On 20th September 2021, the Federal Decree Law No. 33 of 2021 (the “Federal Labor Law”) was issued, which superseded the abrogated Federal Law No. 8 of 1980 on Labor Relations. The Federal Labor Law came into force on 2nd February 2022 and currently, governs the labor/ employment relations in the UAE.
The Federal Labor Law aims [1] to ensure the efficacy of the labor market in the UAE, and aims to determine the employment relations and rights and obligations of both the employer and employee, in a balanced manner.
To achieve this aim, the Federal Labor Law has implemented a number of changes that enhances the flexibility and sustainability of the labor market in the UAE. One such change can be seen implemented pursuant to the issuance of the Ministerial Resolution No. 318 of 2020 concerning bank guarantees and employee protection insurance, which was issued and came into force on 27th June 2022.
The Ministerial Resolution No. 318 of 2020 was issued pursuant to Article 8 of the Cabinet Decision No. 18 of 2022 which states:
“Establishments subject to the aforementioned Federal Decree-Law No. 33/2021 shall pay a bank guarantee of AED 3,000 for each worker or insure each worker, in accordance with the mechanisms approved by the Ministry of Human Resources and Emiratization.
As an exception to Paragraph (1) of this Article, establishments that are classified by the Ministry of Human Resources and Emiratization as high-risk shall insure each worker in accordance with the mechanisms approved by the Ministry.”
Further, Article 1 of Ministerial Resolution No. 318 of 2020 echoes the stipulation under the aforementioned Article 8 of the Cabinet Decision No. 18 of 2022, and states:
“Pursuant to Article (8) of the aforementioned Cabinet Decision No. 18/2022, the Establishments shall undertake either to provide an insurance policy or a bank guarantee equal to no less than AED 3000 for each Employee, as follows:
First option: An Employee shall be insured in accordance with the procedures prescribed by the guide issued by the Undersecretary of Human Resources Affairs in this regard.
Second Option: A Bank guarantee shall be paid through any of the banks operating in the State, provided that it is valid for one year from the date of its issuance.”
The aforementioned Article 8 of the Cabinet Decision No. 18 of 2022 and Article 1 of the Ministerial Resolution No. 318 of 2020 oblige the relevant Establishments [2] (regulated by the provisions of the Federal Labor Law), to secure the relevant rights and entitlements of their employees, by way of either of the following instruments:
A bank guarantee; or Insurance coverage.
The rationale and underlying reason behind obliging such Establishments to procure the abovementioned instruments is to ensure that there are adequate mechanisms in place which act as “guarantee” for the protection and settlement of their employee’s relevant rights and entitlements.
For the avoidance of doubt, the Establishments which are not governed by the provisions of the Federal Labor Law or are classified as “high-risk” by the Ministry of Human Resources and Emiratization, shall not fall under the purview of the above-mentioned articles.
That being said, it is noted that whilst the avenue of securing the employee’s rights and entitlements by virtue of the procurement of a bank guarantee was always available to the Establishments, the option to “insure a worker”, is an additional avenue which is made available to the Establishments pursuant to Article 8 of the Cabinet Decision No. 18 of 2022 and Article 1 of the Ministerial Resolution No. 318 of 2020.
Therefore, it can be seen that the availability of the two (2) options under the aforementioned articles provides the Establishments with an opportunity to assess their financial and operational capabilities and choose the most suitable option (i.e. either a bank guarantee or insurance) which would allow it to confer compliance with its obligations under the law and ensure that any risk of breach is mitigated.
Hence, based on the above discussion, now the Establishments may either:
Procure a bank guarantee, which is duly issued from a bank operating in the UAE, equal to or not less than AED 3,000 for each employee. The validity of the bank guarantee shall be one (1) year from the date of its issuance; or
Insure each employee in accordance with the mechanisms approved by the Ministry of Human Resources and Emiratization. As per the Ministry of Human Resources and Emiratization, the option to “insure” “entails a 30-month insurance policy, at a value of AED137.50 for each skilled worker, AED180 for each low-skilled worker and AED250 for each worker paid by high-risk establishments that are not registered with the Wages Protection System (WPS). The insurance coverage amounts to up to AED20,000, and includes the wages of the worker’s last 120 working days, the end-of-service gratuity, the expenses of returning the worker to their home country, and in the event of the worker’s death, the costs of repatriating the body to his home country, and other rights and entitlements that the employer is unable to fulfil, based on a decision by the ministry or the concerned labour court.” [3]
That being said, the following articles of the relevant legislations stipulate the instances where the liquidation of the bank guarantee, or a claim under the relevant insurance coverage, may be pursued by the Ministry of Human Resources and Emiratization or the Collective Labour Disputes Committee [4] (as applicable):
Article 2 of the Ministerial Resolution No. 318 of 2022, to allow for the payment of repatriation of an employee, payment of the employee’s entitlements acknowledged by the employer or as confirmed by a judgement rendered by any of the UAE Courts etc.
Article 32(3) of the Cabinet Decision No. 1 of 2022, Article 7 of the Cabinet Decision No. 46 of 2022 and Article 12(1) of the Ministerial Decision No. 47 of 2022, to allow the protection and settlement of the rights of the employees emanating from Collective Labor Disputes[5].
Without prejudice to the above, Article 3(a) of the Ministerial Resolution No. 318 of 2022 enlists instances where an Establishment may submit a request to the Ministry of Human Resources and Emiratization to reclaim the bank guarantee or the remainder thereof. Such request can be made in the following instances:
Cancellation of the employee’s work permit and proving his departure from the UAE.
Employee’s death and provision of an evidence of the body’s repatriation or burial in the UAE.
The employee’s transfer to a work for a new employer.
Any other cases in which the employer provides a proof of cancellation of the employee’s work permit and the payment of entitlements due to the employee.
Notwithstanding the above, the Ministry of Human Resources and Emiratization may refuse such a request in the following circumstances [6]:
If the Employer is a party to a Collective Labour Dispute, until the employee’s entitlements are paid.
If it is established that there are due fines that are owed by the Establishment or in the event that work permits thereto have been suspended.
Based on the above discussion, it can be seen that the options provided to the Establishments pursuant to Cabinet Decision No. 18 of 2022 and Ministerial Resolution No. 318 of 2022 are a positive implementation of the aim of the Federal Labor Law to achieve a fair balance between the rights and obligations of both the employer and employee. Furthermore, the general provisions of Ministerial Resolution No. 318 of 2022 effectively encapsulate the spirit of flexibility and sustainability that the legislators aim to achieve in the UAE labor market.
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