UAE LABOR LAW

In an economic climate in which employees are more likely to struggle to find

alternative employment and, therefore, may adopt a more litigious attitude, it is
more important than it has ever been for employers to be aware of their obligations
upon the termination of an employee’s employment under UAE Law No. 8 of 1980
as amended (the Labour Law). Employment relations in the Dubai International
Financial Centre are governed by a separate legislative regime, which is outside the
scope of this article. Other free zones in the UAE may have their own rules which
should be checked but will, in any event, be subject to the Labour Law.

When can a contract of employment be terminated?

* An employment contract (the Contract) can be terminated if both parties agree,

if the Contract term has come to an end (and has not been extended), by a party to
an unlimited Contract giving the required notice and/or where there is any other
acceptable reason for termination (with or without notice).

* Fixed term Contract - if terminated before its expiry compensation of up to 3

months’ remuneration may be due.

* Unlimited Contract - may be terminated, for a valid reason, on at least 30 days’

notice in writing (subject to any greater period provided for in the Contract). Daily
paid employees are entitled to less notice, subject to the terms of their Contract.

* The Contract can add to a party’s rights under the Labour Law but it cannot
remove or reduce any.

Eg. the employer cannot reduce or waive the notice period but it can place the
employee on garden leave with full pay if there is a desire to remove him from the
business immediately. Irrespective of any agreement to reduce the amount of
notice that requires to be worked, the employee will be entitled to payment in
respect of the full notice period.

On what grounds can an employer terminate an

employee’s employment?
 * Under the Labour Law, an employee will be deemed to have been arbitrarily
dismissed if he was dismissed for a reason unconnected to the work. This implies
that an employee may only be dismissed on grounds of performance or misconduct.

* The concept of “redundancy” is not recognized in the UAE and, therefore,

strictly speaking is not a valid reason for dismissal under the Labour Law. However,
the UAE Labour Courts have recognised the employer’s right to restructure their
business.

* The Labour Law contains an exhaustive list of circumstances in which the

employer can dismiss an employee without notice (regardless of the type of
Contract in place). In all other circumstances the employee will be entitled to
receive notice upon the termination of his employment.

* A recent Ministry of Labour decree makes it unlawful to terminate a UAE

national’s employment if there is an expatriate employee performing the same role
and the expatriate’s employment is not terminated. How the decree will be
enforced in practice is not yet clear and, therefore, specific legal advice should
always be obtained when contemplating the dismissal of a UAE national.

Payments due upon termination of employment under the

Labour Law

* End of service gratuity - Generally, if an employee completes more than 1

year’s continuous service, he is entitled to up to 21 days’ remuneration for each of
the first 5 years of service, and 30 days’ remuneration for each additional year of
service (to a maximum of 2 years’ remuneration). Various factors can impact upon
the gratuity payable:

o entitlement is prorated for part years worked following completion of the

initial year;

o if the employee is on an unlimited Contract and he resigns in the first 5

years of service, his entitlement is reduced;

o if the employee is on a limited Contract and he resigns before the expiry of

the Contract, and has less than 5 years’ continuous service, he loses his
entitlement;

o if an employee is dismissed under article 120 of the Labour Law he will lose
his entitlement to receive a gratuity.

* Payment in lieu of accrued but unused annual leave

 * Salary, benefits and allowances up to and including the termination date

* Repatriation costs

o The employer is obliged to meet the cost of travel ticket of a non-

UAE national employee, in order to repatriate him to his home country
(regardless of where he was initially recruited). The employer may also be
liable to meet the costs of repatriating the employee’s immediate family
and shipping costs, depending upon any express agreement to do so and
the employer’s custom and practice. If the employee resigns, he may be
responsible for meeting his own repatriation costs.

Labour disputes

* Labour disputes can arise as a result of any alleged breach of the Labour Law or
the Contract. Commonly disputes will arise when an employee disagrees with the
calculation of his end of service payments or considers that he has been arbitrarily
dismissed.

* An employee has 1 year from the alleged breach taking place, or the
entitlement falling due, to raise a complaint. Thereafter his claim will be time
barred.

* An employee must first complain to the Ministry of Labour or the relevant free
zone authority (the Labour Department). The Labour Department will attempt to
reach an amicable resolution, failing which the matter will be referred to the Labour
Court.

* Proceedings in the Labour Court can be time consuming and it can take months
to obtain an outcome (which parties often appeal). The Labour Courts are very
stringent about the requirement for clear documentary evidence of a party’s case
and no oral witness evidence will be considered.

* There is no formal conciliation mechanism in the UAE to resolve labour disputes

or circumvent the submission of formal complaints. Once a dispute has reached the
Labour Court, any settlement of the claim must be negotiated between the parties.
The concept of “without prejudice” discussions is not recognised in the UAE.
Accordingly, settlement discussions must be approached very carefully.

* There are some basic steps which can help reduce the risks of labour claims
being raised, or at least place the employer in a stronger position to defend any
claim raised. These include implementing comprehensive contracts of employment,
having clear and consistently applied policies and procedures, and complying with
the basic requirements of the Labour Law.
Other issues to consider on termination

* Post Termination Restrictions

o A mandatory ban is imposed upon onshore non-UAE national employees,

upon the termination of their employment, preventing them from taking up
employment within the UAE for 6 months (in the absence of a no-objection
certificate from the employer). A 1 year ban can be imposed if the employee resigns
and is in breach of their Contract (eg. giving insufficient notice).

o Contractual restrictive covenants are very difficult to enforce in the UAE.

Employers are usually restricted to claiming damages sustained as a result of the
breach and evidencing such damages can be problematic, as the employer would
have to show actual loss of business as a result of the employee’s actions.

* Accommodation

o The employee will be required to vacate any company accommodation

within 30 days of the termination of his employment.

* Cancellation of Sponsorship

o The employer is under a duty to notify the Labour Department on the

termination of an employee’s employment, to allow the employee’s residence visa
and work permit to be cancelled. Employers should do so within 2 days of the
termination.

o Following termination of employment, the employee has 30 days to leave

the UAE or find alternative employment. A draft law has been announced which will
provide employees with a 3 – 6 month extension of their residency visa following
their termination of employment.

Published on 12 June 2009 | Jurisdiction: Middle East Areas of expertise:

Employment and Immigration

© 2010 Clyde & Co LLP. All rights reserved.

SOURCE: http://www.clydeco.com/knowledge/articles/employment-bulletin-
termination-of-employment-contracts-and-labour-disputes.cfm