Business and Commercial Law in the UAE - Coursework Example

Business and Commercial Law Name Institution Date Contents Contents 2 Introduction 3 The Laws Governing Business Formation in the U.A.E 3 The Labor Laws in the UAE 5 Potential Legal Issues associated with Hiring Foreign Workers in the U.A.E 9 Dispute Resolution Process in Disputes between Employers and Employees in the UAE 10 Employment Contract Clauses 12 Conclusion 15 References 16 Introduction UAE provides all establishing businesses many advantages because of its highly developed economy. Its infrastructure and services match the highest international standards and this facilitates efficiency, quality and service as well. The business climate in UAE is favorable for various reasons such as, no personal income and capital taxes, no corporation taxes, no currency restrictions and such aspects. The fundamental requirement for all business operations within UAE is either of these licenses: Commercial licenses that cover all types of trading activities; Professional licenses that cover professions, services, craftsmen and artisans and; Industrial licenses for setting up an industrial or manufacturing operation. Some of the key requirement of forming a business in UAE is that 51% participation by UAE nationals apart from where the law necessitates 100% local ownership, within the Free Trade Zones where 100% foreign ownership is allowed, within operations open to 100% AGCC ownership and within professional or artisan organizations where 100% foreign ownership is allowe1d. This paper will discuss and analyze the laws governing business formation in the UAE, the labor laws in the UAE, the potential legal issues allied to hiring foreign workers within UAE as well as dispute resolution process in disputes between employers and employees in the UAE and employment contract clauses within UAE contracts. The Laws Governing Business Formation in the U.A.E Federal Law stipulates 7 classifications of business companies that can be formed within the UAE and the law also defines the perquisites in regard to the shareholders, directors, minimum capital levels as well as incorporation dealings. Additionally, the Federal Law provides the provisions that govern conversion, merger and dissolution of companies. Federal Law No. 13 of 1988: the Commercial Companies Law and its by-laws govern the activities of alien businesses. The forms of business organizations that can be established in UAE according to the Federal Law include; General partnership company, Partnership-en-commendam, Joint Venture Company, Public shareholding company, Private shareholding company, Limited Liability Company and lastly Share Partnership Company. General partnerships are limited solely to nationalities of UAE2. A joint venture refers to a contractual agreement between a foreigner and an UAE national permitted to operate a business. Equity input of the local party within the joint venture should be at least 51 percent, although the parties can agree mutually on how to share profits and loss. According to the Commercial Companies Law, organizations that engage in financial undertaking are supposed to be operated as public share holding companies. Nonetheless, such organizations can set up a presence with n Dubai, UAE through opening a branch or a representative office. The minimum capital necessary to start a shareholding company within UAE is Dh.10 million for a public company and Dh.2 million for private shareholding companies. In addition, the chairperson and most of the directors should be nationalities of UAE and profit distribution is relatively inflexible as compared to limited liability companies. In forming a limited liability company in UAE, there should be at least two people and maximum of 50 people whose liability is limited to their shares within the capital of the company. Generally, most expatriates opt for limited liability companies. Even though foreign equity is not supposed to be more than 49 percent, the parties agree on profit and loss sharing and the management of these companies can be on the foreign or local parties or even a third party3. Commercial Companies Law also covers the formation and regulation of branches and representative offices foreign organizations within the UAE and provides that the companies can be 100 percent foreign owned as long as there is an appointment of a local agent. Basically, only an organization that is owned 100 percent by a UAE national or an UAE national can be chosen as a local service representative. Normally, the local representatives do not take part in the company’s activities but help in acquiring visas, labor and such and are reimbursed through a lump sum or a portion of the company’s profits. Generally, branches and offices of overseas commercial offices do not have a license to import apart from re-export if the company’s products are naturally extremely technica4l. When forming a professional company, it is allowed to have 100 percent foreign ownership, sole proprietorship or civil organizations. Such companies can take part within professional or artisan undertakings although the number of employees is limited. Still, such companies are supposed to appoint a UAE national as a local service representative. The Labor Laws in the UAE Federal Law No. 8 1980 governs labor matters in UAE as per the Federal amendments, No. 24 of 1981, No. 15 of 1985 along with No. 12 of 1986. Additionally, there are special labor allied regulations that are applied within some free zones in UAE, for example Jebel Ali Free Zone. According to the Article 3 of the Federal Law, the Law is applicable to all personnel and workers working within the UAE, regardless of whether they are UAE nationals or emigrants. Nonetheless, there are people who are an exemption of the law and they include employees of the federal government, members of armed forces, police and security bodies, domestic servants and agricultural employees. The labor law covers all elements of the employer-worker relationship and this includes issues allied to employment contracts, limitation of employment of juveniles and women, payments, working hours and such aspects5. The Law of Federal is applicable to all the emirates of the federations and the Ministry enforces the law. The federal and local courts of the UAE adjudicate labor allied litigations but all disputes allied to labor issues should first be referred to the Ministry. In case either party (employer or employee) is not satisfied with the decision of the Ministry and the issue cannot be resolved amicably the Ministry can then refer the dispute to court within two weeks from the day the complaint was launched, following which either party can go to the court directly. There are various conditions for employment in UAE according to the labor law. To employ any foreign worker within the UAE, it should be applied to the Ministry. The Ministry should approve the application before the worker enters the UAE6. New businesses are supposed to register or open a file with the Ministry prior to personnel employment and new businesses should also obtain an approval from Ministry to employ expatriates. Additionally, some of the employers are required to submit to the Ministry a bank warranty as a security for end of services and repatriation costs allied to their workers. Employers within most of the free zone in UAE are also supposed to follow the same process. If the worker will be an UAE national, an employment contract can be entered any time. Employment contracts for workers who are not UAE nationals should be approved by the Ministry and the employment terms and conditions might be verified through any means of proof admissible by law. The Ministry can only issue a labor permit for an expatriate worker when an official written labor contract is filed with the Ministry. Basically, limited employment and fixed term contracts are allowed within the UAE. The only information that the law required to be specified within an employment contract include payable wages/salaries, date of the employment contract, date of the start of the employment contract, nature of the contract, nature of the work, period of the contract, along with the employment location7. It is a common practice within UAE to employ people and first put them a probation period. Over the probation duration the employer or the worker can end the employment without giving any reason or notice. In such an instance, the employer does have the responsibility of paying end of service compensations to the worker. Article 37 of the Law stipulates that the probation period should not be more than six months. After the probation period ends, it is considered as a component of the overall employment term and is considered when calculating gratuity and other terminal benefits8. According to the Law, wage refers to all payments to the worker on annually, monthly, weekly, daily, or on commission basis for the work the worker does under the employment contract. The law does not prescribe a minimum wage but a worker with a monthly salary less than Dhs.4, 000 is not liable to sponsoring his partner or children for being residents within the country. Additionally, to sponsor domestic workers within the UAE, a minimum basic wage of Dhs.6, 000 monthly is mandatory. According to the Law, the wages can be paid monthly, weekly, or daily. The employer and the employee can agree on the way in which wages can be paid. Wages can be paid within the UAE or elsewhere. The Law requires an evidence of wages payment especially in case of a dispute and therefore it is advisable for an employer to maintain enough records and books for payment of wages and allowance because failure to do so amounts to an assumption that the wages were never paid9. The Law restricts employing juveniles less than 15 years and also prohibits employment of women between 10.00pm and 7.00am hours. The Law also prohibits employing women in risky and difficult work as well as other activities detrimental to health or morals or in other duties as per the Ministry. The maximum working hours should be 8 hours daily or 48 hours weekly even though there are few exceptions of around 9 hours daily in places such as trade, restaurants or security workers. The Law has specifications concerning workers safety and health care and Articles 91-101stipulates the provisions10. The Pensions and Social Securities Law, Federal Law No (7) of 199 is a pensions and social security scheme within UAE that deals with matters regarding UAE nationals working in both public and private sectors. The employer as well as the employee makes some contribution to the scheme where an individual working within public sector makes a contribution of 5 percent of their salary and the employee pays it while a 15 percent is paid by the employer. In private sector, the government pays 2.5 percent of the 15% share11. In regard to the contract termination, a contract can be terminated if the employee and the employer agree to end the contract as long as the worker agrees to contract termination in writing, if the duration of the contract has ended according to the rules of law, and if one contract parties has unspecified term, stipulated that the parties adhere to the provisions of the Law according to former notice and the satisfactory reasons to annul the contract devoid any bias. Nonetheless, a contract can be terminated if employee has a total disability but maintain the benefits. According to Article 120 of the Law, an employer can terminate the contract without notice in cases such as where the worker had used faked document, the worker makes a mistake that lead to considerable financial losses to the employer, if drunk during working hours, reveals business’ secrets and such issues. According to Article 121 of the Law, a worker is allowed to terminate the contract if the employer fails to fulfill his duty to the employee as per the contract, for example failing to pay the employee his wages or if the employer assaults the employee12. Potential Legal Issues associated with Hiring Foreign Workers in the U.A.E In hiring a foreign worker, an employer is supposed to obtain an initial approval from the labor department as well as a permit from the Ministry of labor and Social Affairs. The foreign worker should have the required professional knowledge and education qualification that the country requires and the worker should have entered into UAE legally and should satisfy the prerequisites stipulated within the residence regulations within force in UAE. Normally, an employer is not allowed to employ foreigners unless the employer can prove that there was no unemployed UAE national with the required skills to perform the required work13. There are other legal issues that come with employing foreign workers in UAE and they include the potential of hiring an illegal immigrant or an irregular worker. This is because illegal entry is a common occurrence within the UAE. Therefore, UAE government can take a legal action against such an employer on grounds of hiring individuals who were unlawfully smuggled within UAE, hiring individual entering UAE on false passports or hiring a foreigner who has overstayed their visa for various reasons. The fine for an employer found to having employed an irregular worker is AED 10,000 or a six month imprisonment. Another potential legal issue is the exploitation and abuse of migrant which many employers hiring foreigners have been found liable of14. Dispute Resolution Process in Disputes between Employers and Employees in the UAE In case of a dispute between the employers and the employees, an application is supposed to be made to the emirate Ministry within the location of the employer’s organization. The complaint is submitted in writing to the department of complaints at the Ministry whereby the complaints stipulates the facts of the dispute, due amount in addition to a labor contract copy. The Ministry files the application after one pays a registration fee of AED. 100. After the Ministry files the application, the employer or the employee is called upon to give out his/her respective cases in the labor office at the Ministry where a recommendation should be made in two weeks following the filing of the application. In an event where the party fails to resolve the dispute as per the Ministry’s recommendation, the issue is the referred to the court whereby a usual litigation of the issue will take place in the court. In such an instance, the Ministry issues a summary of the case facts, as well as a memorandum along with its recommendation, and the argument of the involved parties. In three days after the court receives the application, the court schedules a hearing and then summons the party for the proceedings to take place15. The defendant is then to sign a copy of the summon acknowledging having received the summoning. In an event where the defendant is not within UAE, the summon is served through consular channels where the courts submits the summon to the UAE Ministry of Justice as well as the UAE Ministry of Foreign Affairs, to the UAE embassy within the nation where the defendants stays. Afterward, the defendant is the served with the papers according to the law and processes of the defendant’s resident country. However, the UAE courts should have an evidence of service. In general, lawyers who are fully authorized through a power of attorney represent the defendant. After filing of the answer by the defendant, the trial is deferred to give the claimant time to respond. Additional adjournments are normally given to allow the parties to file memoranda. In addition, all proceedings are based on written submissions which should have support from documentary evidence. Normally, the court signs up a professional to help it and normally accept the report from the expert. The courts controls such proceedings within the UAE and therefore the parties do not have any influence on the pace at which the issue proceeds16. Normally during a dispute, the contract provisions that favor the employee are always upheld as long as there is evidence supporting the provision. In regard to the payable gratuity and where there are two contracts between the employer and the employee, the employee can solely benefit on one contract17. Mostly the enforceable contract is the one filed with the Ministry and calculation of gratuity is done as per the salary stipulated within the UAE employment contract. A complaint from one of the parties involved in the dispute should be made in a year from when the amount was due to the labor office. Law stipulates that calculations should be done using the Gregorian calendar. Employees are exempted from payment of court fees during a dispute settlement. This exception is also applicable when an appeal is filed at the court of appeal. Nonetheless, in an event where the issue is not successfully settled at the Ministry, an employer who chooses to go to court should pay court fee are the fee is based on the proportion of the amount in dispute18. Finally, the law has somewhat varying provisions about claims made by a group of workers of the same company who file a complaint against their employer. Normally, such a dispute can take a longer time to be resolved at the Ministry and the Ministry can form a committee to resolve such disputes. Employment Contract Clauses Progressively more, workers within the UAE are obligated to sign contracts that have confidentiality and non-competition clauses by their employers. This is meant to prevent reveling of organization’s confidential information in addition to trade secrets. Basically, the nature of confidential information differs from one organization to another. For instance, the information can be technical, like comprehensive specifications of industrial procedures or the information can be about competitively responsive consumer databases. The key thing is that the confidential information can and is supposed to be protected. Even though the confidential information differs from one industry to another, it normally includes all business-allied information about products, developments, finances, operations procedures, sales and basically any other important information. Confidential information also consists of information allied to clients, potential clients, reports and analyses, technology and such19. According to UAE labor law, workers are not supposed to reveal private information of the organization they work for and states that in an event where the work allotted to a worker gives him an opportunity to be acquainted with the customers of the employer or to access the secrets of the business, the employer can obligate such an employee not to compete with him or take part in any company that competes with his own company after the employee’s contract is terminated20. This means that employers have the right of demanding their workers to get into confidential agreements as an element of the employment contract. Nonetheless, for such confidential contracts to be effective, the employers as well as the employee should agree and sign this contractual provision. The employers and the workers should fully understand what the contract entails, in particular the right the contract protects and the responsibility it enforces. Therefore, a well-drafted clause is supposed to visibly define what covers confidential and proprietary information and is ought to further stipulate that the confidentiality responsibility of the worker does not end following the termination of employment. In case any worker reveals trade secrets or the confidential information, the employer is entitled to file a suit within the civil case against such an employee, as long as the employer can provide significant proof to indicate that the damages that ensued resulted from the disclosure21. Additionally, an employer can include a non-competition clause within the employment agreement. A non-competition clause prevents workers from competing with the employer or importuning employer’s clients for a given duration after their employment is terminated. Generally, these clauses are principally vital for workers, who through their work gain knowledge regarding client information and necessities. According to the Article 909 of the Federal Law No. 5 of 1985 on the Civil Transactions Law for UAE, an employee is not supposed to reveal organization’s confidential information and stipulates that in case an employee during the course of his/her work accesses the business’ secrets or becomes familiar with the organization’s clients, the employee and the employer can make an agreement that the worker should not have any form of competition with the employer of participate within a work competitive to his work following the end of the employment contract22. Nonetheless, for such clause to be legally binding, the agreement should be limited to time, location as well as to the kind of work, to the level that is essential to look after valid interests of the employer. Generally, non-competition and confidentiality clauses are supposed to be practical within geographical scale as well as time restrictions. However, not all workers are liable to non-competition agreements. The non-competition agreements are in general applicable to high-level workers who are in a position to access the organization’s clients or extremely sensitive organizational information. Additionally, it is a requirement that the employer demonstrates that the non-competition is necessary in protecting trade secrets, private client lists, or other lawful proprietary information23. Conclusion Federal Law No. 8 1980 governs labor matters in UAE and according to the Article 3 of the Federal Law; the Law is applicable to all personnel and workers working within the UAE. Disputes between employers and employees in UAE are resolved by first applying to the Ministry and if the Ministry is not able to settle the dispute it refers the matter to court. Employment clauses are important in is preventing revealing of organization’s confidential information in addition to trade secrets and also for the employer to avoid inappropriate competition from an employee who has access to trade secrets and the company’s customers. References Abdelkarim, A. (2008). UAE Labor market. Dubai, UAE: Tanmia, Centre for Labor Market Research and Information. Al Tamimi $ Company, UAE Labor Law. Andrzej, K. (2007). Nationals and Expatriates. Reading: Ithaca Press. Bill, J. (2000). Irregular Migration. Northampton: Edward Elgar. Davidson, M. (2008). The UAE: A study in survival. Boulder, CO: Lynne Rienner Press. Dubai eGovernment. (2011). Dubai Strategic Plan 2015. Marshall, C. (2008). Employment clauses in UAE employment. Thousand Oaks: Sage. Ministry of Labor and Social Affairs: UAE’s Labor Law: Federal Law No. 8 of the year 1980. Gulf News. (2010). Fasano, U. (2006). Emerging Strains in UAE labor Markets. Washington, DC: International Monetary Fund. Hafez, S. (2009). Ministry confirms ban on sacking of Emirati employees. Abu Dhabi, UAE: The National. Foley, P. (2008). UAE public sector analysis. Journal of Business and Policy Research. Vol.4/1. P. Hellyer (eds), United Arab Emirates: A new perspective (London, UK: Trident Press Ltd., Empire House, 2001), pp. 231-248. Yang, G. (2008). Labor relations in UAE, recommendations for further development. Dubai, UAE: Tanmia, Research Policy. TANMIA. (2008). Human resources report. UAE. Dubai: TANMIA. Randeree, K. (2009). Strategy, policy, and practice in nationalization of human capital: Project Emiratisation. Research and Practice in Human Resource Management. Vol. 17/1. Toledo, H. (2009). The problems and prospects of Emiritisation: Immigration in an imperfect labor market. Dubai, UAE: Dubai Economic Research Awards. Wenger, E. (2010). Labor laws in UAE and foreign workers. Cambridge: Cambridge University Press. The Article 909 of the Federal Law No. 5 of 1985 on the Civil Transactions Law for UAE The Pensions and Social Securities Law, Federal Law No (7) of 199 Read More