Essential information on the applicable law on termination of employment in the private sector in the UAE
Since 02.02.2022, the new UAE Labour Law (Law No. 33 of 2021) has been in force, which replaced the old Labour Law (Law No. 8 of 1980) after more than 40 years and has brought about far-reaching changes.
1. Overview of the labour law applicable in the UAE
The legal situation regarding the termination of employment relationships in the UAE is sometimes made complex by the fact that there are a whole 47 free trade zones in the various emirates, some of which have enacted independent rules in the area of labour law.
This article is limited to the rules of the Federal Labour Law. It applies everywhere in the UAE, with the exception of the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), which have enacted their own legal systems in the area of labour law that apply exclusively to these zones and instead of the Federal Labour Law. The Federal Labour Law applies equally in all 7 Emirates to all private sector employees working in the UAE – regardless of whether the employer is based in the country or abroad. In case of doubt, it takes precedence over any rules issued by the other free zones. In particular, the legality and consequences of the termination of an employment relationship are essentially governed by the Federal Labour Law (hereinafter called “Labour Law”).
2. Modernisation of labour law in the UAE through Law No. 33 of 2021
A new labour law has been in force in the UAE since 02.02.2022. Employment contracts concluded before this date must be adapted to this by 01.02.2023. However, it remains possible to agree to retain some clauses from the old labour law.
The new UAE labour law provides for further changes in matters such as probationary period, leave, termination, part-time work, maternity, home office and working days. This article looks at the impact on the termination of employment in the UAE.
3. Abolition of permanent employment contracts in the UAE
Where permanent employment contracts were the norm under the old labour law, however, the new labour law now no longer provides for them. Pursuant to Article 68 in conjunction with Article 8 of the new labour law, only fixed-term employment contracts with a maximum duration of 3 years are possible, which can be renewed or extended after the expiry of the period (several times) up to a maximum of 3 years. In the explanatory memorandum to the law, the reason given for the abolition of permanent contracts is to make the labour market more flexible and sustainable, as well as to increase the competitiveness of the UAE as a place to live and work.
The permanent employment contracts still in force until 01.02.2023 can end by termination agreement, death or complete incapacity of the employee or termination. If the latter is the case, the employment relationship can be terminated both ordinarily and extraordinarily.
(1) Ordinary termination of a permanent employment relationship in the UAE by 01.02.2023
In case of ordinary termination until 01.02.2023, the following notice periods must be observed:
- If the employee has been with the company for less than 5 years: 30 days
- If the employee has been with the company for more than 5 years: 60 days
- If the employee has been with the company for more than 10 years: 90 days
During the notice period, the employee shall continue to perform his work properly and shall continue to receive his last salary.
(2) Extraordinary termination of a permanent employment contract in the UAE until 01.02.2023
The possibility of extraordinary termination of unlimited contracts also remains until 01.02.2023.
For an extraordinary termination by the employer, there must be a case of serious misconduct within the meaning of Article 44 by the employee. This is the case, among others, if:
- the employee commits a mistake that causes gross material damage to the employer or he intentionally damages the employer’s property
- the employee discloses a work secret relating to industrial or intellectual property and the employer suffers damage as a result
- the employee verbally, physically or in any other way assaults the employer, the responsible supervisor or colleagues during work.
If, on the other hand, the employee resigns without notice, he can only do so on the grounds exhaustively listed in Article 45 of the new labour law, which are, among others:
- The employer violates his contractual obligations or those of the new labour law
- The employer has assaulted or harassed the employee at the workplace
- There is a serious hazard in the workplace that threatens the safety or health of the employee and the employer has not taken action to eliminate the hazard
- A worker is assigned to work that is fundamentally different from the work specified in the employment contract without the employee ‘s consent.
3. Termination of fixed-term contracts in the UAE
As of 01.02.2023, the fixed-term employment contract is the only valid form of contract. Its grounds for termination are regulated in Article 42 of the new labour law.
(1) Termination by expiry of the agreed duration of the contract.
As a rule, fixed-term contracts end with the expiry of the agreed duration of the contract. The duration of the contract must be explicitly stipulated in the contract. However, fixed-term contracts may be extended both expressly and tacitly.
(2) Termination by termination agreement, death or total incapacity for work
a) By termination agreement
A termination agreement is only effective if the employee’s consent to the termination agreement is in writing. Moreover, such a termination agreement may not circumvent or override labour law provisions protecting the employee.
b) Due to the death or total incapacity of the employee
In the event of the employee’s death or total incapacity for work, the employment contract shall also terminate. Total incapacity must be established by a medical certificate; in the case of only partial incapacity, a change of employment may be considered if the employee concerned so requests.
The death of the employer, on the other hand, usually has no effect on the continuation of the employment contract. The only exception is if the main subject matter of the contract is directly related to the employer. In the case of companies as employers this is regularly not the case.
(3) Termination by notice
a) Termination of fixed-term contract by ordinary notice in the UAE
The right to terminate fixed-term employment contracts can only be exercised by both the employer and the employee if there is a legitimate reason. According to Article 43 in conjunction with the implementing regulations (Cabinet Resolution No. 1), this can only be affirmed in two cases:
- There is a court decision that the employer is bankrupt or insolvent
- There is a decision by the competent authorities of the UAE that the employer is unable to continue operations for exceptional economic reasons beyond its control.
There is also a notice period of at least 30 days (and a maximum of 90 days), unless otherwise stipulated in the employment contract. During the notice period, the employee shall continue to perform his work properly and shall continue to receive the last salary received for this purpose.
b) Termination of fixed-term contract by extraordinary notice in the UAE
With the new labour law, extraordinary termination of fixed-term employment contracts is now also possible. The reasons mentioned above (under 3. (2) Extraordinary termination of a permanent employment contract in the UAE until 01.02.2023) also apply here.
c) Special case: Termination of fixed-term contract during probationary period in the UAE
In Article 9, the new labour law now provides for a minimum notice period of 14 days to be observed by the employer if the termination takes place during the probationary period.
The law provides for two different time limits for the employee during the probationary period:
- The employee wishes to transfer to another employer in the UAE: notice period of 1 month
- The employee intends to leave the UAE altogether: notice period of 14 days
If a worker does not comply with these provisions, he will be banned from working for one year from the date of departure.
4. Entitlement to payment in the event of termination of employment in the UAE
In the event of termination of employment by the employer, the employee may be entitled to several claims. All payments due to the employee must be made by the employer within 14 days of the termination date.
(1) Statutory claim for severance pay
In order to assess whether and to what extent an employee is entitled to statutory severance pay (or so-called end of service gratuity), a distinction must be made under Article 51 of the new labour lode as to whether the employee is a domestic or a foreign employee. In both cases, the right to severance pay cannot be excluded even if it is the employee who resigns.
The statutory severance pay entitlement of the domestic employee is governed by Article 26 of Law No. 10 of 2017, which requires that the employment contract has existed continuously for at least one year. Severance pay is calculated on the basis of 14 days’ wages for each year.
As for the statutory severance pay entitlement of a foreign employee in the UAE, such entitlement arises only to the extent that the employment relationship lasted for at least one year. Unless contractually agreed otherwise, the employee is legally entitled to a severance payment of 21 days’ wages for each year of employment for the first five years, and 30 days’ wages for each additional year. For each year of work commenced, the employee is entitled to a pro rata severance payment in respect of the number of hours worked. However, the statutory maximum amount of severance pay is limited to two years’ salary. For the purpose of calculating the amount of severance pay, benefits in kind as well as nationally customary rent, transport, travel, education and other allowances shall not be taken into account. In all other respects, the basis for calculating the severance pay is the salary to which the employee was last legally entitled. When paying out the severance pay, the employer may deduct any payments owed by the employee within the meaning of Article 25 of the new labour law.
(2) Right to compensation in the case of arbitrary dismissal
In addition to severance pay under Article 47 of the new labour law, the employee may also be entitled to fair compensation for arbitrary dismissal. The amount of compensation is at the discretion of the court and can be up to three months’ salary. A dismissal is always considered arbitrary if the reason for the dismissal is not related to the work. Experience shows that the courts in the UAE often rule in favour of the employee in cases of doubt.
(3) Claim for compensation if the notice period is not observed
If the employer does not observe the statutory notice period in the case of ordinary termination, the employee is entitled to compensation (so-called notice period allowance) according to Article 43 of the new labour law. This is the case even if he has not suffered any damage. The amount of compensation corresponds to the employee’s wage that he would have received during the (remaining) statutory notice period.
(4) Entitlement to reimbursement of costs for return home
Finally, in the case of a foreign worker, Article 13 of the new labour law also entitles him or her to reimbursement of the costs of returning home at the employer’s expense, unless
- he starts a new employment relationship in the UAE
- the termination of the employment relationship is attributable to him and he has sufficient means to pay for the return home himself
The entitlement is calculated on the basis of the last basic salary paid. The prerequisite is that the employment relationship existed for more than one year. In contrast to the old legal situation, this entitlement remains in full even if it is the employee who terminates the employment relationship.
Depending on the formulation of the employment contract or existing company agreements, the claim may also include the costs for the return of the family, the return transport of assets and the like. If a service flat was part of the employment contract, the employee must vacate it within 30 days of the end of the contract.
5. Other rights of the employee in the UAE
Pursuant to Article 13 of the new labour law, if requested, the employer must issue the employee with a certificate of employment at the end of the employment relationship, which, in addition to the date of entry and exit, should show the duration of employment, the type of work performed and the last salary. Any certificates and work equipment belonging to the employee shall be returned to the employee at the end of the contract.
6. Changes in the status of the employer in the UAE
If the corporate structure of the employer or its legal status (including ownership) changes and a new employer joins or takes over as a result, this does not generally affect the continuation of employment contracts. The employment contract continues to exist, i.e. any severance claims continue to accrue.
7. Non-competition clauses in the UAE
According to Article 10 of the new labour law, non-compete clauses must be specified in the employment contract in terms of time, place and nature of work. In addition, a non-compete clause cannot last beyond two years from the end of the contract.
8. Disputes arising from the termination in the UAE
According to Article 54 of the new labour law, if a dispute arises between the employer and the employee as a result of the termination, an attempt to reach an amicable settlement must first be initiated with the Ministry of Human Resources and Emiratisation. If this attempt fails, the dispute is referred to the competent court. The court shall then schedule an oral hearing within 3 working days, during which both parties shall be given the opportunity to comment.
