UAE: Labour Law – enforceability of employment contracts

There have been two material recent developments in UAE employment law in relation to the enforceability of employment contracts:

More, not less

The Dubai Court of Cassation has ruled that it is lawful for employers to provide for greater benefits for employees under their employment contracts than those stipulated in the UAE Federal Labour Law and, if they do so, it is the terms of the enhanced contract which will prevail.  This follows Article 7 of the UAE Federal Labour Law which states:

Any condition contrary to the provisions of this Law … shall be null and void, unless they are more beneficial to the employee.

Conversely, if an employer provides for lesser terms for its employees, that agreement will not be enforceable before the UAE courts (and not registrable with the Ministry of Labour – see below).

In the case before the Dubai Court of Cassation, an employer had agreed with an employee to a three month notice period, instead of the required 30 day notice period stated in the UAE Labour Law.  On termination of that employee's employment contract, the employer argued that it was lawfully able to give only 30 days' notice, relying on the Labour Law provision.  The Dubai Court of Cassation held that the employer was in breach of its contractual notice period and awarded compensation to the employee accordingly.

No side agreements

A Ministry of Labour official has been quoted as stating that the only employment contract to which the Ministry of Labour will have reference in a labour dispute is the contract which is filed with the Ministry.  The Ministry will not have regard to the terms of any side agreement or "internal" contract of employment between the employee and the employer.  This rule may also be followed if a case is ultimately referred to a UAE court, if the Ministry of Labour is unable to successfully mediate the dispute, on the basis that it is the only labour contract which is recognised in the UAE – although we are not aware of any case precedent on this at present.

Generally, the Ministry expects its standard form contract to be filed and, therefore, in practice, it may be difficult to file a contract which significantly differs from the Ministry of Labour standard form contract.  There is limited space on the form for additional conditions of employment, although the Ministry may accept a supplemental page of conditions, provided that they are reasonable and comply with the Labour Law.

The following are practice points which may be taken from these developments in relation to the form of employment contracts:

• Terms which are less favourable to the employee than those specified in the UAE Labour Law (and contradictory in that respect to the Labour Law) are not enforceable in the UAE by either party, regardless of the governing law and jurisdiction of the contract;
• If the parties wish to agree terms which are more beneficial to the employee than those provided under the Labour Law, and/or which are supplemental to the Labour Law, these terms should be incorporated into the contract filed with the Ministry of Labour.  This is the only way in which the contractual terms will be enforceable where the UAE courts have jurisdiction.  For example, the employer may wish to incorporate restrictive covenants into the filed contract to ensure that they may be relied on in relation to conduct in the UAE;
• If more detailed provisions are preferred and the parties intend them to be enforceable against each other, the parties should consider incorporating them into a supplemental contract which has a foreign governing law and/or an arbitration agreement.  However, this option may give rise to other legal and tax considerations (particularly in the relevant foreign jurisdiction) and so careful consideration needs to be taken of the specific facts and terms of the contract.