Codes of Conduct as a measure to strengthening a global corporate culture – Status quo in Germany and Dubai

published on 13 March 2024 | reading time approx. 7 minutes

Either the world or yourselves changed in recent years. This, at least, is the feeling employers could likely have when seeing daily news. At times, it seems that negative headlines dominate. The current war in Ukraine, the war between Israel and Palestine and the rise of nationalist movements in Europe are few examples.

Far from social economic problems, which the authors cannot answer in this context, the potential for social conflict between different nationalities contains immense challenges, particularly for employers operating internationally. In concrete terms, a cooperative, collegial atmosphere in the international workforce is often also vital for the success of the business model. An example of this is a company that sells products manufactured tured in Germany worldwide or vice versa in Dubai in the other country. Here, tensions between the respective contact partners can correlate with massive financial losses.

In order to avoid such frictions, it is common practice for employers to implement a globally applying code of values and behavior (Code of Conduct), which employees of every nationality and at every location must adhere to. This article outlines the special features that arise for employers when implementing codes of conduct in both Dubai and Germany.

Code of Conduct as a global “code of values”

A code of conduct is an instrument that defines the self-image and desired behavior within the company itself and on the part of the company towards other market participants and people. In terms of content, a code of conduct communicates the (corporate) values practiced and provides the workforce with an overview of the behavior expected of them. It is also the linguistic starting point for guidelines, instructions, recommendations, and process instructions.

Typically, a code of conduct contains abstract general regulations that are concretized by process instructions, guidelines or other instructions. These supplementary regulations regularly refer to the central Code of Conduct.

Concept of a global code of conduct

The implementation of any Code of Conduct usually begins with analyzing the needs being addressed in the code of conduct. This analysis can be structured in different ways. One example is examining the status quo as part of a so-called “weak-point analysis”, which is intended to uncover any risks and therefore specific needs for action by surveying the workforce and reviewing the business model. The aim of this analysis is to examine which topics are actually in need of regulation and should be set out in a code of conduct.

Focusing on a cooperation between employees of different nationalities and cultures, a code of conduct must, in principle, be applying worldwide, but should also take local social characteristics into account. In this context, as an example, it is rather counteracting to define the cultural and religious circumstances in the country of the parent company as a global standard. Instead, a "lowest common denominator" should be found simultaneously protecting minorities in the group.

For example, a code of conduct that claims to be applying in Dubai and Germany could contain regulations on the following values or behavioral obligations:

Mutual recognition of relevant public holidays (e.g. Eid al fitr, Christmas, Eid al-Adha and Easter)
Consideration for colleagues during Christian and Muslim fasting periods
Guidelines for respectful communication between all employees

In addition, the respective local legal peculiarities must be taken into account and the Code of Conduct must be publicized company-wide at each location.

With all this in mind, employers should consider the following legal particularities when implementing codes of conduct in Dubai and Germany:

Sovereign employment contracts in Dubai/UAE

The difficulty of implementing a code of conduct and effectively incorporating it into an employment relationship in Dubai/the United Arab Emirates (UAE) lies not only in the fact that there is virtually no reliable case law and literature in this regard, but also in the mandatory by the authorities pre-formulated contracts. Due to the lack of amendable content, these do not allow any reference to any guidelines of the company.

Specifically, the drafting of employment contracts in Dubai and the UAE is largely characterized by the connection between labor law and residence law. As a basic principle, it can be stated that a claim to a residence permit only exists if a local employment relationship is entered into.

This means that a so-called standard employment contract is issued by the competent authority, usually the Ministry of Human Resources and Emiratization (MoHRE), as part of the visa process. The wording of this mandatory standard employment contract is pre-formulated and therefore cannot be amended by the parties and is generally limited to the essential elements of the contract, such as remuneration, duration or notice period. At the same time, this mandatory standard employment contract does not appear to form a legally secure contractual basis for an employment relationship in the UAE, not least due to the lack of reliable case law and detailed statutory regulations.

Preferred method of implementation in Dubai/UAE

Employers in the UAE therefore generally choose to refer to the Code of Conduct within an individual supplementary agreement as the preferred method of implementation. This is concluded separately from the standard employment contract, which is establishing the employment relationship. Such supplementary agreements are freely negotiable by the parties within the scope of private autonomy, provided their content does not violate mandatory (labor) law. Only for certain professional groups in the public sector have the respective authorities implemented their own mandatory codes of conduct.

In this respect, it can be seen that implementation and inclusion in the UAE regularly takes place by reference within the text of an employment contract, within which the Code of Conduct is taken into account by the employee.

Implementation by way of the right of direction as the preferred means in Germany

Contrary, under current German law, a Code of Conduct can be implemented via the employer's “right to direction”. This is also the most frequently chosen means of implementing a code of conduct in employment relationships. The right to issue directions is set out in § 106 of the German Industrial Code (Gewerbeordnung – GewO) allowing the employer to determine the content, place and time of work performance at its reasonable discretion, provided that these working conditions have not already been determined elsewhere. As a result, interests are weighed up (§ 106 S. 1, 2 GewO). The right to issue direction is limited, for example, by regulations in laws, collective agreements, company agreements, the principle of equal treatment, etc. It should also be noted that although the employer can use the right to issue instructions to define the "manner" of work performance, it is not possible to extend the range of duties or change a range of duties that has already been conclusively specified.

No consideration of employee representatives necessary in Dubai

Employee representatives such as works councils or trade unions are fundamentally unknown to the labor law of the United Arab Emirates. It is therefore only incumbent on an employee to assert claims under individual labor law in court. For disputes arising from collective labor law, i.e. those between employers and the workforce or a group thereof, the local labor law provides for a special procedure, although this is unlikely to be relevant in practice. In this respect, the implementation or subsequent disputes resulting from this can also be harmonized with this procedure.

Mandatory co-determination during implementation in German affiliates

If established, the implementation of codes of conduct is generally subject to co-determination by a works council (e.g. pursuant to § 87 (1) no. 1 and 6 of the German Works Constitution Act (BetrVG)). It is also irrelevant whether the Code of Conduct is issued by a parent company from the UAE. As long as the Code of Conduct is introduced in the affiliates in Germany via the German employer, it is subject to co-determination in the company if and insofar as co-determination rights under the Works Constitution Act are affected (LAG Düsseldorf, decision of 14 November 2005 – 10 TaBV 46/05).

In this case, implementation by means of a works agreement is also preferable to implementation by means of a right to issue instructions. One advantage is that the transparent involvement of the works council leads to greater acceptance within the workforce. In addition, standardized issues can be regulated for an entire collective. According to § 5 BetrVG, a works agreement directly applies to the employees as well.

Labor contract reference in employment contracts with German (subsidiary) affiliates

Finally, there is the option of implementing the Code of Conduct by means of referencing the code of conduct in a specific clause in the employment contract. A distinction must be made here between implementation by means of a static or dynamic references. While the static reference refers exclusively to a specific version of the code of conduct, the dynamic reference enables employers to impose a modified version of the Code of Conduct that may be bindingly amended in future. The latter is often desired, in particular because a code of conduct should always reflect the current legal situation. The disadvantage of a dynamic reference, however, is that the references to the "respective" version of a unilaterally prescribed set of regulations was qualified as invalid by the German Federal Labor Court (Bundesarbeitsgericht (BAG)) (BAG, judgement of 11 February 2009 – 10 AZR 222/08). In practice, however, this problem is remedied by specifying "valid reasons" in the employment contract – i.e. the dynamic reference – as a prerequisite for future changes, upon the occurrence of which a change should be possible. This continues to ensure that adjustments and the regulations in the Code of Conduct that refer to them must be taken into account without individual adjustments to the employment contracts. It is also important to note that the reference alone in newly concluded employment contracts is not sufficient to bind the entire workforce.

Conclusion

To summarize, it can be said that the requirements for implementing a Code of Conduct in Dubai, the UAE and Germany in total are completely different. While the issue of co-determination is always relevant in Germany if a works council has been formed, the law in the UAE does not recognize such mandatory co-determination. In contrast, German employers have the option of implementing codes of conduct by referring to them in the employment contract. In Dubai, this is only possible by concluding a separate agreement.