Labour Law and The Unemployment Insurance Scheme

Term of Employment Contract

On the 15th of September 2022, the UAE has carried its first amendment to Federal Decree No. (33) of 2021 on Labour Relations (“Labour Law”) through Federal Decree No. (14) of 2022 (“Decree”). The Decree effectively amends Article 8 (3) of the Labour Law.

The previous Article 8(3) of the Labour Law restricted the term of employment contracts to a maximum of 3 years renewable to similar or shorter periods. It provided that:

The Employment Contract shall be concluded for a determined period, not exceeding (3) three years, and it is permissible, with the agreement of both parties, to extend or renew this contract for another similar period or for a shorter period, for once or more.”

Accordingly, employment in the UAE could not exceed the specified term of three (3) years. Hence, if the parties wished to extent the term of the contract, the same could only be affectively extended at the expiry of the limited term.

However, Article (1) of the Decree lifts the three (3) years restriction to the employment contract term and alternatively allows the parties to determine the contract’s term which may further be renewed as agreed upon between the parties. Additionally, Article (2) of the Decree abrogates any article or provision of the Labour Law that negates the new amendment.

The new amendment aims to award both employees and employers the freedom and discretion of determining the suitable contract term on the basis of the work nature or requirements.

Unemployment Insurance Scheme

As a leading step in the region, on 11th October 2022, the Ministry of Human Resources and Emiratization (“MOHRE”) announced that the UAE has introduced the unemployment insurance law pursuant to Federal Decree No. (13) of 2022 (“Unemployment Insurance Scheme”) with the aim of compensating insured employees with a cash amount (“Compensation”) for a limited period in the event of his/her unemployment in return for a premium collected from the employee.

The Unemployment Insurance Scheme sets the essential framework and conditions for the applicability of its provisions. As per Article (3) of the Unemployment Insurance Scheme, it is applicable to the employees in the private and federal sectors with the exception of investors, domestic workers, temporary contract workers, juveniles and retirees recipient of pensions from its scope of applicability.

The scheme will be integrated and provided by insurance companies (“Service Provides”) licensed by the central bank as the latter holds the supervisory authority over the insurance authority in the UAE. Accordingly, Service Provides must meet the conditions of offering and implementing scheme which are to be issued in the near future by the Cabinet.  Importantly, under Article (4) and (7) of the Unemployment Insurance Scheme, the Cabinet is further tasked with the issuance of a supplementary regulation that shall determine the mechanism, operation and monthly premium paid by insured employees to Service Providers.

Nonetheless, the Unemployment Insurance Scheme sets under Article (5) and (6) the initial eligibility conditions for entitlement to the compensation which encompass the following:

  1. Firstly, the insured employee must be covered for a period of 12 consecutive months, which entails that the employee must successfully pay the monthly premium to the Service Provider however, the law has not established if the consecutive employment must be performed under the same employer at the inception of the coverage. It remains to be seen whether the employee’s change of work during the coverage will have an impact on this criterion.
  2. Secondly, the employee’s services have been terminated by his/her employer for any reason apart from termination due to disciplinary reasons. Hence, its presumed that Service Providers will proceed to verify the cause of termination through the employer in coordination with MOHRE in order to establish the employee’s eligibility for the compensation.
  3. Thirdly, the Unemployment Insurance Scheme limits the compensation paid by the Service Provider to 60% of the subscription salary with a maximum of AED 20,000 per month for a maximum period of 3 month from the date of unemployment (“Compensation Period”). The Unemployment Insurance Scheme does not define the term “subscription salary” however, the same may be understood as the insured’s overall salary at the inception of the coverage nonetheless. The Cabinet may further provide clarity in regards to the employee’s entitlement upon a change to his salary. Notwithstanding the above, the compensation will be suspended if the employee joins another employer during the Compensation Period without further entitlement to the same against the Service Provider.

Additionally, the scheme permits Service Providers to grant further benefits to the insured employees while simultaneously operating within the prescribed limits under the law, Cabinet resolutions and conditions implemented by the Central bank. Nevertheless, the employee’s entitlement to the compensation is absolved if the latter commits fraud or deception in order to avail the compensation coverage e.g., if it is determined that the employer is fictious.

The introduction of the Unemployment Insurance Scheme will therefore create stability in the labour market through establishing the required trust and confidence by employees in the financial security offered in the event of unemployment. On the other hand, the Cabinet resolution will elaborate on the mechanisms associated with the successful implementation of the scheme.

Disclaimer:

This publication does not provide any legal advice and it is for information purposes only. You should not rely upon the material or information in this publication as a basis for making any business, legal or other decisions. Any reliance you place on such material is therefore strictly at your own risk.

Authored by: Waddah Abdulhaq (former employee)

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