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MoU between JAFZA and the DIFC: Implications for Employers

Submitted By Firm: Clyde & Co

Contact(s): David Salt, Emma Higham, Rebecca Ford, Sara Khoja

Author(s):

written by Samantha Ellaby and Rebecca Ford

Date Published: 11/9/2016

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MoU between JAFZA and the DIFC: Implications for Employers

written by Samantha Ellaby and Rebecca Ford

It has recently been announced that a Memorandum of Understanding (MoU) has been entered into between Jebel Ali Free Zone Authority (JAFZA) and the Dispute Resolution Authority (DRA) in the Dubai International Financial Centre (DIFC). The MoU includes reference to employment law dispute resolution provisions and potentially paves the way for employment disputes involving employers in the Jebel Ali Free Zone (JAFZ) to be considered by the Small Claims Tribunal of the DIFC Courts (SCT). This article explores how this may affect companies in their management of employee relations.

Employment law dispute resolution provisions

Within the wider aim of cooperation between the two authorities, the MoU provides for JAFZA and the DRA to look "towards the creation and adoption of bespoke employment law dispute resolution provisions for JAFZA and its member companies. This may include the provision of office space to the SCT from which the SCT can provide services to businesses operating within and individuals working within the Jebel Ali Free Zone".

It remains to be seen how this will be implemented in practice and a number of key issues will need to be considered in doing so.

Choice of law v choice of forum

It is important to appreciate the distinction between choice of law and choice of forum.

It appears that, going forward, JAFZ employers and employees will have the option to elect the SCT as the choice of forum. It is less clear what law the SCT would apply in such cases.  

By contrast, the primary law applicable to employment relationships in JAFZ is UAE Federal Law No. 8 of 1980, as amended (the Labour Law).

By virtue of its constitutional documents, the DIFC is exempt from UAE civil and commercial laws, including the Labour Law. The DIFC has instead enacted its own law governing employment relationships in the DIFC - DIFC Employment Law No. 4 of 2005, as amended (the DIFC Employment Law).

There are a number of key differences between the DIFC Employment Law and the Labour Law, the most notable one from an employee's perspective being that, unlike under the Labour Law, there is no right to claim unfair dismissal under the DIFC Employment Law.

In order to opt out of the Labour Law and into the DIFC Employment Law, an amendment would be required to JAFZ's constitution. It is not clear whether such steps will be taken or whether the SCT will endeavour to apply the Labour Law when considering disputes between JAFZ employers and employees.

Statutory complaints v contractual complaints

The distinction between statutory and contractual complaints is also an important one.

A statutory complaint refers to a complaint made in relation to a statutory right (a claim for arbitrary dismissal under the Labour Law, for example), whereas a contractual complaint refers to a complaint made in relation to a right set out in a contractual document (a claim for non-payment of bonus or breach of a restrictive covenant, for example).

Under Article 6 of the Labour Law, parties have a right to raise statutory complaints in relation to the Labour Law before the Ministry of Human Resources and Emiratisation (replaced by the relevant free zone authority in the free zones) in the first instance and ultimately before the onshore Labour Court.

It is not possible to contract out of the Labour Law so (unless JAFZ's constitution is amended) an employee of JAFZ entity would still be permitted to raise a statutory complaint before the onshore Labour Court to enforce his/her rights under the Labour Law (for example, to raise an arbitrary dismissal complaint) notwithstanding any agreement between the JAFZA and the DRA to the contrary.

Electing the SCT as the choice of forum and the laws of the DIFC as the choice of law would be relatively straightforward in relation to contractual disputes.

Other aspects of the MoU

The central initiative of the MoU is to provide JAFZA, member companies, and individuals living, working and/or investing in the JAFZ with access to the DIFC Courts, the Dubai Arbitration Institute, the DIFC Wills and Probate Registry and the Academy of Law.

The MoU states that JAFZA and the DRA will cooperate with each other in relation to the following:

  • the provision of access for JAFZA and its member companies (as well as individuals living, working and/or investing in the JAFZ) to the SCT;
  • greater co-operation between the respective dispute resolution and mediation services provided by JAFZA and DRA;
  • allowing JAFZA and its member companies to freely elect to use and promote the use of DIFC laws;
  • promoting the services of the DRA, including the use of DIFC Courts as a jurisdiction for dispute resolution; and
  • promoting the use by JAFZA and its member companies of the DIFC-LCIA as an arbitration centre.

This would therefore allow, for example, for a commercial agreement between two JAFZ entities (in relation to the secondment of employees, for example) to be subject to the laws and courts of the DIFC.

The ability to rely on the DIFC's established English-language legal system to handle commercial disputes will no doubt boost confidence for businesses and investors in JAFZ.

Summary

It remains to be seen how the employment law dispute resolution provisions will be implemented in practice and further announcements in this regard will be eagerly awaited.

In the meantime, this progressive step will no doubt be seen as a positive development for one of the UAE's longest established free zones and may of course pave the way for other free zone authorities looking to enter into similar MoU's with the DRA.

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