The Stability of Employment Contracts During COVID-19

08 April 2020

As the spread of COVID-19 worldwide cases continue to climb, the UAE government has undertaken measures to prevent the spread of the virus by imposing strict controls on movement as well as social distancing.

The spread of COVID-19 has forcefully triggered an economic slowdown and this in turn has affected certain UAE businesses who have expressed difficulty in covering their costs during this sudden downturn. As such, many businesses are looking for alternatives on how to cooperate with their employees to minimize their losses during this time.

As such, some organisations are resorting to suspending their workforce or cutting down salaries in order to limit any liabilities that may be caused as a result of the epidemic. However, in doing so entities must not disregard the laws and regulations which govern the relationships between employers and employees.

In regard to all contractual obligations with specific regard to the employer/employee relationship contracts, it is important for employers to note that, under the UAE Federal Law No. 8/1980 Concerning the Regulation of Labour Relations (“Labour Law”) contracts are still very much enforceable and will remain to be. In addition, the Ministry of Human Resources & Emiratisation (“MOHRE”) recently announced resolution no. 279/2020 in relation to the stability of employment within the private sector during the spread of COVID-19 (“Resolution”).

 We outline below the steps which need to be taken in accordance with the Resolution before contemplating unpaid leave, reduced salaries or termination of any employment agreements:

The companies affected by the precautionary measures referred to and who wish to reorganize the work structure therein, must include their procedures, in agreement with the non-citizen employee, according to the following:

1) The company shall ensure it has implemented remote working solutions as per Article 2 of Ministerial Resolution.

This means that, companies must showcase that reasonable measures to adopt a remote working policy system has been taken and implemented for the accessibility and use by all employees.

2) The company is to ensure that it has granted all of the paid leaves (i.e. annual leave) to their employees prior to engaging in an agreement with employees regarding unpaid leaves or reduced salaries. 

Under the Labour Law, employers may for the time being request that a portion if not all their employees take any and perhaps all of their annual leaves accumulated over the course of their employment. This will benefit both the employer and employee as it’d be line with the implemented precautionary measures. However, it is still important to note that, employers must continue to pay their employees their basic wage and allowance ahead of the employees taking their annual leaves. Employers should refrain from forcing or otherwise requiring employees to work during the requested annual leave periods where unnecessary. Should employees find themselves working during their annual leave at the bequest of the employer then the employer would then be obligated to remunerate the employee in accordance with their basic wage and allowance for the days worked and subsequently carry the annual leave days in which the employee worked over to the following year. Should the days not be carried forth, the employer is to remunerate the employee, for each day in which work is performed, according to their salary based on the daily rate as prescribed by the labour Law.

In essence the Resolution stipulates that companies must ensure that each employee exhausts any and all of their entitled annual leave days before being able to proceed to the other procedures stipulated by the resolution (i.e. unpaid leave or salary reduction).

3) The company, should it be affected by the precautionary measures, may grant leave without pay to their employees where the abovementioned procedures have been implemented.

What is to happen when employers are faced with employees who may have already completed their annual leave or otherwise requested encashments? In congruence with Article 3 of the Ministerial Resolution, companies, affected by the precautionary measures referred to above, having a surplus in the numbers of non-citizen employees authorized to work in the company may in agreement with the employee grant them unpaid leave. This means that employers, with the agreement of the employees, may in this circumstance request their employees to remain on leave without remuneration. However, the following conditions shall apply:

  • Companies must register their employee’s details in the Virtual Labour Market system to allow them to be rotated according to the need by other companies seeking to hire candidates within the UAE. This is provided that, their commitment to these employees remains in terms of housing and fulfilment of all their entitlements (except for the basic salary) until the employee leaves the country or is permitted by the employer to work in another company.
  • Subsequent to the expiry of the Ministerial Resolution (i.e. the lifting of the precautionary quarantine measures) employees must be reinstated back into the place of work.

4) The company is to conclude an addendum to the labour contract for a reduction of the employee’s salary for a temporary period where the abovementioned procedures have been implemented.

Should employees refuse an unpaid leave for whatever the reason may be, employers may resort to the reduction of salaries of the employees. The Labour Law specifically stipulates that the employer is cautioned to refrain from reducing the employee’s salary in any way, howsoever it is determined without the employees’ prior written consent and willingness. No party is to determine such reductions in salary without the willingness or consent of the other party. Should such an instance occur, employees would have full legal capacity and right to raise the concern with the employer in addition to filing a labour complaint with the Ministry of Labour.

Following the procedures implemented under Article 5 of the Ministerial Resolution, if a temporary reduction in the employee’s salary has been agreed upon by both parties, the employer and employee shall conclude an addendum (provided by MOHRE) to the labour contract initially signed whereby each party is to retain a copy. The addendum will remain valid till the specific expiration date is reached or until the repeal of this Ministerial Resolution, whichever is earlier.  The addendum shall be submitted as an online document for attestation by MOHRE, and the revised salary is to be updated to MOHRE which shall be reflected with the Wage Protection System (WPS).

5) The company must apply to the Employment Contract Data Modification service in order to obtain the necessary approval for a permanent reduction of the employee’s salary.

Should companies, after the exhaustion of all the preceding procedures, still wish to permanently reduce the salary of a non-citizen employee, the company would then be obligated, before proceeding with any such action, first have to apply on the Employment Contract data modification service to obtain the necessary approval of the Ministry in accordance with Article 6 of the Ministerial Resolution and the employee’s agreeance.

So, where does that leave employers? Employees may refuse to go on unpaid leaves, and employers cannot reduce their salaries without agreeance of the employees. As it may appear to employers that they have no way out of their contractual obligations, they may be tempted to resort to the termination of the contractual agreements. However, employers will face difficulties here too. Terminating a contract before its expiration without a valid reason or for a reason stipulated outside of those mentioned under Article 120 of the Labour Law, is and will continue to be deemed as arbitrary termination.

The Resolution does not explicitly provide that employers can dismiss employees by reason of redundancy without compensation being payable. However, the Resolution may have alluded to the recognition that redundancy may be a consequence of the precautionary measures taken during Covid-19. This may also be an indication that the UAE Labour Courts may be more sympathetic towards employers implementing redundancy dismissals during the crisis than it has viewed redundancy dismissals previously.

What about Force Majeure or Unforeseen Circumstances, will they apply to the current circumstances?

Employers should not be quick to assume that, due to the current circumstances caused by Covid-19 that the above is permissible under the Labour Law. Companies are not the competent bodies to decide whether current circumstances faced due to precautionary measures or the climate are valid reasons for an event of “Force Majeure” (whereby obligations under contracts may be reduced by adjudication) as stipulated by Article 249 or “Exceptional Circumstances” (whereby obligations under a contract may be terminated by adjudication) as stipulated by Article 273 of UAE Federal Law No. 5/1985 Promulgating the Civil Transactions Law of the United Arab Emirates, Civil Code. Any such matters are first to be determined by the competent court before a readily permissible excuse may be used as witnessed in Dubai Court of Cassation Case 119/2011.

Though there may seem to be some relief brought to employers during the current circumstances caused by Covid-19, in line with the procedures discussed above, it should be considered that under the Ministerial Resolution, limitations still do exist. For instance, there is yet to be light shed on the procedures to be followed by those employers, who operate within the many Free Zones of the UAE, as the labour laws may be different to that of the mainland. Ergo, it is unclear whether the Resolution is applicable to those employees working in the Free Zones during this time. However, it remains certain that the procedures are only applicable to that of expats and non-UAE nationals.

In congruence with the above, employees must at all times, be remunerated for their services throughout any such turbulence caused to the effected companies. Both employees and employers whom are bound by contract are to perform and fulfil their contractual obligations unless the law is to later stipulate otherwise. This means unpaid leave of employees may only be granted with their prior written consent in agreement of such with the employer. In addition, no reduction to the salaries of employees may occur except with an express agreement between the parties followed by the annexure to the labour contract be it for a temporary or permanent period.