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Changes for Employers in the DIFC

DIFC EMPLOYMENT LAW No.6 of 2018 (the “Proposed Law”) Consultation Paper

After a number of years of inevitable growing pains, the DIFC Employment Law (No.4 of 2005) (as amended by DIFC Amendment Law - No.3 of 2012) is about to undergo significant change. The Proposed Law is subject to consultation (until 22 March 2018) and the final version is likely to come into force later in 2018.

Background and Basis for Review

The text of the stated background to the proposed legislative change reflects the English Law heritage of the DIFC Employment Law (also referred to below as the “Current Law”). In undertaking the review, the DIFC Authority stated that it considered, “International best practice and comparable models in other jurisdictions, focusing specifically on:

(a) Specific developments in employment law under English law;

(b) How those developments would fit into the overall context of employment relations in the UAE and what example the DIFC should set in this regard; and

(c) Catering for practical developments in the DIFC relating to employment and working relationships in the DIFC since the enactment and amendment of the Current Law.”

Item (c) above identifies that practical issues have arisen as to the effectiveness of the Current Law (some of which are identified below). In some cases, the Current Law failed to anticipate the inevitable pitfalls of a somewhat selective adoption of principles recognised under English Employment Law. The omissions have become apparent as case law has developed in the DIFC and it is reasonable to assume that these have driven the move to the current consultation. The Current Law has “sort of, but not quite” delivered what was originally intended.

What are the most significant proposed changes for Employers?

There are many proposed changes, but we identify below several changes which we consider of immediate significance for DIFC employers.

Discrimination remedies: Whilst the Current Law prohibits certain acts of discrimination, strangely it has never provided a remedy for those who have been discriminated against. The proposed introduction of a genuinely enforceable discrimination regime is likely to have a significant impact upon DIFC employers. The proposed changes reflect many principles arising under the Equality Act 2010 (UK).

Specific proposed changes include:

  • Adding “pregnancy” and “age” to the list of protected characteristics;

  • Compensation of up to one year’s wages (potentially subject to increase to two years where an employer fails to comply with the compensation order);

  • A 6 month limitation period (from the date of the discriminatory act complained of) within which to present a claim. It will be particularly interesting to see if this reflects the practical application of the English Law position in respect of “continuing acts”;

  • The right to serve a questionnaire on the Employer, in order to seek information to support a potential claim of discrimination. This also very much reflects the English Law position;

  • A statutory defence (reflecting the position under the Equality Act 2010) will apply to defend the potential vicarious liability of employers for discriminatory acts.

We anticipate that discrimination claims will become prevalent in the DIFC Courts.

Paternity Leave: Neatly continuing the above discrimination/equal opportunities theme, the Proposed Law introduces a right to a minimum of 5 days’ paid Paternity Leave (for employees with 12 months’ continuous service at the relevant date). This right also extends to adoption cases.

Constructive Dismissal: Although there is no current concept of “Unfair Dismissal” (see decisions such as Hana Al Herz v The Dubai International Financial Centre Authority [CA 004/2014]), the Proposed Law introduces a remedy akin to the concept of “Constructive Unfair Dismissal” under English Employment Law. An award under the Proposed Law (new Art.61 (3)) will arise only in circumstances where an employee successfully terminates the employment for cause (i.e. by reason of the employer’s conduct). The award of up to one year’s wages will presumably be assessed by reference to the English Law approach to compensation for Unfair Dismissal.

Again, we regard this potential change as a significant shift with major implications for employers and raises some difficult questions. Will we see somewhat “creative” cases of employees facing a disciplinary hearing and potential dismissal, seeking to make a pre-emptive strike and identify deficiencies in the disciplinary process as a basis for a claim under Article 61? This is likely to increase the emphasis upon employers following a proper process. Will the Proposed Law stray into territory which triggers principles of “reasonableness” previously dismissed as being too close to Unfair Dismissal law?

Penalty payments: Article 18 has been the source of considerable unease and some extraordinarily high awards of compensation. It was a clear example of a provision whose practical application and effect had not been properly thought through. As a result, it placed the courts in a difficult position and, when forced to rule on a case of non-payment, the DIFC Court itself admitted that it led to frankly absurd results. An employer who had erroneously miscalculated an end of service gratuity payment could find itself facing an order to pay the ex-employee one day’s wage for each day that the balance of sums owing remained outstanding. This created the bizarre scenario where an employer could be penalised for withholding sums which had been genuinely in dispute. At the more extreme end of the spectrum, the current Law (under which a claim could be presented up to 6 years post-termination) could lead to a payment for each day until the end of the case (i.e. the penalty payment accruing on a daily basis). Such penalty payment would also be entirely disproportionate to the sum in issue (for example, unpaid holiday pay or wages).

The Proposed Law recognises the deficiencies in the current Article 18 and limits the penalty payable to a maximum of 6 months wages. It is currently proposed that an employee who claims an underpayment must show that the unpaid amount is in excess of 5% of the full amount otherwise due on termination. Further, the Court has a discretion to waive or reduce the penalty where its payment would be considered “unreasonable” in the circumstances of the case. That is likely to give rise to much argument as to what is “unreasonable”.

Compromise of claims: The Proposed Law introduces a provision (similar to that under the Employment Rights Act 1996) whereby an employer and employee may compromise claims arising under the Proposed Law. The comparable UK provision requires the parties to identify contemplated claims arising under specifically identified statutory/regulatory provisions. It remains to be seen if the Proposed Law will permit a wider application of the compromise principle to any claims “arising out of or in connection with” the employment relationship or indeed extend to intimated/contemplated claims or disputes.

It is assumed that an approved form of agreement will be required, certifying that the employee received independent legal advice as to the nature and effect of the agreement.

Whistleblowing: The Proposed Law effectively incorporates protections and penalties arising under the DIFC Companies Law in relation to whistle-blowers.

End of Service Gratuity (“ESG”): An employer will no longer be able to withhold ESG in circumstances where an employee has been dismissed for cause. While many employers may see this as an unwelcome change, the rationale was that an employee should not be subject to the inequitable and disproportionate penalty of losing what is effectively their pension pot.

The Bench will be engaging in the consultation process before the Proposed Law reaches a final stage of approval.

The Bench Employment team

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