Gratuity- UAE Labour Law

Employment relationships in the United Arab Emirates are governed by Federal Law No.8 of 1980 Regulating Labour Relations as amended by Federal Laws No.24 of 1981, No.15 of 1985 and No.12 of 1986 (the Labour Law). The Labour Law provides that an employment contract can be terminated in the following ways.

  • By mutual consent of both parties, provided that the employee‟s consent is given in writing;
  • On expiry of the period specified in the contract, unless the contract is expressly or implicitly extended in accordance with the provisions of the law; and
  • At the option of either party in unlimited contracts provided that the provisions of the Labour Law regarding notice period and acceptable causes for termination of the contract without abuse are fully complied with.

In addition, the employer can terminate the employment contract without notice and without any severance pay in the event that grounds exist on the basis of the employee‟s conduct under Article 120 of the Labour Law. Grounds available under Article 120 are:

  1. If the employee adopts a false identity or nationality or if he submits forged documents or certificates
  2. Where the employee is appointed under a probationary period and dismissal occurs during or at the end of this period
  3. If the employee commits an error causing substantial material loss to the employer provided that the employer advises the labour department of the incident within 48 hours from learning about it
  4. If the employee violates instructions concerning safety in the workplace provided that such instructions are clearly displayed in writing in the place of work, and in cases of those that cannot read, that the employee is informed verbally of the same
  5. If the employee fails to perform their basic duties under the employment contract and continuously persists with this behavior, despite formal investigation and a warning that they will be dismissed if the behavior continues
  6. If the employee divulges any secrets of their place of employment
  7. If the employee is found guilty by final judgment of the competent court in respect of an offence involving honour, honesty or public morals
  8. If during working hours the employee is found drunk or under the influence of a drug
  9. If in the course of his work the employee commits an assault on the employer, the manager of the employer or any of his colleagues
  10. If the employee is absent from work without lawful excuse for more than twenty intermittent days or for more than seven successive days during one year.

The employee may also terminate the employment contract without notice under the following circumstances (Article 121):

  1. If the employer does not fulfill his obligations towards the employee as provided for in the contract or in the Labour Law
  2. If the employer or his legal representative has committed an act of assault against the employee.

An employer’s death does not automatically trigger the termination of an employment contract, unless the subject of the contract is related to him personally. However, the employee‟s death or total disability will render the employment contract terminated. Where the employee’s disability is partial and they are able to perform other work more suited to their health conditions, the employer is required to transfer the employee to another role within the company if the employee requests and to pay them wages equal to those paid for similar work.

Notice period for termination of an employment contract

The Labor Law provides that an employer or employee wishing to terminate a contract concluded for an unspecified term, should give to the other party 30 days written notice. However, the notice period may exceed 30 days if the parties have so agreed in the employment contract and it is common in employment contracts in the UAE, especially for employees in more senior positions. The employment contract will be valid throughout the notice period and will terminate only upon the expiry of the agreed notice period. The employee is entitled to full pay during the notice period and is required to continue working throughout this period should the employer request, although this is not always the case. If an employer fails to give the employee notice of termination, or reduces the period of notice, the employer will have to pay the employee compensation equal to the employees remuneration in respect of the entire period of notice or the time by which it was reduced, even where no prejudice has been sustained by the employee. It is prohibited to terminate an employee or serve him a notice of termination while he is on leave.

Arbitrary Termination

Arbitrary termination by the employer

Article 122 of the Labor Law defines arbitrary termination by the employer, as termination “…irrelevant to the work and particularly, if the reason is that the worker has submitted a serious complaint to the competent authorities or has instituted legal proceedings against the employer that has been proved to be valid.”

However, the Labour Law is silent on what is considered as a reason “irrelevant to the work”. In the past, the UAE courts have held that business restructuring and consequent redundancy is a valid reason for termination and therefore not arbitrary, in the case of a contract for unlimited duration.

If termination of an employment contract of unspecified term by the employer is deemed arbitrary by the competent court, then the court may order the employer to pay the employee additional compensation, without prejudice to the employee’s right to their other post-termination entitlements. The court will assess such compensation taking into consideration the nature of the work, the amount of prejudice the employee has sustained and his period of service, after investigating the circumstances of the employment. The amount of compensation will in no case exceed the employee‟s remuneration for three months, calculated on the basis of the last remuneration he was entitled to.

In the context of a fixed term employment contract, Article 115 of the Labor Law defines arbitrary termination by the employer, as termination for reasons other than those specified in Article 120 and requires the employer “…to compensate the worker for any prejudice the latter sustains provided that the amount of compensation shall in no case exceed the aggregate remuneration due for a period of three months or the residual period of the contract whichever is shorter unless the contract contains a provision to the contrary.”

In this context, it should be noted that business restructuring or redundancy is not included among the permissible grounds for termination without notice specified in article 120 and, consequently, the termination of an employment contract concluded for a fixed term for such a reason will most likely be deemed arbitrary.

Arbitrary Termination by the Employee

Under Article 116 of the Labor Law arbitrary termination by the employee of an employment contract of specified term is termination for reasons other than those specified in Article 121 (as described above).The Labour Law requires the employee in such instances to “…compensate the employer for any prejudice the latter sustains as a result: provided that the amount of compensation shall not exceed half the worker’s remuneration for three months or the residual period of the contract whichever is shorter unless the contract contains a provision to the contrary.”

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