The United Arab Emirates’ Federal Decree-Law No. 33 of 2021 Regarding the Regulation of Employment Relationship (the “New Labour Law“)1, which took effect in early 2022, represents the most significant legislative overhaul of private sector employment in decades. This framework is designed to enhance workforce flexibility and attract global talent while mandating structured contractual terms. For multinational enterprises operating in the UAE Mainland, a strategic review of HR policy is imperative to mitigate risks inherent in these sweeping statutory modifications. It should be noted that the New Labour Law does not apply to financial free zones of DIFC and ADGM.
1. The Foundational Shift: Mandatory Fixed-Term Contracts
The most profound change dictated by the New Labour Law was the abolition of the ‘unlimited’ employment contract in the private sector. All contracts must now be fixed-term.
Every valid employment contract must be in writing, signed by both the employer and the employee, and supplied in two copies: one for the employer and one for the employee2. Crucially, in the event of any legal dispute, UAE courts grant priority to the Arabic version of the contract3.
Employers were required to transition all existing unlimited contracts to the fixed-term format by December 31, 2023. While the maximum duration for a fixed-term contract is three years, it may be renewed for similar or shorter periods. Failure to formalize the renewal or termination of a fixed-term contract, where the parties continue performing their obligations, results in the contract being legally renewed under the original terms.
A critical employer obligation under the New Labour Law is the prohibition against withholding the official documents of the worker (such as passports or educational certificates) or forcing the worker to leave the State at the end of the employment relationship4. Correspondingly, the employer is generally liable for the costs of repatriating the worker to their place of recruitment or residence unless the worker joins another employer or the termination reason is attributed to the worker5.
2. Protection and Prohibitions
The New Labour Law strengthens workplace protections, ensuring a non-discriminatory environment, specifically:
- The law explicitly prohibits any form of discrimination based on race, colour, sex, religion, national or social origin, or disability6. In practice, this means employers cannot discriminate against workers performing similar tasks and must grant women a wage equal to that of a man if she performs the same work, or alternative work of equal value7.
- Furthermore, the law explicitly prohibits sexual harassment, bullying, or any verbal, physical, or psychological violence committed against the worker by the employer, their superiors, colleagues, or other persons who work with them8. Forced labour, the act of using any means to oblige or force a worker, or threaten them with penalty, to work against their will, is strictly prohibited9.
3. Modernising Work and Statutory Notice Periods
The New Labour Law formalises six distinct models of work, granting businesses considerable operational elasticity. These include Full-Time, Part-Time, Temporary, Flexible, Remote Work, and Job Sharing, all codified to provide legal certainty for agile headcount management.
The standard maximum normal working hours for employees is set at eight hours per day or forty-eight hours per week10. During the Holy Month of Ramadan, the regular working hours must be reduced by two hours per day11.
Regarding termination, the law establishes strict parameters. The maximum probationary period permitted is six months and may only be imposed once by any single employer. Termination during probation requires a minimum of 14 days’ written notice by the employer. For standard terminations, either party may terminate the contract for any “legitimate reason,” provided a written notice period is served. This mandatory notice must be between 30 and 90 days, depending on the contract’s stipulations. Furthermore, if an employee seeks to move jobs while under probation, the new employer may be required to compensate the previous employer for recruitment costs12, creating a minor financial friction designed to stabilize the workforce during initial engagement.
If an employee is instructed to work more than the normal hours, they are entitled to their normal wage plus an increase of at least 25% of the basic wage. If overtime occurs between 10 pm and 4 am, the increase must be at least 50% of the basic wage13.
The New Labour Law grants employees access to a range of specific leaves:
- Maternity Leave: A female worker is entitled to 60 days of Maternity Leave, calculated as the first 45 days with full wage and the remaining 15 days with half wage14.
- Sick Leave: After successfully completing the probationary period, a worker is entitled to up to ninety (90) continuous or intermittent days of sick leave per year, calculated as the first 15 days with full pay, the following 30 days with half pay, and the remaining period unpaid15.
- Parental Leave: A five-working-day parental leave, available to both the father and the mother, which must be taken continuously or intermittently within six months from the date of the child’s birth16.
- Study Leave: A paid study leave of ten working days per year for employees who have completed at least two years of service, provided they are enrolled in an accredited educational institution in the UAE to sit for exams17.
Once the probationary period is successfully completed, it is counted as part of the employee’s total service when calculating the end-of-service gratuity18. Failing to give the agreed notice can result in the defaulting party (employer or employee) being obliged to pay the other party compensation equal to the employee’s salary for the missing notice period19.
If the employment contract is terminated by the employer, the worker is entitled to be absent for one working day per week without pay during the notice period to search for a new job20.
4. Termination Protocols: Redundancy and Commercial Justification
The New Labour Law permits termination for any legitimate reason. Notably, redundancy is now explicitly recognised as a valid basis for dismissal, linked to “significant economic shifts or operational restructuring”21.
In cases where the termination of service is deemed unlawful, typically if the dismissal is proven to be based on the employee having filed a serious complaint or lawsuit whose validity is proven, the employer must pay the employee fair compensation, which is capped at a maximum of three months’ wages22.
5. Financial Compliance: Wages, Deductions, and Final Payment
The New Labour Law establishes strict rules regarding wage administration:
- Wage Deduction Cap: In all cases, the percentage of deduction and/or withholding from an employee’s wage, regardless of the reasons (including penalties, loans, or damages), may not exceed fifty percent (50%) of the total wage23.
- Final Payment Deadline: The employer is obliged to pay the worker their wages and all other entitlements, including end-of-service benefits, within fourteen (14) days from the end date of the contract term24.
- Judicial Fee Exemption: A key provision favouring workers is the exemption of all labour claims from judicial fees at all stages of litigation and execution, provided the claim amount does not exceed AED 100,00025.
6. End of Service Gratuity
For a full-time foreign worker who completes one year or more of continuous service26:
- The worker is entitled to a wage of 21 days for each year of the first five years of service.
- The worker is entitled to a wage of 30 days for each year exceeding the first five years.
- Crucially, the total end-of-service benefits for the foreign worker must not exceed the equivalent of two years’ basic wage27. All calculations are based only on the basic wage, excluding allowances.
For employees on part-time or job-sharing contracts, end-of-service gratuity is prorated: the total annual working hours are divided by the annual working hours of a full-time employee, and this resulting percentage is then applied to the value of the end-of-service benefit due for a full-time contract28.
The worker is expressly denied compensation for a work injury if it is proven that the injury resulted from a deliberate violation of declared safety instructions, was caused by the worker’s willful misconduct, or occurred under the influence of alcohol, narcotics, or psychotropic substances29.
7. Restrictive Covenants: The Non-Compete Clause
Non-competition clauses remain permissible under the New Labour Law30, but their enforceability hinges on strict adherence to proportionality. Restrictions must be limited to the extent necessary to protect the employer’s legitimate business interests and must be clearly defined by time, geographical scope, and the nature of the competing work.
The restrictive period is capped strictly at two years from the contract’s expiry date. Critically, Article 12 of the Implementing Regulations31 introduced conditions under which an employee may be exempted from the non-compete clause. These exemptions include the employee’s termination during probation or, most significantly, if the new employer or the employee pays up to three months’ compensation to the former employer, subject to the former employer’s written consent. This provision transforms the non-compete clause from an absolute legal barrier into a quantifiable financial transaction, potentially affecting high-value talent retention strategies.
A claim filed by the employer for the worker’s violation of the non-compete clause shall not be heard by the court if one year has passed from the date the employer discovered the violation32.
8. Emiratisation and Specialised Contracts
The government continues to accelerate Emiratisation via targeted legislative mechanisms. Ministerial Resolution No. 240 of 202333 introduced the “Emirati Student Employment Contract” for students enrolled in Nafis-supported programs. This resolution mandates that participating employers must obtain a work permit and provide training relevant to the student’s specialisation.
These students count towards the employer’s mandatory Emiratisation quota. The resolution establishes a regulatory floor for compensation, requiring the student to receive a minimum monthly salary of AED 4,000 paid through the Wages Protection System (WPS). Upon successful completion of studies, the employer is obliged to convert the agreement into a standard UAE national employment contract.
A strategic oversight for any international company is the jurisdictional compliance chasm in the UAE. The Federal Decree-Law No. 33 of 2021 explicitly does not apply to the Dubai International Financial Centre (DIFC) or the Abu Dhabi Global Market (ADGM).
9. Jurisdictional Nuance: Mainland vs. Financial Free Zones
These financial free zones operate under separate Common Law-based regimes, leading to material divergences in key areas. For instance, termination for cause in the DIFC and ADGM relies on broader principles of “reasonableness,” unlike the exhaustive, specific list found under the Federal Labour Law.
A key financial divergence is the DIFC’s Employee Workplace Savings Plan, which replaced the end-of-service gratuity for most expatriates with a defined contribution pension plan. The mandatory employer contribution rate is 5.83% of the monthly basic wage for the first five years of service, increasing to 8.33% thereafter34.
Employers operating under the ADGM Employment Regulations 2024 (effective April 2025) can face a significant financial penalty, capped at six months’ wages, for failing to pay an employee’s final entitlements within 21 days of termination. This daily wage penalty is only triggered if the unpaid amount exceeds one week’s wage35. These regulations also clarify end-of-service gratuity calculations and remove the previous statutory cap of two years’ pay, a significant financial departure from the Federal Labour Law’s limitations. Consequently, companies operating across jurisdictions must maintain entirely segregated HR and legal handbooks tailored to each regime.
10. Statutory Caps Under UAE Federal Decree-Law No. 33/2021 (Mainland)
Statutory Requirement | Maximum Limit / Stipulation |
|---|---|
Contract Term | 3 Years (Fixed-Term Mandatory) |
Probation Period | 6 Months (One time only) |
General Notice Period | 90 Days (Minimum 30 Days) |
Post-Contractual Non-Compete | 2 Years (Subject to Reasonableness) |
The New Labour Law is not merely a technical update; it is a foundational restructuring of employment risk. The mandatory shift to fixed-term contracts, the legalisation of flexible working arrangements, and the requirements for enforceability of non-compete clauses demand meticulous attention to contractual drafting and procedural compliance. The continued legal divergence between the Mainland and the financial free zones further necessitates an immediate, comprehensive audit of existing HR policies and contracts to ensure that operational practices align with the new reality of the UAE’s modern employment landscape.
