DIFC Employment Law for UAE Business Owners

The Dubai International Financial Centre (DIFC) operates as a unique business hub within the United Arab Emirates (UAE). While it sits in Dubai, the DIFC functions under an independent legal framework with its own courts, regulations, and—crucially—its own employment law. For entrepreneurs and business owners setting up or managing companies in the DIFC, understanding the employment rules is essential. We’re here to provide a clear, factual overview of DIFC Employment Law, comparing it with UAE Labour Law where relevant and highlighting key obligations and best practices.

Key Takeaways

• Independent System: The DIFC is governed by its own common-law-based employment legislation, distinct from UAE onshore law.
• DEWS Scheme: Monthly contributions have largely replaced the traditional gratuity model, significantly altering end-of-service liabilities.
• Statutory Minimums: Contracts cannot provide less favourable terms than those laid out by DIFC Employment Law.
• Dispute Resolution: DIFC Courts (particularly the Small Claims Tribunal) offer prompt, English-language processes.
• Comparisons with Onshore: While both aim to protect employees, key areas—such as contract types, overtime, discrimination claims, and final dues—differ considerably between the DIFC and UAE federal systems.

The DIFC Legal Framework

Independent Jurisdiction

The DIFC has a common-law system distinct from UAE federal law. Its judiciary, the DIFC Courts, conducts proceedings in English. Consequently, disputes and legal matters in the DIFC are handled separately from the onshore Ministry of Human Resources and Emiratisation (MOHRE) processes.

Core Legislation

• DIFC Employment Law No. 2 of 2019 (as amended) – the principal legislation governing employment in the DIFC.
• DIFC Employment Regulations – supplementary rules detailing specific obligations (e.g. DEWS contributions for end-of-service benefits).

Businesses operating within the DIFC must comply with these laws and cannot rely on the UAE’s onshore labour legislation—though basic UAE regulations (e.g. on health insurance) still apply.

Regulatory and Enforcement Bodies

• The DIFC Authority (DIFCA) oversees compliance, sets regulations, and can impose fines for violations.
• The DIFC Courts have exclusive jurisdiction over employment disputes within DIFC. This structure is critical for business owners, as it means no MOHRE complaints or mainland labour courts are involved for DIFC-based staff.

Key DIFC Employment Laws

Employment Contracts

• Written Contract: Every DIFC employee must receive a written contract within seven days of starting work.
• Content Requirements: The contract must state job title, start date, salary, notice period, leave entitlements, and whether it is fixed-term or open-ended.
• Probation Period: Capped at six months. Employers are free to terminate employment during probation with minimal notice (as per the contract).
• Language: English is the governing language, though bilingual contracts can be issued if needed.

Wages and Working Hours

• Monthly Payment: Wages must be paid at least once per month.
• Standard Hours: A standard 48-hour working week (average) applies, unless the employee consents in writing to opt out.
• Rest Days and Breaks: Employees are entitled to at least one rest day per week and 11 consecutive hours off per day.
• Overtime: Not expressly mandated as paid in DIFC law; it depends on the contract or company policy.

Leave Entitlements

• Annual Leave: Minimum of 20 working days per year (for a full-time employee).
• Sick Leave: Up to 60 working days in a 12-month period, with a sliding scale of sick pay (first 10 days fully paid, next 20 half paid, remainder unpaid).
• Maternity Leave: 65 working days if the employee has 12 months’ service; part paid (first 33 days at full pay, next 32 at half pay).
• Paternity Leave: Five working days for new fathers, to be taken within a month of the child’s birth.
• Public Holidays: Employees are entitled to UAE public holidays with pay, or a day in lieu/extra pay if they work on those days.

End-of-Service Benefits: The DEWS Scheme

Historically, end-of-service gratuities were paid as a lump sum in the UAE. However, DIFC introduced the DIFC Employee Workplace Savings (DEWS) plan in 2020, transitioning to a funded contribution model.

• Monthly Contributions: Employers pay 5.83% of basic salary for the first five years of service, rising to 8.33% thereafter.
• Legacy Gratuity: Accrued service up to 31 January 2020 remains payable in the traditional gratuity format, unless the employer transferred that amount into the DEWS scheme.
• No Forfeiture: Even if an employee is terminated for gross misconduct, they retain accrued benefits.

Termination and Redundancy

Notice Requirements

Minimum statutory notice depends on length of service:

• Under 3 months: 7 days’ notice
• 3 months to 5 years: 30 days’ notice
• Over 5 years: 90 days’ notice

Pay in Lieu of Notice can be agreed, allowing an employer to terminate immediately if they pay the employee’s salary for the notice period. Termination during probation does not require these statutory notice periods.

Termination for Cause

DIFC Employment Law permits summary dismissal for serious misconduct (e.g. theft, violence). In such cases, no notice or payment in lieu is required. However, the threshold is high, and an employer must have clear evidence of gross misconduct. Importantly, employees do not lose previously accrued end-of-service benefits even if dismissed for cause.

Redundancy

Redundancy is considered a legitimate reason to terminate employment “without cause” if business restructuring is required. The employer must follow standard notice and payment obligations—there is no extra redundancy payment in the DIFC. As always, any termination should avoid discriminatory motives.

Final Settlements

When employment ends, the employer must:

• Pay final salary and any accrued but unused leave.
• Issue end-of-service payments (e.g. from DEWS) within 14 days.

If an employer fails to pay within 14 days without justification, DIFC law allows a daily penalty (one day’s wage per day of delay) in many circumstances.

Dispute Resolution in the DIFC

The DIFC Courts have exclusive jurisdiction over employment matters within the free zone. This means no MOHRE or mainland labour court involvement.

Small Claims Tribunal (SCT)

• Ideal for straightforward claims (e.g. unpaid salary, end-of-service dues).
• Claims up to AED 500,000 automatically qualify; higher amounts may be included if both parties agree.
• Informal, speedy, and cost-effective, with no lawyers required.

Court of First Instance (CFI)

Complex or higher-value disputes, usually above USD 136,135 (AED 500,000) if not agreed to SCT, proceed here. This involves a more formal trial procedure, with the possibility of appeals.

Mediation and Arbitration

• Mediation is encouraged by the DIFC Courts, and many disputes settle early.
• Arbitration is possible if the parties have an arbitration agreement in the employment contract. However, the SCT’s simplicity often makes it a more popular route for typical employment claims.

DIFC vs UAE (Onshore) Labour Law: Core Distinctions

Many entrepreneurs in Dubai must navigate the difference between DIFC employment law and the UAE’s federal law (Federal Decree-Law No. 33 of 2021). Key differences include:

1. Jurisdiction and Language
   
   • DIFC: Common law system, English-language courts.
   • Onshore UAE: Governed by MOHRE and Arabic-language federal courts.
2. Contracts
   
   • DIFC: Allows both unlimited and fixed-term contracts.
   • Onshore UAE: All employees must be on fixed-term contracts (up to three years, renewable).
3. Overtime
   
   • DIFC: Not mandated; left to contractual agreement.
   • Onshore UAE: Requires statutory overtime pay if employees work beyond standard hours.
4. Annual Leave
   
   • DIFC: Minimum 20 working days.
   • Onshore UAE: 30 calendar days (commonly equates to ~22 working days).
5. End-of-Service Benefits
   
   • DIFC: DEWS funded contributions, plus legacy gratuity if applicable.
   • Onshore UAE: Traditional unfunded gratuity based on final basic wage and years of service.
6. Discrimination Claims
   
   • DIFC: Specific anti-discrimination provisions, with direct remedies in the DIFC Courts.
   • Onshore UAE: Discrimination is broadly prohibited but lacks the detailed claim process found in DIFC law.

Best Practices for DIFC Employers

1. Draft Clear Contracts
   Ensure all new hires receive a comprehensive employment contract specifying wages, notice, leave, and working hours. Aim to provide this within seven days of the start date.
2. Stay on Top of DEWS Contributions
   Contribute the required percentage to the DIFC Employee Workplace Savings scheme each month. Missing or late contributions can result in fines and arrears.
3. Track Working Hours and Leave
   While there is flexibility with overtime in the DIFC, respect the 48-hour average working week (unless employees formally opt out in writing). Keep accurate records of hours, annual leave balances, and sick leave.
4. Handle Termination Transparently
   
   • Give proper notice as per statutory or contractual requirements.
   • Only dismiss “for cause” if you have compelling proof of misconduct. Otherwise, a “without cause” termination with notice reduces litigation risks.
   • Settle final dues within 14 days to avoid penalties.
5. Implement Policies on Discrimination and Harassment
   The DIFC has enforceable anti-discrimination rules. Adopt clear internal guidelines and address any complaints swiftly. This not only ensures legal compliance but fosters a positive workplace culture.
6. Use the Small Claims Tribunal for Disputes
   If a conflict arises over unpaid wages or end-of-service benefits, encourage resolution via the SCT. It is efficient, relatively inexpensive, and designed for straightforward employment matters.
7. Keep Abreast of Law Updates
   The DIFC periodically amends its Employment Law and Regulations (e.g. updates related to family leave, DEWS enhancements). Monitor official DIFC Authority announcements or engage local legal counsel to stay compliant.

Final Thoughts and Guidance

For entrepreneurs and business owners in the DIFC, aligning employment practices with the DIFC’s statutory requirements is critical. From drafting compliant contracts and enrolling employees in the DEWS scheme, to ensuring timely final settlements and preventing workplace discrimination, there is a clear set of obligations to follow. Fortunately, the DIFC framework, backed by a modern and transparent court system, offers predictability and fairness for both employer and employee.

Before launching or expanding your venture in the DIFC, it’s wise to:

• Review internal HR policies and employment contracts for compliance.
• Train managers on DIFC-specific requirements (especially around termination and discrimination).
• Seek professional advice when in doubt—preventing potential disputes from the outset is always cheaper and smoother than dealing with claims down the line.

By understanding and applying these principles, your business can thrive in the DIFC’s internationally oriented environment without stumbling over costly legal pitfalls. Contact us here at Virtuzone today for professional advice for your business.