Articles

Guide To Termination Of Employment

29 April 2019

Governing Law:

The primary piece of legislation on employment in the UAE is the Federal Law No 8 of 1980 titled ‘The Labour Law’. It governs all seven emirates and applies to all employed personnel within the emirate apart from a select category that consists of public officials, civil servants, members of armed forces, police and security officers, domestic servants and agricultural workers. Although each free zone authority has issued its own rules and regulations, almost every UAE free zone has agreed to apply the UAE Labour Law with the sole exception being DIFC, which has its own set of rules (DIFC Law No. 3/2012). Additionally, Ministerial Decree No. (765) of 2015 (“Decree No. 765”) deals with the termination of limited and unlimited term contracts.

Requirements for employment:

Expat employees in UAE mainland need to sign a job offer and a standard employment contract specified by the Ministry of Human Resources and Emiratisation (MoHRE). The signed contract is then registered with the federal authority and governs the employment relationship along with any supplementary employment agreement. Most Free Zones provide their own standard template employment agreement which has to be signed by all employees.

To read more on recruitment obligations, click here.

Official MoHRE Contracts:

Standard employment contracts are very basic; hence it is recommended that employers enter into additional supplementary contracts that contain company-specific or industry-relevant practices such as confidentiality, bonus schemes, intellectual property or non-compete provisions to clarify the roles and duties of the prospective employee. These additional contracts cannot contain clauses that contradict the Labour Law or the Standard Employment contract provided by MoHRE or the Free Zone. The Labour Court, on a general basis, also considers any additional terms and conditions of employment in event of any potential disputes.

Employment contracts in the UAE are of two specific types:

Limited fixed term of not more than two years; or
Unlimited

Termination of Limited vs. Unlimited Term Contracts:

Employers will need to determine which applies to their recruitment of the particular employee as this distinction is a requirement in the MOHRE employment contract. The difference between the two is further amplified by the distinct termination conditions and requirements governing the two types of contracts under Labour Law.

Unlimited Term Labour Contracts:

Under Labour Law / Ministerial Decree No. 765, the minimum notice period for unlimited term labor contracts is 30 days, and the maximum notice period has been set to 3 months. Employers can terminate with a notice based on a ‘valid reason’ or if without notice then on the basis of Article 120 of the Labour Law. If an employee is to resign, then it should be done on notice unless there has been a breach by employer of their legal or contractual obligations under Article 121.

Limited Term Contracts

Under Labour Law/ Ministerial Decree, durations for limited term labour contracts should be for a maximum of 2 years (may be renewed). And for termination, a notice period of between 1 to 3 months should be given and employers reserve the right to terminate without notice under Article 120 of the Labour Law. If an employee is to resign, they could do so without notice if there has been a breach by employer of their legal or contractual obligations under Article 121 and the employer’s indemnification cannot exceed 3 months’ gross wages or remainder of contract due (whichever is shorter).

Termination Entitlements

The entitlements for the termination differ based on whether the termination is initiated on valid reasons or if terminated under arbitrary dismissal. Per article 117, an employer may terminate an employee working under an unlimited term contract at any time on written notice, provided that the employer:

Gives the employee the correct written notice of termination in accordance with employment contract
Dismissal is made for ‘valid’ reason

Valid Reasons for Termination

In the Labour Law, there is no specific definition of a “valid reason” and what it may constitute. As such, per Article 122, an employee’s termination will be deemed to have been arbitrary if the reason for the termination was “not relevant/related to the work”. Courts have accepted a valid reason to be:

Employee found guilty of misconduct reasons specified in Articles 88 and 120 of Labour Law
Employee is poor performer: this should be supported with adequate documentation/evidence.

Further, under Article 120, employee can be terminated without notice if he/she performs any of the following activities:

Assumes a false identity or nationality or submits forged certificates or documents.
Is engaged on probation and is dismissed during or at the end of the probationary period;
Commits a fault resulting in substantial material loss to the employer, provided that the latter notifies the labour department of the incident within 48 hours of his becoming aware of its occurrence;
Disobeys instructions on the safety of work or workplace, provided that such instructions are in writing and posted at a conspicuous place and are communicated verbally to the worker, in case he is illiterate;
Fails to perform his basic duties under the employment contract and persists in violating them despite formal investigation with him in this respect and warning him of dismissal if the same is repeated.
Is finally convicted by a competent court of a crime against honour, honesty or public morals
Reveals any confidential information of his employer;
Is found in a state of drunkenness or under the influence of a narcotic drug during working hours;
Assaults the employer, the manager in charge or any of his workmates during working hours; or
Absents himself from work without a valid reason for more than 20 non- successive days in one single year, or for more than seven successive days.

Termination Entitlements

In cases of termination with a valid reason, the entitlement options available to employees are end-of-service gratuity (depending on certain conditions), notice to be served within the specified period, accrued untaken annual leave amd potentially, repatriation costs which usually includes a repatriation flight ticket. Employee can request for a reference letter which would contain the term of employment, the type of work as well as the last salary including any allowances.

And if termination is based on the gross misconduct reasons under Article 120, then there are limited entitlement options available to the terminated employees. There will be no end-of-service gratuity and no notice period will apply. However, accrued untaken annual leave will be compensated for and potentially, even repatriation costs. Additionally, the terminated employee can also request for a reference.

Arbitrary Dismissal Entitlements

In the case of arbitrary dismissals, maximum compensation will be awarded for successful claims to the amount of 3 months’ remuneration (calculated based on the last pay received prior to dismissal). Additionally, if the employee receives bonus’ or commission, has notice period dues, or other unpaid dues over, these may also be taken into account to determine the actual amount of award per the Court’s discretion.

For information on arbitrary dismissal in connection to common cost-cutting practices, read more here.

End of Service Gratuity (ESG)

Per the UAE Labour Law, the end-of-service gratuity (ESG) becomes generally due at the end of an employment relationship. This means that the employee is entitled to an end of service benefit, provided that he completed a minimum of one year of continuous service and the total amount does not exceed a maximum amount of two years’ salary. The gratuity is calculated on basis of the basic salary of the employee and depends on the period of employment and on which party has terminated the contract.

Payment calculations for expiry of limited and unlimited term contracts are:

21 days salary for each of the first five years
30 days salary for each additional year of service

Payment calculations for termination of an unlimited contract by the employee

For a minimum one year and not more than three years of continuous service: 1/3 of the end of service benefit
For more than three years and not more than five years of continuous service: 2/3 of the end of service benefit
For more than five years of continuous service: full end of service benefit
In the case of termination of a limited contract by the employee before the expiry of the contract no ESG shall apply, unless the employee exceeds 5 years of service.

Post-Termination Restriction

Article 127 of the Labour Law permits post-termination restrictions however, there are some drafting considerations for clauses representing such types of restrictions. They are limited to the extent that they protect the employer’s lawful interests and also on the basis of duration, geographical scope and type of work.