

employment contracts and end of service entitlements continuity (or payout) the

transferee employees will need new work permits, new residency visas with the

new sponsor. The new sponsor pays all fees when submitting all documents for

each transferring employee through MHROE, arranging medicals, stamping of work

residency visa in the passport and issuance of a medical insurance card.

d.   Discipline

Employers may impose disciplinary

measures on non-performing employees, including warnings, fines, suspensions or

dismissals. A fair and reasonable process must be followed. The Labor Law

requires that a minimum due process procedure must be followed prior to

imposing disciplinary measures. The process mandates that an employer must: a)

timely notify the employee in writing of the allegation against him/her; b) provide

the employee an opportunity to make a statement and defend him or herself; c) investigate

the allegation and defense; and d) record this process in the employee's file,

with the findings and actions listed at the bottom of the report. Any

disciplinary policy must be easily accessible and communicated to all employees

and may be part of the employee handbook or a separate policy.

e.   Termination

of employment

Ending the

employment relationship in either a limited or unlimited contact is immediate

if the employee has committed a "for cause" action set out in Article 120 of

the Labor Law.  Cause for instant termination

under Article 120: a) causing a substantial loss to the employer (provided this

is reported to the MOHRE within 48 hours); b) disobeying clearly delineated

safety instructions; c) appearing at work intoxicated or under the influence of

illegal drugs; d) assaulting an employee at work premises; e) assuming a false

identity or nationality or submitting forged documents; f) defaulting on basic

duties under the employment contract despite being notified  in writing that he will be dismissed; g) conviction

of a crime involving honor or public morals; h) absence from work without a

valid excuse for more than 20 nonconsecutive days in a single year; and i)

revealing any confidential information of the firm for which he works.

For those

employees on an unlimited contract and those on a renewed limited contract, the

employee may end the employment by providing 30 days written notice to

employer.

An employer may

also terminate the unlimited and renewed limited term contract by providing 30

days written notice period and a valid reason to the employee. Where a valid reason

for termination is not provided, the employee may seek compensation up to three

months salary by filing a labor complaint in the Labor Court.

Where a person is

working under an initial limited contract, he/she will pay compensation to the

employer if he/she ends the employment prior to the end date. Similarly, if an

employer ends an initial limited term contract before its end date the employer

will owe employee compensation for the early termination.

f.    End

of service entitlements

The end of service entitlements owed

to the employee when the employment is terminated (unless terminated for cause

under Article 120, as discussed above) includes payment in cash representing:

salary to date of termination

notice period

accrued but unused annual leave

bonus or commission (where applicable)

return air ticket or its value (where

applicable)

end of service gratuity (based upon a

fixed formula depending on years of service)

minus any amounts owed employer.

g.   Restrictive

Covenants

Restrictive covenants are

permissible in an employment contract that seek to prevent employees from

engaging in unfair business activities following termination of their

employment. Such covenants include:

Non-competition: Prevents employees

from joining a competitor;

Non-solicitation: Prevents employee

from soliciting existing clients; and

Non-poaching: Prevents employee from

recruiting or poaching ex colleagues.

These covenant terms must

be reasonable in length of time, area of restriction and activity or activities

that are being limited. An employer must prove actual damages caused by the

former employee's breach of the restrictive covenant to prevail in court.

There is an ongoing duty

for employees not to disclose confidential information to a third-party and is

a crime under the UAE Penal Code. Where the disclosure is released via an

electronic portal it is treated as a cyber-crime, which is also covered under

applicable UAE law.

h.   Dispute

Resolution

All employment contracts

must be registered with the MOHRE and the Labor Court has jurisdiction over all

labor claims. The statute of limitations to file a case is one year from the

date of which any entitlement under the Labor Law became due. Initially, all

complaints must be filed with the Labor Office for a single conciliatory

meeting with the parties and MOHRE representative. If unsuccessful, the parties

have the right to file a complaint in the Labor Court.