UAE Labor Update: Mobility of Employees

This article considers the concept of International Secondment with a focus on the particular risks to multi-national businesses when employees are seconded from offices in other jurisdictions to work in the UAE and the issues arising around the mobility of employees with branches/clients in different business zones in the UAE.

Applicable Legislation

Immigration and residency within the UAE are governed by Federal Law No 6 for 1973 (as amended) (the “Immigration Law”) ministerial resolutions and decrees. In addition to the immigration and residency laws, this article makes reference to the labor laws which include the Federal Law No 8 of 1980 (as amended) (the “UAE Labour Law”) and the DIFC law No 4 of 2005 (as amended).

International Secondment

The ability to move employees globally is fundamental to the success of any major organization. It is, therefore, crucial for multi-national employers to be mindful of the legal implications that may arise owing to the international movement of employees on secondment into the UAE.

Certain important factors come into play including tax and social security; pension rights; local mandatory laws; and how disputes are resolved, taking account of the effect of foreign law and potential exposure for dual claims.

UAE Sponsorship

Owing to the strict bureaucratic regulations and procedures for employment and sponsorship within the UAE, it is not possible to avoid local jurisdiction in employment matters. Under the general UAE Immigration and Labor laws, an expatriate employee sent to the UAE on secondment must hold a valid work/residency permit and must be sponsored by a locally registered and licensed entity. The employee is only permitted to work for the sponsored employer and undertake the authorized trade activities that the UAE employer is licensed to perform.

The mobility of the seconded employees within the UAE in instances where a company has associated entities on-shore and within the business free-zones must comply with the UAE Immigration Law. Generally, it is not possible for the employees that are sponsored to work in one of the various business free-zones to obtain permission to work on-shore mainland. It is, however, possible for employees sponsored by an on-shore entity to obtain permission from the free zone authority for a temporary work permit (seconded cards) in order to temporarily work in the free-zone.

As part of the work permit/residency visa application process on-shore, the employee and the locally licensed entity will need to execute a standard form Ministry of Labor/Free Zone employment contract in English and Arabic, consistent with the local laws. By virtue of the local contract, the employee will be entitled to mandatory statutory benefits such as sick pay, annual leave and End of Service Gratuity (ESG): a severance payment that accrues annually and is paid to the employee upon termination.

Impact of UAE Sponsorship

The impact of the sponsorship is that the local authorities will not recognize the secondment arrangement and the only consideration will be in respect of the local employer/sponsor and the local documentation governed by UAE Law.

The global exporting employer may not wish to pay any additional benefit to the seconded employee, particularly where the seconded employee is already accruing benefits such as a pension, company share scheme or long-term incentive plan in the exporting country. This means that it may be necessary to amend the underlying exporting country requirements to take account of mandatory extra benefits accrued in the UAE. In practice, employers in the exporting country may attempt to sever ties with the employee by agreement by a process of “localizing’’ the employment contract and “exporting” any claims or suspending the primary employment contract for the duration of the secondment. Employers, however, need to be aware that in regions where the employment law is comprehensive, it may not be straightforward to sever all ties. Foreign law can view such arrangements simply as an avoidance and sham mechanism.

Employers will undoubtedly want to minimize their exposure to dual employment claims in the event of an employer/employee dispute arising in the future. The practical management of employees needs to be considered in parallel with the contractual documentation governing the secondment arrangements. Even if an international secondment policy is in place, the factual reality of the employee’s movements whilst on secondment should always be considered. For example, the employer must consider how long the employee will be based in the UAE. Under the UAE Labor law, the seconded employee will not accrue ESG for service less than a year and therefore would mitigate the risk of a substantial dual claim, if the secondment is less than six months then under the UAE Labor law a termination during the probation period carries an even reduced risk of a compensation award.

There is no simple way of contracting out of all local statutory benefits and seconded employees are very often in a position where they are able to obtain double recovery of benefits depending on the jurisdiction within which they are contracted to work. Specialist legal advice is usually sought by employers who seek to minimize the exposure to the inherent risk that the employee will be in a position to benefit from both contracts under different country statutory regimes. Carefully drafted contracts and policies can assist in minimizing exposure. It is not uncommon for employees seconded from a jurisdiction such as the UK, with a long service history, to request that their move abroad is conditional on their continuous service and their accrued rights being preserved.

By Thenji Macanda, Head of Employment Team, Taylor Wessing, UAE, a Transatlantic Law International Affiliated Firm.

For more information on this topic, please contact Thenji Macanda at uaelabor@transatlanticlaw.com.

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 42 Brook Street, London W1K 5DB, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.