New company classifications announced in the UAE - what do they mean?

Dubai: The UAE’s Ministry of Human Resources and Emiratisation (MOHRE) announced a new classification for companies in the UAE, where establishments will be categorised in three tiers.

The classification of companies will depend on their compliance not just with the UAE’s Labour Laws but also the programmes that are in place to make the UAE’s work force more competitive and culturally diverse. The classifications are as per Cabinet Resolution No. 18 of 2022 ‘Concerning Classification of private sector establishments governed by the provisions of labor relations regulation law’. The resolution comes into effect from June 1, 2022.

But what are the criteria that place a company in Tier 1, 2 or 3 under this classification? And can a company move from one tier to another? Here are the details.

Tier 1

Classification of companies in this category depends on their 100 per cent commitment to the law and wage protection system, workers' rights protection, and their compliance with the policy of promoting cultural and demographic diversity in the UAE, along with the resolutions that regulate the labour market, in addition to meeting the following criteria:

• Raise Emiratisation rate at least three times above the target.
• Cooperating with the ‘Nafis’ programme, to train at least 500 citizens annually.
• Being a venture owned by a young citizen according to approved standards.
• Being one of the training and employment centres that promote cultural diversity in the UAE.
• Being active in the targeted sectors and activities determined by the Council of Ministers based on the ministry's decision.

Tier 2

Classification of new companies in this category depends on the extent of their commitment to the law and Wage Protection System, workers' rights protection, and their compliance with the policy of promoting cultural and demographic diversity in the UAE, along with the resolutions that regulate the labour market.

According to Article 7 of Cabinet Resolution 18/2022, “all new establishments, regardless of their size, shall be classified under Category 2, subject to compliance with the policy of skilled workers and cultural diversity when issuing work permits. The establishment will be classified as Category 3 if any of the criteria mentioned in Article 4 of this resolution are met”.

Article 4 of the resolution mentions that criteria that would lead to a company being classified under Tier 3 or Category 3.

Tier 3

This category of classification includes:

• Companies found violating the Labour Law and executive regulations, and the resolutions regulating the labour market, standards for protecting labour rights.
• Companies that lack the commitment to promoting cultural and demographic diversity in the UAE labour market.
• A company committing other violations stipulated in Ministerial Resolution No. 209 of 2022, including human trafficking, used or recruited workers without obtaining work permits, provided incorrect data, documents or information to the Ministry, violated obligations on workers' wages, housing and safety standards, resorted to fake Emiratisation practices, or committed other serious violations.

How can a company move up from Tier 3?

Cabinet Resolution no. (209) of 2022 ‘Classification of establishments under category (3)’, there is a list of violations which would lead to a company being downgraded to Tier 3 from three months to two years. According to Article 2 of the resolution, the establishment will be reclassified into its deserved category only after the expiry of the period of stay in Category 3 and after the violations are remedied and the related fines paid.

However, the Article also states that, “The [MOHRE] Minister may issue a decree to keep a violating establishment under Category 3 for an extended period of time according to the gravity of the violation committed or its recurrence.”