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MIDDLE EAST FEBRUARY/MARcH 2011

BE AWARE
DLA Pipers Employment Law Supplement for the Middle East

Focus
02 NEW CLASSIFICATION SYSTEM FOR COMPANIES 05 UAE LIBERALISES SPONSORSHIP SYSTEM IN RELATION TO THE TRANSFER OF EMPLOYEES

EVERYTHING MATTERS

MINISTRY OF LABOUR INTRODUCES NEw CLASSIFICATION SYSTEM FOR COMPANIES: cOSTS AND PENALTIES EMPLOYERS SHOULD BE AWARE OF
1. INTRODUcTION As part of a project to promote transparency and compliance with the United Arab Emirates (UAE) Labour Laws (the Law), the Ministry of Labour has recently passed law no. 1187 of 2010 (Classification of Establishments) (Regulation 1187). As a result of Regulation 1187 all establishments registered with the Ministry of Labour (MOL) will be graded in accordance with certain criteria (detailed below) and their compliance with the Law. The new classification system has been introduced in order to: (i) fortify the relationship and encourage transparency between governmental departments and establishments; (ii) encourage establishments to observe the Law; (iii) enhance inspection and monitoring of establishments by governmental departments; (iv) provide a safe and sustainable working environment for employees; and (v) protect the rights of employees. Regulations 1187 also sets out a list of violations, breach of which may result in serious penalties being imposed on the establishment. This new regime creates a clear commercial incentive on employers to improve their HR compliance. 2. cATEGORIES We have set out an explanation of how establishments will be graded, below. The difference between each of the categories is reflected in the fees due to the MOL for services provided. The lower the category the higher the fees that will be payable to the MOL. The MOL is responsible for classifying establishments. Establishments will be notified of their grade by the MOL in due course.

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cATEGORY SUBREQUIREMENTS cATEGORIES First Category None i) At least 20% of the work force are classified at professional level2 1, 2 or 3. ii) The wages in respect of professional employees are not less than: AED 12,000 for level 1 employees; AED 7,000 for level 2 employees; and AED 5,000 for level 3 employees. iii) At least 15% of the establishments professional workforce are UAE nationals (such employees must be duly registered with the relevant pensions authority). iv) There is a resolution from the Minister in place classifying the establishment at level 1. Cross- cultural requirements are not met by up to 25% of the establishments work force. OR

EXAMPLE OF cOMMENT MOL FEES1 AED 300 for Fishing boat a labour card. businesses owned by UAE nationals are automatically classified as level 1.

Banks and insurance companies shall not be classed as level 1 establishments unless they meet all Emiratisation quotas that have been previously imposed upon them by law. First category establishments are not required to pay a bank guarantee in respect of new employees.

Second Category

Level A

at least 20% of the work force are in professional levels (1,2 or 3); The wages in respect of professional employees are not less than: AED12,000 for level 1 employees; AED7,000 for level 2 employees; and AED5,000 for level 3 employees.

AED 600 for Regulation 1187 does not a labour card. contain a definition of cross cultural policy. We have been informed by the MOL that cross cultural policy requires employers to recruit a number of different nationalities. In this regard the MOL determines compliance with cross cultural policy as follows: number of non Arab employees/total number of employees x 100 = %.

1 2

These are only examples of the fees for each of the categories. Employees are classed at professional level as follows: Level 1 - employees who hold a Bachelors degree and above; Level 2 - employees who hold a Diploma; and Level 3 - employees who are educated to secondary school level.

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cATEGORY SUBREQUIREMENTS EXAMPLE OF cATEGORIES MOL FEES1 at least 10% of the establishments professional workforce are Emirati nationals (such employees must be duly registered with the relevant pensions authority). Level B Cross- cultural requirements are AED 1,500 not met by up to 25% to 50% of the for a labour establishments work force. card. Establishments having three employees or less are classed as Category 2/Level B establishments. Cross- cultural requirements are not met by more than 50% of the establishments work force. One of the following: i) the establishment is in the second category and accumulates 100 black points; ii) the establishment is convicted by a final court judgment for recruiting infiltrators; iii) the establishment is convicted by a final court judgment for committing human trafficking; iv) the establishment commits an Emiratisation violation; or v) if the establishment deliberately provides wrong information regarding the wages protection scheme with the purposes of evading or manipulating the provisions of the wages protection scheme.

cOMMENT Establishments in the Second Category, will be upgraded or downgraded based on their compliance with cross cultural requirements.

Level C

Third Category

None

AED 2,000 for a labour card. AED 5,000 for a labour card.

Where an establishment is downgraded as a result of being convicted of recruiting infiltrators (employees who do not hold the requisite immigration permissions or is convicted by a final court judgment for committing human trafficking offences) it can only be upgraded to the category or level that it merits after the lapse of one year from being classed in the Third Category and the violation has been rectified.

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3. BLAck POINT SYSTEM A penalty system of Black Points has been devised which are imposed on establishments that violate the Law. An establishments status will be upgraded or downgraded depending on the number of Black Points accumulated. Regulation 1187 sets out a list of potential violations together with the penalties that will be imposed on establishments who fall foul of these. We attach a table listing an example of some of the penalties that will be imposed for various violations. VIOLATION Artificially falsifying Emiratisation levels Deliberately providing wrong information in connection with the Wage Protection System Allowing an employee to work for a third party without obtaining a permit from the MOL Compelling an employee to pay the costs of his/her recruitment and employment Providing incorrect documents or data to the MOL Non compliance with the procedures established for the employment of UAE nationals Violation of the summer working hours rules Non participation in the Wage Protection Scheme Non compliance with health and safety rules PENALTY 100 black points Fine of AED 20,000 in respect of each violation 100 black points Fine of AED 20,000 in respect of each violation 100 black points Fine of AED 20,000 in respect of each violation 100 black points Fine of AED 20,000 in respect of each violation 70 black points Fine of AED 20,000 in respect of each violation 70 black points Fine of AED 20,000 in respect of each violation 70 black points Fine of AED 15,000 in respect of each violation 50 black points Fine of AED 10,000 in respect of each violation 50 black points Fine of AED 10,000 in respect of each violation

Once an entity has accumulated 100 Black Points, it will (with approval of the Minister) be downgraded to the Third Category. Once the establishment has been downgraded the Black Points will be removed. In respect of establishments that accumulate less than 100 Black Points, such points will expire after the lapse of one year. cONcLUSION Regulation 1187 indicates a clear intention on the part of the UAE authorities to monitor and enforce compliance with the Law and further promote Emiratisation through the genuine recruitment of UAE national employees at the professional level as well as cultural diversity generally. The authorities will not tolerate any practice which artificially inflates the numbers of UAE nationals in an organisations employment. There is a clear intention to provide this new regime with real teeth. Downgrading under Regulation 1187 could be very costly for employers in terms of penalties and fees. We would recommend that all employers undertake an internal audit process to ensure that they are not falling foul of any of the violations listed in Regulation 1187. If you have any questions regarding the new classification system, whether a particular work practice is problematic or would simply like further information on the list of violations and penalties please do not hesitate to contact us.

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UAE LIBERALISES SPONSORSHIP SYSTEM


IN RELATION TO THE TRANSFER OF EMPLOYEES
Ministerial Resolution No. 1186 of 2010 concerning the Rules and conditions for Granting New Work Permits for Workers Following the Expiry of the Employment Relationship to Transfer from one organization to Another (Free Transfer Law) became law on 1 January 2011. The Free Transfer law was introduced to improve the labour market and limit any wrong practices. In this article we look at the requirements expatriate employees need to meet in order to change employers freely and the circumstances where an employer may still be able to impose a ban to prevent employees from working in the uAE. Please note that the free zones in the uAE may have their own processes for transferring visas and that advice should be obtained from your professional advisor, PRo or the relevant free zone in relation to the relevant processes to be followed.

INTRODUcTION Prior to the introduction of the Free Transfer Law, expatriate employees in the UAE that wished to change jobs before serving three years with their previous employer required the consent of their previous employer by way of a certificate of no objection (NOC). Without a NOC the employee would automatically be subject to a six month ban, i.e. the Ministry of Labour would not grant the employee a new work permit until at least six months from the date of the cancellation of the previous work permit. The employee required a NOC to change jobs even if the previous employer had terminated the employment relationship with the employee through no fault of their own. The withholding of a NOC was also a useful tool for employers who wished to prevent employees from working for a competitor organization in the UAE.

THE FREE TRANSFER LAW When can an employee change employers? The basic rule The new Free Transfer Law provides that expatriate employees may now change employers without requiring a NOC from their previous employer and without their being subject to a six month automatic ban provided the following conditions are met:

The employee has at least two years continuous service with the previous employer; and The employment contract has been terminated by mutual consent.

There is no definition in the Free Transfer Law of termination by mutual consent. We have made enquiries with the Ministry of Labour and have been advised that

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this condition will be satisfied provided the employee either serves their contractual notice period in the case of unlimited contracts or the term of the employment contract in respect of limited contracts. We assume that this is because the employer has already consented under the contract of employment to departure on these terms. We should not therefore consider that mutual consent necessarily involves the employee and employer agreeing to terminate at the time of departure. This means that employees on unlimited employment contracts that want to resign from employment and work for a new employer in the UAE must (i) have at least two years service with the previous employer; and (ii) serve their contractual notice period, unless this is waived by the previous employer. Employees on limited contracts, however, would not be able to change jobs until the expiry of the fixed term (even if this is longer than two years). An employee who resigns before the expiry of a limited contract could be subject to a one year ban in accordance with article 128 of Federal Law no.8 of 1980 (the UAE Labour Law). Exceptions to the basic rule The Free Transfer Law also provides that employees may change employers without meeting the above conditions in certain circumstances. The Ministry of Labour may grant an expatriate employee who is changing employers a work permit if any of the following conditions are met: 1. The employee is classified at the first level of skill (i.e. employees who hold a bachelor degree or above) and secured a new job with a monthly salary of at least AED 12,000; or

2. The employee is classified at the second level of skill (i.e. employees who hold a diploma) and secured a new job with a monthly salary of at least AED 7,000; or 3. The employee is classified at the third level of skill (i.e. employees who are educated to secondary school level) and secured a new job with a monthly salary of at least AED 5,000; or 4. If the employee is transferred to a company that his/ her previous employer owns or has a share (i.e. if the employee transfers to a related entity); In the above skilled worker and related company exceptions the employment relationship must still be terminated by mutual consent (see above) i.e. the employee must honour their fixed contract term or notice period. 5. If the employer does not comply with its statutory or contractual obligations towards the employee. For example, if the employer does not pay the employees wages for a period exceeding 60 days; or 6. If the employee is not the cause for the termination of the work relationship, i.e. if: the employer terminates the employment contract (for example, in the case of redundancy) or fails to renew a limited contract; or the employee raises a complaint against the employer of arbitrary dismissal, early termination of a limited contract or for breach of any other legal entitlement(s) and a final judgment in favour of the employee is awarded. The court must award the

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employee compensation of at least two months salary and the court must not find that the employee resigned of his own accord or deprive the employee of his entitlement to an end of service gratuity; or the employee raises a complaint that the company the employee worked for has ceased commercial activities for a period of at least two months as proved by a report from the Ministry Inspection Department. We have been advised by the Ministry of Labour that employees who do not satisfy the conditions in the basic rule or the above listed exceptions, will automatically be subject to a six month ban which can no longer be overcome if the previous employer provides a NOC (i.e. consents to the transfer). Therefore, unskilled employees who wish to change employers and who do not fall into any of the exceptions listed above will have to serve at least two years with their employer and work their notice period or wait until the expiry of their limited contract, otherwise they will not be allowed to work in the UAE for a period of at least six months. Costs Employers will no longer have to pay the visa transfer fees which could be quite significant depending on the length of time the transferring employer had served with their employer. The transfer process has been abolished. Instead, the previous employer will pay the visa cancellation costs and the new employer will simply have to pay the fees for a new residence visa and work permit. Fees for a new work permit will depend on the classification of the company in accordance with the new rules on the classification of companies (see this months sister article in Be Aware). It is also worth noting that work permits will now have to be renewed every two years rather than every three years which will have a clear impact on costs for employers, balancing out the savings from the abolished transfer process. When can an employer impose a ban against a former employee? Previously, the withholding of a NOC was often used as a tool by employers to prevent an employee from working for a competitor or breaching the post-termination restrictions contained in the contract of employment. This was particularly useful, given that the UAE Courts do not award injunctive relief in the employment sphere to enforce post-termination restrictions. Employers in such circumstances will now have to apply to Court for damages or a labour ban.

Employers will still be able to apply to the Ministry of Labour to place a ban against an employee (usually up to 1 year) if the employee has resigned without notice or before the expiry of a fixed term contract or if the employee is being terminated for one of the prescribed reasons listed in article 120 of the UAE Labour Law (i.e. if the employee is being terminated for one of the prescribed gross misconduct type behaviours). cONcLUSIONS The sponsorship system in the UAE has recently faced scrutiny and criticism after a number of other countries in the GCC relaxed their visa rules. The new Free Transfer Law addresses many of these concerns by allowing employees greater flexibility in changing jobs and prevents unscrupulous employers from withholding NOCs arbitrarily. It will be interesting to see how the new Free Transfer Law will be applied in practice and we shall keep you updated via Be Aware of any further developments in this area. PRAcTIcAL STEPS FOR EMPLOYERS

Review post-termination restrictions in your employment contracts to ensure that these are drafted to properly protect your lawful business interests and consider inserting an appropriate penalty clause in your contracts to cover damages; Ensure that adequate notice provisions are contained in your employment contracts or that the term of limited term contract is of an appropriate length to meet the needs of the business and consider inserting garden leave clauses for key employees; Assess whether visa renewals will require an adjustment in your departments budget; and If there are grounds for seeking a ban preventing an employee from working in the UAE, employers can no longer simply withhold a NOC. Employers will have to take positive action by making an application to the Ministry of Labour for a ban. Employers should ensure that HR personnel and managers are familiar with the new rules and the circumstances when it may be necessary to apply to the Ministry of Labour for a ban against former employees.

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If you have any questions regarding the new Free Transfer Law or any other queries please do not hesitate to contact one of our dedicated employment specialists.

Neil crossley Partner T +971 (0)4 438 6346 F +971 (0)4 438 6101 neil.crossley@dlapiper.com

Nisreen Al-Shaker Legal Consultant T +971 (0)4 438 6341 F +971 (0)4 438 6101 nisreen.al-shaker@dlapiper.com

Joanna Taylor Senior Legal Consultant T +971 (0)4 438 6347 F +971 (0)4 438 6101 joanna.taylor@dlapiper.com

Amer Nabulsi Legal Consultant T +965 2247 2317 (Kuwait) F +965 2247 2318 (Kuwait) amer.nabulsi@dlapiper.com

Patricia Wardrop Legal Consultant T +971 (0)4 438 6332 F +971 (0)4 438 6101 patricia.wardrop@dlapiper.com

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INTRODUcING NISREEN AL-SHAkER We would like to take this opportunity to welcome Nisreen Al-Shaker, who has recently joined our team. Nisreen is from Jordan and her family live in Amman. Nisreen obtained her law degree from the University of Bristol in the UK. She joined DLA Piper Middle Easts Dubai office in 2006 as a legal assistant. From 2008 2010 Nisreen joined DLA Pipers London office to complete her training contract to qualify as an England and Wales solicitor and is in the process of being admitted to the roll. In October last year, Nisreen decided to re-join the Dubai office as a member of the Employment, Pensions and Benefits Group. Since her move, Nisreen has worked closely with members of the team on various matters including drafting employment contracts, company policies, advising on termination benefits and pensions as well as conducting extensive research on the further development of UAE labour law. Nisreen speaks three languages and believes that her Middle Eastern background coupled with her western exposure and language skills are ideal for working in Dubai and looking after our local and international clients across the region. We are immensely proud to have Nisreen in our team as the first Arab national to complete her training with DLA Piper in London and to return to work with us here in the Middle East. If the vision of the firm is to couple international service standards and technical excellence with real understanding of the region then Nisreen is representative of that commitment. You can contact Nisreen on the following:

Nisreen Al-Shaker T +971 4 438 6341 F +971 4 438 6101 nisreen.al-shaker@dlapiper.com

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