A recent ruling by a Dubai court ordering a company to pay an employee’s outstanding dues in UAE currency and cryptocurrency raises questions about whether the UAE is laying the groundwork to allow salaries to be paid in cryptocurrencies in the near future.
While the ruling in this case validates the use of digital currencies as a valid and enforceable means of remuneration, it does not mean that UAE companies will be able to use the decentralised currency as a regular payment method, according to experts.
Yet this could change in the future, with signs such as the UAE Central Bank releasing initial crypto regulation guidelines in June, which are expected to mature into a clear operational framework next year and usher in more practical uses of decentralised currencies.
Indicative rulings
The ruling ordered the employer to pay promised digital EcoWatt tokens as part of an employment benefit package, following a case of arbitrary dismissal against the company.
The employment contract stipulated a monthly salary in fiat currency and an additional 5,250 EcoWatt tokens. The dispute arose when the defendant failed to pay the digital token portion of the salary for six months.
This decision represents a significant shift from the court’s earlier stance in 2023, where a similar claim was denied due to valuation issues of the digital currency.
“Following this decision, it is anticipated that both employers and employees will feel more comfortable negotiating salary payments in cryptocurrency,” says Hala Harb, associate at law firm BSA Ahmad Bin Hezeem & Associates.
“However, it is essential for both parties to ensure that the terms of such payments are clearly defined and mutually agreed upon to facilitate effective enforcement.”
She adds that employers will need to consult with authorities to understand how crypto salaries can be reflected on the Wage Protection System (WPS) and how their payment will be monitored by relevant regulators.
Dubai has been taking steps to regulate the virtual assets sector while promoting its growth and adopted the Virtual Assets Regulation Law in 2022 to create an advanced legal framework that protects investors and provides international standards for running the industry.
It also set up Vara to regulate the sector throughout the emirate, including special development zones and free zones, but excluding Dubai International Financial Centre (DIFC).
The UAE Central Bank does not recognise cryptocurrencies as legal tender. However, the apex financial regulator in March 2023 began implementing Digital Dirham, its own central bank digital currency.
The National asked legal experts on how this court ruling would affect employee salaries in the UAE.
Is it common for UAE employers to pay salaries in cryptos?
Currently, it is not widespread for UAE employers to pay a portion of salaries in cryptocurrencies, and there is limited information on this trend, Ms Harb says.
Sabrina Saxena, senior counsel, employment at law firm Al Tamimi and Company, says that private sector companies who are established in mainland UAE and certain free zones are subject to the WPS, which is essentially a salary clearing system implemented by the UAE Central Bank to ensure that salaries are paid accurately and on time.
Companies that are subject to the WPS must pay employees their salary via the WPS into a local UAE bank account. Paying salary via cryptocurrency would not be compliant with the relevant WPS Ministerial Resolutions and can result in fines and/or other penalties being imposed, she warns.
“Employment contracts must be submitted to the relevant labour authority as part of the employee’s work permit application. The salary figure must be a fixed salary and set out in a fiat currency (e.g. AED, USD and so on),” Ms Saxena says.
“As such, it is broadly very difficult for an employer and employee to agree to pay the employee’s entire salary in cryptocurrency. Where cryptocurrency is used, the more common approach would be to pay employee bonuses or other incentives in this way.”
Similarly, Natalie Jones, partner at law firm DLA Piper, says that despite this decision, the UAE Labour Law and broader requirements related to salary payments continue to apply.
“For that reason, crypto or other non-traditional payments are more relevant when considering broader compensation packages, in the same way that we might look at employee share option schemes for example, rather than monthly salary payments.”
Which sectors are likely to pay wages in cryptos?
Cryptocurrency salary payments will gain popularity particularly within companies in the virtual asset sector, Ms Harb reckons.
These companies are likely to employ individuals who are knowledgeable about cryptocurrencies and have a higher risk appetite, making them more inclined to accept salary payments in digital tokens, she says.
What should employees watch out for in labour contracts?
Employees should ensure that the clauses related to cryptocurrency salary payments in their labour contracts are as detailed and comprehensive as possible.
“Clearly specify the type of cryptocurrency to be used for salary payments, for instance Bitcoin or Ethereum,” Ms Harb suggests.
associate, BSA Ahmad Bin Hezeem & Associates
“Define the payment schedule (e.g., monthly) and confirm whether cryptocurrency payments will be made at the same time as traditional fiat payments. Address whether there are any fees associated with converting cryptocurrency to fiat currency and who will bear these costs.”
Employers must include provisions for how the contract will be amended if the regulatory landscape changes and makes cryptocurrency payments more challenging. Specify if salary payments will revert to fiat currency in such cases, she points out.
Be aware of potential difficulties with banks when converting cryptocurrency to cash and any transaction fees that might be incurred, Ms Harb informs.
Incorporate an adjustment clause that allows for modifications to the salary terms in response to significant changes in cryptocurrency regulations or market conditions to mitigate volatility risks, she adds.
Ms Jones says it is always important to ensure sufficient certainty in relation to the terms of an employment contract, but this is particularly so if cryptocurrencies or less traditional methods of compensation will be used.
In the event of a dispute, it is then easier for the courts to understand the intention and agreement of the parties and to enforce that, she adds.
Are crypto salaries legally permissible?
Ms Jones says it is important to recognise that this ruling is one decision in a very specific set of circumstances and that the provisions of the UAE Labour Law continue to apply in relation to payment of salaries.
For Ms Harb, the decision seems to be a misalignment with the Central Bank’s newly issued Payment Token Regulations, which impose strict conditions on accepting crypto payments.
This decision should not be broadly interpreted as an outright endorsement of salary payments in cryptocurrencies, she says.
It remains uncertain whether this position will be upheld in future rulings, especially considering the central bank’s continuing efforts to regulate certain areas of the crypto sector, she adds.
“While it is not yet possible to confirm the legality of such practices with complete certainty, the decision indicates that the UAE may be more receptive to this idea under specific conditions, which are expected to be clarified soon,” Ms Harb clarifies.
“To ensure the enforceability of such agreements, we recommend including a disclaimer in the employment contract that outlines the risks associated with cryptocurrency payments, particularly given their volatility. Employees should acknowledge and accept these risks, as significant fluctuations in cryptocurrency value could impact their income.”
