Analysis

Understanding labour law

Ahead of the May 31 deadline for all employers registered with the UAE Ministry of Labour to join the Wage Protection Scheme, Clyde & Co seeks to outline and clarify legislation

Athorough understanding of labour law obligation is fundamental to successful construction contracting. One of the most recent initiatives of the UAE Government has been the introduction of a system aimed at protecting the wages entitlements of workers by requiring payment of wages to be made only through registered institutions, with disclosure of payment details to the Ministry of Labour.

The economic downturn has seen a squeeze on cash flow for all construction-project participants, a rise in the incidence in the non-payment of workers and increased industrial disputation. The newly-introduced UAE Wages Protection System (WPS), is part of the broader framework of laws aimed at protecting workers.

A key focus of the UAE labour law (the main piece of legislation being Federal Law No 8 of 1980 on the Regulation of Labour Relations) has always been the provision of a minimum set of terms and conditions for the protection of workers in the workplace. Where necessary, the Ministry of Labour has issued Ministerial Resolutions or Decrees to address specific issues such as health and safety, mechanisms to ensure timely payment of workers and working hours.

The Ministerial Decree issued on July 20, 2009, implementing Cabinet Decree 133/1, obliges all employers that are registered with the Ministry of Labour to pay workers through the Wages Protection System effective from September 1, 2009 (depending on the number of workers engaged).

Under the WPS regulations, an employer must pay workers at least monthly through an institution registered with the UAE Central Bank, which will send the WPS team within the Ministry of Labour a spreadsheet setting out the worker’s name, date of employment and the date wages were paid. All employers registered with the Ministry of Labour will be covered by WPS by the end of May 2010.

Penalties for Non-Compliance

Failure to apply the system will result in the employer being suspended from obtaining new sponsorships or renewing current sponsorship, either until the system is applied or in the case of multiple breaches of WPS, for a specific period. The employer can also be prosecuted for repeatedly failing to apply WPS.

During employment, deductions from salary are restricted to 10% of a worker’s monthly salary. Reductions in salary cannot be imposed unilaterally.

Well-drafted construction and engineering contracts are likely to incorporate provisions requiring a contracting party not only to comply with its labour law obligations, but to be able to demonstrate compliance to the other party.

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