Joanna Matthews-Taylor on UAE Workforce Dynamics

In the rapidly evolving landscape of employment law in the United Arab Emirates (UAE), LegalcommunityMENA sits down with Joanna Matthews-Taylor (pictured), Partner and Head of the Employment Practice at Baker McKenzie‘s Dubai office. 

With her wealth of experience, Joanna sheds light on the recent updates to UAE employment laws, discussing key changes and the implications of these developments on the intricate field of employment regulations in the country. 

Can you provide a brief overview of the recent employment law updates in the UAE, especially focusing on the end of service gratuity alternative and the proposed changes to DIFC Employment Law? 

We continue to see significant changes introduced to the employment law landscape following the overhaul of the UAE Federal Labour Law regime in 2022. 

By way of example, we saw the roll out of the unemployment insurance scheme to all employees in the UAE (with few exceptions), the announcement of a savings scheme as an alternative to the traditional end of service gratuity benefit, the introduction of a new dispute resolution process at the Ministry of Human Resources and Emiratization (“MOHRE”) level, changes to the pension laws and Emiratization requirements to name a few. There have also been sweeping changes to the UAE’s immigration laws with the introduction of new visas and work permits allowing expatriates and their families to remain in the UAE without being tied to one employer – a huge departure from the historical position where an expat’s ability to reside in the UAE was dependent on their being employed and sponsored by a local employer. 

The developments are, generally speaking, focused on attracting and retaining in the UAE and supporting the important objective of increasing the number of nationals in the private sector workforce. 

In the DIFC, there is a proposal to enhance the entitlements of GCC national employees and address any disparities. Currently DIFC based employers of GCC national employees are required to register with the General Pension and Social Security Authority (“GPSSA”) and pay the requisite contributions on the employee’s behalf. However, salary contribution thresholds mean that there is limit on the monthly amounts that the employer is able to pay to the GPSSA. Therefore, we expect to see an update to the DIFC Employment Law requiring DIFC employers to make a “top up” payment into a Qualifying Scheme such DEWS, equal to the difference between (a) the value of the contributions that the employer would have made into the DEWS (or other Qualifying Scheme) on behalf of that employee had they not been a GCC national MINUS (b) the value of the contributions made by the employer into the employee’s GPSSA fund. 

The introduction of the employee savings scheme as an alternative to end of service gratuity is a significant development. How do you see this impacting both employers and employees in the UAE? 

There were rumours of the introduction of such a scheme for many years as it was recognised that there were limitations with the historical end of service gratuity system. It was also expected that the DEWS system in the DIFC would be rolled out more broadly so the announcement of the alternative end of service benefits system was not unsurprising. 

Overall, the scheme will be a useful tool in attracting and retaining talent as it provides an opportunity (depending on the performance of the fund) for employees to potentially enhance their savings by walking away with a higher end of service gratuity payment than they may have otherwise received. Employee savings are also protected in the event of insolvency or bankruptcy of the employer. 

Employers who participate in the scheme will have the benefit from cash flow certainty. There is also a financial advantage as monthly contributions are calculated on the basis of the employee’s salary at the time the contribution is made as opposed to their salary on termination of employment (which is likely to be higher). 

Our sense at the moment is that most employers are observing how the scheme works and performs in practice before deciding whether or not to register employees. However, while the scheme is voluntary at present, I expect that it will become mandatory in the future. 

With the unemployment insurance scheme extension to free zones, what advice do you have for employers in free zones to ensure compliance, especially considering the upcoming deadline? 

The Government began the roll out the UAE’s first nationwide unemployment insurance system in January 2023. Initially, the scheme was only applicable to mainland employees but was later extended to free zone employees. 

The scheme is the first of its kind in the region – providing employees who are terminated for non-disciplinary reasons with a financial safety net should their employment be terminated. The move compliments the changes to the visa regime – including the expansion of the categories of those eligible to apply for self-sponsored visas and extensions to the visa cancellation grace periods, making it easier for employees to remain in country while they search for new employment. 

It is the employee’s responsibility to register in the scheme and pay the relevant contributions. Save that free zone employers are able to carry out the registration process on behalf of their employees, the key considerations for mainland and free zone employers are broadly the same. In both cases, it is good practice employers to ensure that their employees are aware of the obligation to register together the risk of penalties (including fines and potential work permit rejections) being imposed if they do not. 

The obligation for employers to pay employment entitlements in the event of an employee’s death is an important change. How can companies effectively incorporate this into their processes, and what are the key considerations? 

During employment employees should confirm details of beneficiaries to whom their entitlements (such as end of service gratuity) will be paid in the unfortunate event of death. 

Emiratisation quotas have become more stringent, impacting a broader range of companies. What legal strategies can legal counsel employ to assist organizations in meeting these requirements while minimizing legal risks and ensuring a fair and compliant hiring process? 

Localisation is a focus of all the Gulf Cooperation Countries and the UAE is no exception. Over the last decade we have seen a suite of measures introduced to support the Emiratisation initiative. Most recently, the UAE has introduced transformative legislation requiring employers employing more than 50 employees to hire Emiratis at the rate of 2% each year to reach a 10% Emiratisation percentage by 2026. Smaller companies with headcount of between 20 – 49 are now required to hire at least one Emirati by 31 December 2024 and another by end of December 2025. 

Failure to meet the quota requirements by the deadlines results in fines being imposed, a block on new work permits being applied for and potentially the company being downgraded to the third category in MOHRE’s classification system (resulting in higher application fees being applied). 

In order to ensure that UAE nationals hired count towards a company’s Emiratisation quota, the individual must be hired into a skilled role. In addition, the company must obtain a work permit on behalf of the individual, pay their salary through WPS and enrol the individual with the relevant UAE pension fund. If these conditions are not fulfilled the employee will not be included in the company’s Emiratisation numbers. We are aware of a number of companies who have been “caught out” in this regard and subject to fines despite having a reasonable belief that they had fulfilled quota requirements. 

We are working with many employers who are developing bespoke hiring strategies and policies to enhance the recruitment (and subsequent retention) of UAE national employees. Such include the development of part time and flexible working policies, targeted apprenticeship, graduate and internship programs together with the creation of partnerships with universities and schools. 

On a related note, MOHRE has recently enforced a cultural diversity policy which requires 20% of available work permit quota to be allocated to different nationalities. We are aware of many companies who have recently had work permit applications rejected on the basis that they have not fulfilled the diversity threshold. Accordingly, in additional to Emiratisation companies should also be mindful of the make up of their workforce more generally to mitigate the risk of delays in onboarding new hires. 

Given the dynamic legal landscape in the UAE regarding employment law, what proactive steps do you advise legal teams within organizations take to stay informed and ensure compliance with evolving regulations? 

Keep in touch with your trusted local legal advisor and sign up to receive Baker McKenzie’s legal updates and invites to our workshops and seminars. We keep on top of legal developments so you don’t have to. 

Looking ahead, what trends or further developments do you anticipate in UAE employment law, and how can businesses proactively prepare for these changes? 

As we move forward we expect to see further moves to further drive and embed diversity and Emiratization within the UAE’s private workforce. I would also anticipate further legal developments in the field of equal pay and the introduction of additional measures aimed strengthening anti-discrimination and equal opportunity laws. 

As global ESG regulatory regime becomes increasingly more complicated we have also seen local legislation developing in the ESG space. From an employment perspective, for example, we have seen the introduction of personal data and privacy laws in Saudi and UAE, required female board representation for publicly listed companies and the creation in the National Human Rights Institute in 2021 of a human rights committee. I would certainly anticipate further interesting developments in this area as ESG continues to be placed high on the C-Suite agenda. 

Last but not least, there are also proposals to extend the jurisdiction of the DIFC courts and common law legal system across all free zones in Dubai. While discussions are at a relatively early stages, if implemented, the effect would be truly groundbreaking and have far reaching implications across all aspects of law – not just limited to employment law. A real demonstration of Dubai’s commitment to becoming one of the world’s top global business centres. Watch this space! 

About Joanna Matthews-Taylor: 

Joanna Matthews-Taylor, a seasoned legal professional, serves as a Partner at Baker McKenzie, leading the firm’s employment practice in Dubai. With a career spanning various legal landscapes, Joanna has honed her expertise in employment law and immigration matters. 

Prior to joining Baker McKenzie, she held significant roles, including a senior legal consultant at an international law firm’s Middle East office and a qualified assistant at a leading Scottish law firm. 

Joanna’s diverse experience extends to advising clients across sectors such as technology, healthcare, life sciences, hospitality, and insurance. Her comprehensive understanding of employment law intricacies positions her as a sought-after expert, guiding clients through the complex terrain of employment regulations in the UAE and the broader Middle East.