Is a Barter Gratuity possible in the UAE?

ISSUE: An employee resigned from the job after working for 5 years. On completion of the notice period, signs a letter addressed to the employer that he wants his gratuity to be paid ONLY after his customer pays the employer. Therefore, has the Employer defaulted for End of Service (EOS) payment under the UAE Labour law?

Close up of businessman hands breaking employment contract

Under the UAE labour law gratuity is calculated as follows:

Severance pay/Gratuity – If Terminated by Employer

Article 132

The employee who has completed one year or more in the continuous service is entitled to the end of service remuneration at the end of his service. Days of absence from work without pay are not included in computing the period of service, and the remuneration is to be calculated as follows: –

  1. 21 days’ Remuneration for each year of the first 5 years of service.
  2. 30 days’ Remuneration for each additional year of service provided that the aggregate amount of severance pay shall not exceed 2 years’ remuneration.

 

Severance pay/Gratuity – Resignation by Employee

Article 137

Where an Employee who is bound by a contract of unlimited duration leaves his work of his own accord after continuous service of not less than one year and not more than three years’ he shall be entitled to one-third of the severance pay provided for in the preceding article;

  • where the continuous period of service exceeds three years but does not exceed five years, he shall be entitled to two-thirds of such severance pay;
  • where the continuous period of service exceeds five years, he shall be entitled to the full severance pay.

 

Under the UAE labour law, all employees must be paid their full salary and benefits for the duration of the contractual notice period until their termination date (payable on the last working day). Gratuity is an entitlement of the employee under the UAE labour law. The employment relation is direct between the Company and the employee for gratuity.

 

While for the debt the relation is between the debtor and the company ie the privity of contract is between Employer and the customer which does not entitle a third party to claim or be sued. The employee is the agent of the principal (Employer) and is a third party to the business transaction. Even if the employee is responsible to arrange the collection of the same, it cannot be settled or set-off with his gratuity or his gratuity payment cannot be placed on hold. Even if the employee signed a letter to pay later ie. when the customer pays the Company, the Court will view it as purely as duress and order the employer to pay the end of service entitlement immediately.

 

 

Mrs. Nikhat S Khan (ACIArb) (TMC)

Partner

Dispute Resolution | Litigation Management | Construction | Technology | Corporate | Commercial |

Empaneled Mediator in The Mediation Centre (TMC) – Dubai.

Kochhar & Co. Inc. Legal Consultants ,

Mob: +971 50 88 555 99

Mail: nikhat@kochhardubai.com

9 POINTS on VAT in the UAE

  1. The VAT law still needs the final approval by the President before implementation.
  2. According to the law, business owners (trade and services earning AED 370,000 or more a year)  and landlords will be required to pay a 5% VAT starting from 1st January 2018.
  3. 95 essential items (staple food including 30 types of fish, bicycles, social services,  essential service sectors such as healthcare and education) will be exempted.
  4. VAT shall also be applicable on utility bills as well as mobile and internet bills.
  5. Residential properties are taxable on the first sale, exempted on the subsequent sale, while rental is treated as exempt, which means the landlord is unable to add VAT on to the rent.
  6. It is expected that supplies made by the companies operating in free zones such as JAFZA will not be subject to VAT. However, in all likelihood, it would apply to the supplies from the free zone to the mainland in UAE.
  7. Where you are engaged in the supply of goods or services that are subject to VAT (including at the zero rate) you will be entitled to reclaim VAT you incur on costs. Where you are engaged in activities that are exempt from VAT and you cannot reclaim VAT incurred on costs, VAT will be a cost to your business.
  8. Irrespective what you charge, the sale of the product will be deemed to include VAT.
  9. The draft law stipulates that the fines for those avoiding taxed shall not exceed five times the evaded taxes.

ERP system is not an all cure silver bullet

erp-word-cloud

Enterprise resource planning (ERP) is a process management software that allows a business entity to use a system of integrated applications to manage, streamline and automate many back-office functions of the organization.

But any ERP system is not an all cure silver bullet, there will be certain periods of road blocks or hiccups which may escalate or have a domino effect, thus all kinds of implementation delays and cost-overruns and the consequent blame game and potential dispute. Every ERP system will have some critical concerns before the system goes into maintenance mode and the business entity starts getting value out of their investment.  So, before you sign the agreement with your vendor, you need to scrutinize the following aspects of the system.

Existing System

1)    Positive and Negative effects of your current system.

2)    Advantage of implementing a new system and the relevant cost

3)    Is your team ready for a change?

4)    Jot down your actual function practiced and not the ideal function.

New System

1)           What is the most workable ERP used by your competitors?

2)           Will it provide the return on investment and with effect from which period?

3)           What is the percentage of change and is your team ready?

4)           Training period and the duration of the training

5)           Is the ERP user-friendly?

6)           The time frame of implementation and how much it will hamper your current business workflow?

7)           What will be the AMC for the ERP? What is included? What else will you need?

8)           When will the AMC be applicable?

9)           What is the support service from Go live to AMC period?

10)       When the system must be upgraded and the cost involved, will it make the existing system redundant? If affirmative, at that point in time, have you achieved your ROI?

11)       What is the support services provided and when i.e. during and/or after office hours?

12)       What is the response time?

13)       Type of support offered – in person or remote help.

The legal aspect of the agreement with your vendor:

1)     Jurisdiction of the dispute – UAE

2)     Applicable law – UAE

3)     The method of resolving dispute – preferable mediation and litigation.

As a vendor or customer, the payment and records play a crucial role in the event of a dispute. So, RECORD, RECORD and RECORD.

For the Customer: Each event of a delay, failure, the response time, the time taken to fix it and the effect of the failure on other workflows must be recorded and duly informed.

For the Vendor: Date of intimation of the failure, response time, time taken to fix it and revisit and functionality of the same issue must be retested and all must be recorded. During the AMC period, the schedule of services must be intimated to the customer and recorded when carried out. Your contract should clearly spell that after a prolonged period, due to changes in business and technological model, the system must be maintained and reimplemented which starts a new cycle of service and that is why an AMC is required and in the event of failure to sign the AMC, the vendor will not be liable as to the cost and consequences.

Preparing for the potential challenges of implementing an ERP system will ensure a smooth transition and the same will save cost, time and resources of the organization and the ERP system and ensure value for money.

 

The ICC Arbitration Rules of 2012, as amended in 2017 effective as of 1 March 2017.

´The Arbitration Rules are those of 2012, as amended in 2017.

´They are effective as of 1 March 2017.

´Introduction of an expedited procedure providing for a streamlined arbitration with a reduced scale of fees applicable in cases where the amount in dispute does not exceed US$ 2 million, unless the parties decide to opt out.

´NOTE: It will apply only to arbitration agreements concluded after 1 March 2017 (NOT cases filed).

´ICC Court may appoint a sole arbitrator, even if the arbitration agreement provides otherwise.

´Reduced scale of fees for claims under 2 Million USD under expedite the procedure.

´Expedited procedure is also available on an opt-in basis for higher-value cases.

´The Court will now provide reasons for a wide range of important decisions, if requested by one of the parties (Article 11(4)).

´TERMS OF REFERENCE:

  • Normal Procedure – time limit for establishing Terms of Reference has been reduced from two months to one month,
  • there are no Terms of Reference in the expedited procedure.

Update to the Iranian Transactions and Sanctions Regulations, 31 CFR Part 560, Section 560.530(a)(3), List of Medical Devices Requiring Specific Authorization

Background: After the Iranian Revolution of 1979, the United States imposed economic sanctions against Iran. In 2006, the UN Security Council passed the resolution and imposed sanctions after Iran refused to suspend its uranium enrichment program. The European Union has also imposed restrictions on cooperation with Iran in foreign trade, financial services, energy sectors and technologies, and banned the provision of insurance and reinsurance by insurers in member states to Iran and Iranian-owned companies.

 

The following was the sanctions imposed on Iran

  1. by the US:
  • Primary: US Nuclear related sanctions
  • Secondary: US sanctions for individuals and entities linked to SDN (Specially Designated Nationals)/WMD (weapons of Mass Destructions) /IRGC (Iran’s Islamic Revolutionary Guard Corps)
  • Ballistic Missile Procurement for Iran (January 2016)

2. by the UN:

Certain entities have been sanctioned by the United Nations under UN Security Council resolutions 1696 (2006), 1737 (2006), 1747 (2007), 1803 (2008), 1835 (2008), 1929 (2010) and 2224 (2015) for links to Iran’s nuclear or ballistic missile activities, or for being owned, controlled, or acting on behalf of the Islamic Revolutionary Guard Corps (IRGC) or the Islamic Republic of Iran Shipping Lines (IRISL).

3. By the EU:

Certain entities have been sanctioned by the European Union for links to Iran’s nuclear or ballistic missile activities, for being owned, controlled, or acting on behalf of the Islamic Revolutionary Guard Corps (IRGC) or the Islamic Republic of Iran Shipping Lines (IRISL), or for providing support to the Government of Iran.

The Office of Foreign Assets Control (“OFAC”) of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States.

RECENT NEWS 

Update to the Iranian Transactions and Sanctions Regulations, 31 CFR Part 560, Section 560.530(a)(3), List of Medical Devices Requiring Specific Authorization

The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is updating the List of Medical Devices Requiring Specific Authorization as identified in 31 C.F.R. § 560.530(a)(3)(ii) of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR), to update and clarify the scope of medical devices that are not authorized for exportation or reexportation pursuant to the general license at 31 C.F.R. § 560.530(a)(3)(i).