New Labour Law, new problems for UAE K-12 Sector
The new UAE Labour Law (Federal Decree Law No. 33 of 2021) (“New Law”) came into effect on 2 February 2022 (“Effective Date”). You can find a general overview of the key changes and a comparison of the New Law against the old labour law (Federal Law No.8 of 1980) here.
This article focuses on some of the major HR issues for UAE K-12 private education providers and explores solutions to these challenges.
Fixed Term Contracts
The New Law mandates that all employees must be moved to fixed term contracts by no later than 1 February 2023. A large number of schools groups already use fixed term contracts so may, on the face of it, be unaffected. However it is important to note that the fixed term contract per the New Law is more akin to an unlimited term contract under the old law than the old fixed term contract; i.e. there is no penalty for breaching the fixed term contract, only notice is payable. Hence one of the major disincentives for a teacher resigning mid contract- the application of a penalty- is no longer present.
According to the New Law, fixed term employment contracts can be terminated on notice during the course of the term for a legitimate reason, provided that the period of written notice under the contract of employment (minimum of 30 days, and maximum 90 days) is served or paid in lieu.
Existing employees currently on unlimited term contracts will need to transition to fixed term contracts by 1 February 2023 (“Cut-off Date”) Either party, however, may terminate the unlimited term contract for a legitimate reason before the above deadline, subject to the following minimum notice requirements:
30 days if the employee’s period of service is less than 5 years;
60 days if the employee’s period of service is more than 5 years; and
90 days if the period of service is more than 10 years.
It appears that the above provisions of the New Law have led to a number misunderstandings which are explained in the table.
Notice periods for new fixed term contracts of existing staff will depend on the duration of their previous service with the employer.
The notice periods which depend on the duration of service (30/60/90 days) apply only during the transitional period between the Effective Date and the Cut-off Date, and only in the event that any employee who is currently employed under an unlimited term contract decides to resign or his employer decides to terminate his employment instead of transitioning him to a fixed term contract before the Cut-off Date. These notice periods do not apply to new fixed term employment contracts.
An employee, who has been employed under an unlimited term contract which provided for 3 months’ notice before the New Law came into force can resign before the Cut-off Date by serving 2 months’ notice, because (s)he has been employed for six years only (thereby falling under the category of employees who are entitled to 60 days’ notice if their period of service is more than 5 but less than 10 years).
The New Law sets out the minimum notice period requirements only. This means that the employee’s notice cannot be shorter than the one stated in the New Law, however, if the existing contract provides for a longer notice period, which exceeds the statutory minimum notice period, then such contractual notice will prevail.
As such, if an employee has served the employer for 6 years, and contract states that notice period shall be one month, then the minimum statutory two months’ notice will apply; whereas if his contract provides for three months’ notice – then that notice will be applicable, because it exceeds the statutory minimum position.
An employee can rely on the above minimum notice provisions when terminating his/her existing limited term contract.
The above transitional provisions apply to employees on unlimited term contracts only. Therefore, employees who have been hired under fixed term contracts before the Effective Date will have to comply with their existing contractual notice requirements when resigning.
Retention of talent is one of the most important issues within education sector, recognising the cost (financial and non-financial) of replacing a good teacher and the importance of retaining institutional memory and continuity. Accordingly, employers are looking for solutions to minimize employee turnover and associated operational disruptions, which are summarized below.
Some employers are looking to include notice periods, which exceed the statutory maximum, in their employment contracts. As mentioned above, the New Law requires that notice period is capped at 3 months. Employers may potentially include a longer notice period (for example, 6 months) in the employees’ supplementary employment contracts, noting that:
They will not be able to include the same notice in the standard form employment contracts, lodged with the authorities like the Ministry of Human Resources and Emiratisation (“MOHRE”) or the relevant free zone authority; and
The New Law provides that terms inconsistent with it are only effective if they are more advantageous for the employee.
Therefore, there is a potential risk that the six months’ notice contained in the supplementary contract will only apply to the extent that it is better for the employee (i.e. if the employer decides to terminate the contract, it will be obliged to serve 6 months’ notice. Whereas if the employee resigns, (s)he can serve a 3 months’ notice only, referring to his/her standard form MOHRE/free zone contract and the New Law). The employer will not be able to force the employee to work his/her contractual notice, and neither will the court oblige the employee to make a payment in lieu of unserved part of his extended 6 months’ notice period.
Annual leave tickets and other retention tools
The majority of UAE employers provide annual tickets to their employees. Given that this is not a statutory benefit (and should not be confused with repatriation flights), employers can make this benefit conditional upon the employee completing the contractual term failing which it will be forfeited or, if paid in advance, repayable by the employee.
There are other tools available for the resourceful employer including specific retention plans, which can even be cost neutral if structured properly.
Termination of employment and compensation
Despite the use of the term “fixed”, the New Law provides that fixed term contracts can be terminated by serving a written notice for a “legitimate reason”, which is not defined in the law. Unlike the old labour law regime, whereby employees were able to claim arbitrary dismissal compensation (in the event of termination of an unlimited term contract for reasons unrelated to the employee’s work) or early termination compensation (where a fixed term contract was terminated prior to its expiry) from their employer, these two concepts have now been removed.
The New Law does provide for the payment of compensation of up to three months’ gross salary where the employee files a claim before MOHRE or Labour Court before they are terminated (and this is subsequently upheld by the court as a legitimate complaint). There is already some case-law supporting this approach.
The UAE Government recognizes that employers incur substantial costs when hiring employees, and hence it has taken a proactive approach to ensure that (i) there is a mechanism to recover such expenses if employees join another employer in the UAE before completing their probation, and (ii) employers avoid poaching recently hired employees of other companies.
As such, where an employee resigns during probation to join another employer, the New Law requires the new employer to compensate the current employer for the employee’s recruitment costs incurred (unless agreed otherwise). As of today, such costs may be claimed through the court only (which is not a practical solution given the modest amount to be recovered). However, MOHRE has advised that it intends to issue a resolution or a circulation that will regulate (i) the list of expenses that can be considered as recruitment costs and its definition, and (ii) the method of recovering the costs from the new employer.
Finally, whilst employers are prohibited from charging their employees, directly or indirectly, costs that were necessarily incurred by them in respect of employee on-boarding (such as visa and work permit fees), they can claw back the cost of any elevated benefits provided upon relocation (like tickets for the employee’s family, business class tickets, shipping of personal belongings etc.) and any additional costs incurred in relation to employee on-boarding, such as recruiter’s fees (subject to the upcoming MOHRE resolution defining “recruitment costs”). Hence, employers can deduct any such elevated benefits from the employees’ termination benefits, provided that the contract stipulates this.
The New Law is challenging for K-12 education providers but there are ways to protect the business and be compliant with the law.
Illustration of Socrates, Plato and Aristotle