Employment affected by COVID 19 in DMCC and other free zones – legal insights

Colloquially, people understand commercial free zones as areas somehow segregated from the UAE onshore territory. Whereas this understanding is mainly accurate for the financial free zones, it is to be known that commercial free zones do not depart vastly from the Federal legislation or from the local legislation in the Emirate where they are located.

In employment matters, the commercial free zones generally refer to and apply the Federal employment legislation, particularly Federal Law no. 8 of 1980, as amended (“Employment Law”). The steep downturns implied by the COVID 19 pandemics test harshly the capacity of businesses to cope with the inherent disturbance in the supply chain, cash flows, relationship with creditors. Sourcing funds become volatile; therefore, many businesses envisage contingency plans or, in the extreme, market exit options.

From an employment perspective, things are not always clear, and situations vary greatly time wise and location wise. We offer below few responses to areas where employees may face uncertainties.

Unpaid Leave, Annal Leave, Sick Leave

The Employer cannot impose to their employees to avail Unpaid Leave, but can grant them the option to avail unpaid leave. Unilateral placements of employees in unpaid leave equals a breach of the employment contract, therefore may give rise to a claim against the employer. The same solution would apply in the case an employee is requested by the employer to stay at home, unpaid, without a valid justification.

The Employer can however determine and impose unilaterally on the employees to avail Annual Leave. Art. 76 of the UAE Employment Law reads: “the employer may at his discretion determine the date for commencement of annual leaves and, when necessary, he may decide to divide the leave in two parts at the most”.

Sick Leaves remain generally applicable throughout the period and available for employees, irrespective if they have contacted or not the virus. Nevertheless, it is noted that employees on probation period do not have the benefit of Sick Leave.

Employees on probation and their situation during the COVID 19 outbreak

If a probation period has been agreed to in the Employment Contract, this period may not exceed 6 months. Notably, an employee on probation may not opt for sick leave, is not entitled to end of service benefit and the employment contract, whilst in the probation period, can be terminated at any time by the employer. No notice of termination or notice period would be necessary in such case. Correlatively, the employee may terminate the employment contract immediately while on probation.

In the current situation, there might be employees on probation, laid off. We may encounter here two situations:

1. When an employment contract is terminated for reasons related to work, performance, employer decision, case in which the employee can be laid off as per the above; and
2. When an employment contract is terminated for reasons such as the impossibility of the company to sustain in view of the current situation, case in which again, the termination would be immediate and without a cause.

Employees not returning to work due to travel restrictions or employees who are parents and need time for homeschooling or supervision of children. Are they paid?

The statutory provisions are silent in addressing such measures, which is understandable as they do not occur in the normal course of business. In both situations above, it all depends on the agreement between the employer and employee. If the employer has a contingency plan for remote working, then in both situations above work arrangements can be done so as the employee contributes to the organization and gets paid. As an advisory note, employers would need to be lenient for such arrangements.

However, we have seen certain problems arising with employees that cannot return to work due to the governmentally imposed travel restrictions. We are aware of their understandable fear of having their employment contracts rescinded. The situation differs in here regarding the type of employment contract at issue, limited or unlimited.

For limited contracts, the situation seems easier because for any case of early termination (before the expiry of the term), the employer would need in any case to pay compensation to the employee as per Art. 115 of the Employment Law. The amount of compensation shall in no case exceed the aggregate wage due for a period of three months or the remaining period of the contract, whichever is shorter, unless otherwise stipulated.

For the unlimited contracts, a dismissal of an employee can be lawfully done if and only if there are work related reasons (such as performance, skill) or the employee is guilty of a gross misconduct, pursuant to Art. 120 of the Law (such as theft, assault etc). In any other situation, the termination has serious grounds to be considered arbitrary, therefore a contractual breach on the part of the employer.

In the COVID 19 case, the case is of an extraneous nature, non-attributable to the employee. It would then trigger a compensation payable to the employee, in addition to the latter’s statutory rights. In brief, the termination process would imply payment of a 30 days’ notice period, balance of annual leave, end of service benefits, a repatriation ticket and a compensation proportionate to the damages suffered by the employee as a result of such dismissal. The compensation for arbitrary dismissal may be pre-agreed in the employment contract or may be determined by the Court in furtherance to a claim. The maximum compensation is three months’ salary to be paid over and above any other contractual or statutory liabilities.

Employees laid off during the COVID 19 pandemic. What happens to medical insurance, residence visas, rents?

Overall, we would differentiate here in between a lawful dismissal and an unlawful dismissal.

In the first case (lawful dismissal) the employee’s residence visa and consequently employer-provided medical insurance will be canceled, therefore their benefits cannot be availed.

In the second case (unlawful dismissal) the employee has the right to claim breach of contract against the employer, case in which his medical insurance and residence visa may be maintained valid in consideration of an official complaint lodged by the employee with the Ministry of Labor and Social Affairs.

In both cases above, the employee may benefit from the officially announced relief measures implemented by the Federal and / or Local Governments, such as: free medical assistance or the already announced suspension of payments to banks in consideration to the UAE Central Bank Targeted Economic Support Scheme. As of March 23 2020, the Abu Dhabi Judicial Department announced additional relief measures, including the ban on evictions for a temporary period during COVID 19 pandemic. We hope that similar measures will be implemented soon by the other Emirates.

Employees not paid or company in impossibility to pay

For such a situation, several scenarios would be applicable:

1. Whereas redundancy is not as such stipulated in the law, it is fairly accepted in the courts practice s a form of termination for cost saving reasons. However aside from the statutory benefits, the employee would need to receive compensation. Procedurally, speaking, redundancy would imply: a notice or compensation in lieu of notice, the notice period being of minimum 30 days; all accrued benefits (such as accrued but unutilized leave); End of service payments, as applicable; Repatriation transportation cost (flight ticket); Compensation. The maximum compensation is three months’ salary to be paid over and above any other contractual or statutory liabilities.
2. Payment arrangements (for instance instalment payments) if agreed mutually by the employer and the employee.
3. Breach of employment contract on the part of the employer, with all the consequences deriving from here.

In fear of losing job, the employees do not report being infected with the virus

In all situations, should an employee be infected, the obligation of informing the employer is paramount. The latter should be then able to take necessary precautions and safeguard, as possible, the overall work environment. Last but not least, failure to report is punishable as a felony and subject to prosecution pursuant to Federal Law No. 14 of 2014 on the Control of Communicable Diseases.

Companies and the business community in general should not only rely on such laws of regulations applicable in the free zone. The Federal and local governments issue directions and compliance notes that need to be implemented Emirate wise or country wise, therefore ought to be followed irrespective of the fact that an entity is registered in a free zone or onshore. For example, the relief measures implemented by the Central Bank to sustain the economy or the measures related with circulation inside the country are generally applicable, therefore benefit all and need to be followed by all.

For any legal assistence related to employement, please do not hesitate to reach us at, please email us at info@fichtelegal.com or call +971 4 435 7577