In the United Arab Emirates (UAE), the legal framework governing employment relationships is established by Federal Decree-Law No. 33 of 2021, along with its associated Executive Regulations, namely Cabinet Resolution No. 1 of 2022 (collectively referred to as the "UAE Labour Laws"). The responsibility for overseeing labour relations and managing employment-related issues, including contracts for both expatriate and local workers, falls to the Ministry of Human Resources and Emiratization (MOHRE). MOHRE plays a crucial role in ensuring that employment contracts are in strict adherence to the legal statutes and facilitating a clear understanding among both employers and employees of their respective rights and duties.
All mainland entities are mandated to enter into a standard MOHRE contract with an employee, which can be downloaded from here. However, since the standard contract contains only a limited number of provisions, it is recommended that the employer and employee enter into a supplementary contract to ensure that additional important clauses like confidentiality, non-compete, non-solicitation, assignment of intellectual property can be covered to have an airtight contract.
Outlined below are essential clauses that must be included in employment contracts, whether for an expatriate worker or an employer of expatriates in mainland UAE:
- Working Patterns
The UAE Labour Laws have introduced diverse forms of employment, aligning with global trends seen in developed jurisdictions. These include full-time, part-time, temporary, flexible (or freelance), and remote work, including job sharing. Each form caters to varying work structures, such as set hours, task-based assignments, or flexible schedules based on the employer's needs. The type of contract should be explicitly stated in the employment contract.
- Salary
Employment contracts in mainland UAE typically divide the salary into basic salary, housing, and transportation allowance. This distinction is important because certain employment benefits, such as end-of-service gratuity, overtime, and accrued leave, are calculated based on the basic salary rather than the total salary. As a result, it is a common practice among companies to allocate salary into basic salary and allowances. Usually, the basic salary constitutes 60% of the total salary, with allowances making up the remaining 40%. The specific division between housing and transportation allowances is not critical.
- Employee Benefits and Incentives
Companies are required to provide health insurance for their employees in Dubai and Abu Dhabi. Starting in 2025, this requirement will extend to employers in all emirates, making it mandatory for them to offer health insurance coverage. While providing a flight ticket allowance to employees is not a legal requirement, it is commonly practiced in the market.
In relation to end of service gratuity, extensions or renewals of fixed term contracts are deemed as continuous service for the purposes of calculating end of service gratuity.
- Probation
In mainland UAE, the probation period can extend up to six months. Both employers and employees are required to provide a 14-day notice period during probation for termination.
Notably, if an employee secures new employment within three months in the UAE, their new employer covers the previous employer's recruitment costs under UAE Labour Laws.
- Leaves
Employment contracts should clearly outline the annual leave entitlement for employees, including the conditions for carrying over unused leave. Employees are entitled to 30 calendar days of leave annually. Companies that operate on a working day basis often offer 22 working days of leave.
Recent legislative updates encourage employees to use their leave within the same year but allow for the carryover of up to half of any unused leave to the next year, subject to the employer's approval. It's crucial to note that employers are not permitted to prevent employees from taking annual leave for more than two years without mutual agreement.
For part-time employees, leave entitlement is prorated according to their hours worked.
In addition to annual leave, there are other types of leaves such as maternity leave, bereavement leave, and study leave, which are typically governed by the employer's internal employment policies.
- Working hours and days
Work hours in the UAE are set at eight hours per day or 48 hours per week, ensuring a standard framework for employment. Overtime hours are capped at 144 hours over a three-week period, and all overtime rates are calculated based on the basic salary. Additionally, employees are entitled to one weekly rest day, which is to be mutually agreed upon with the employer.
- Confidentiality
Employers have the opportunity to enhance the confidentiality clause in the supplementary contract, beyond the basic provisions found in the standard MOHRE contract. Under UAE Labour Laws, it is required for employees to maintain strict confidentiality regarding any sensitive information and data they come across in their work, to avoid revealing trade secrets, and to return such materials to the employer at the end of their employment.
- Non-Compete and Non-Solicit
Supplementary employment agreements would typically set out detailed non-compete and non-solicit provisions. The UAE Labor Laws outlines the parameters of non-compete clauses in employment contracts which prevent employees, who have access to sensitive business information or clients, from engaging in competitive activities or participating in rival projects within the same sector after the contract ends. The duration, scope of restriction, and geographical limits must be clearly defined in the contract, not exceeding a maximum of two years. Notably, if the employer breaches the law by terminating employment improperly, the non-compete clause becomes null and void.
- Assignment of Intellectual Property
When crafting a supplementary employment contract, it is generally recommended to include a detailed Intellectual Property (IP) assignment clause. This clause should explicitly state that any IP created during the course of employment is owned by the employer. Additionally, it must underline the employee's duty to keep work-related secrets, especially those pertaining to industrial or intellectual property, strictly confidential.
- Notice Period and Termination
Notice periods in the UAE feature a minimum of 30 days after the probation period and are capped at a maximum of 90 days. When employers terminate the contract with notice, employees are entitled to one unpaid day per week for job search activities. Termination with notice is permissible, even for contracts of a fixed term.
While termination without notice is a possibility and may be mentioned in the employment contract, implementing it in practice can be challenging.
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.