UAE: Can employees be sacked without any explanation as part of restructuring process?

Question: Is there a process to terminate the services of an employee? Or can he/she be asked to leave as part of a restructuring process without any explanation?

Answer: It is assumed that your questions are in reference to the provisions of the Federal Law No. 33 of 2021 on the Regulation of Employment Relations and its executive regulations, as amended from time to time, on which we shall base our responses.

Pursuant to the first part of your questions, it may be noted that an employment relationship may be terminated for any of the reasons mentioned at Article 42 of the Employment Law. The provisions of Article (42) are self-explanatory and read as follows.

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“Article (42)

An employment contract shall terminate in any of the following events:

1. By mutual written agreement of the parties.

2. The expiration of the term of the contract, unless it is extended or renewed pursuant to the provisions hereof.

3. Upon the will of either party, subject to the provisions of this Decree-Law in relation to termination of employment contract and notice period agreed upon in the contract.

4. Employer's death unless the subject of the contract is connected with his person.

5. Employee's death or permanent total disability, as evidenced by a certificate from the medical institution.

6. If the employee is convicted by a final order to a custodial penalty for a term of not less than 3 months.

7. The permanent closure of the Establishment, pursuant to the legislation in force in the UAE.

8. If the employer becomes bankrupt, insolvent or unable to continue in business for any economical or exceptional reasons, in accordance with the conditions, controls and procedures set by the Executive Regulations and the legislation in force in the UAE.

9. If the employee does not meet the conditions for renewal of the work permit for any reason outside the control of the employer.”

Further to Article (42) clause 1 and clause 3, as mentioned above, it may be noted that the employment relationship may be terminated either by (i) mutual agreement of the parties; or (ii) by either the employer or the employee serving a written notice of termination to the other party. In the latter case, the notice period for termination of employment must not be less than 30 days or more than 90 days. This follows Article (43) clause 1 of the Employment Law, which reads as follows.

“Article (43)

Notice of termination of employment contract:

Either party to an employment contract may terminate the contract for good cause, by giving the other a notice in writing. The employee shall perform his duties during the notice period agreed upon in the contract, provided that the notice period is not less than 30 days and not in excess of 90 days.”

Pursuant to the second part of your questions, it is assumed that by asking an employee “to leave as part of a restructuring process without any explanation” it is meant to convey that the employee will be asked to resign, in view of the employer’s “restructuring process”. This way of terminating the employment relationship shall be valid if it is done pursuant to a written agreement between the employer and the employee (per the provisions of Article (42) Clause 1 of the Employment Law).

If the employee does not agree to terminate the employment relationship by mutual agreement, then he/she will have the right to claim compensation for arbitrary dismissal. The termination of the employment relationship as part of a restructuring process with the employer may be considered arbitrary dismissal. In this regard, the provisions of Article (47) of the Employment Law may be referred to. It reads as follows:

“Article (47)

Arbitrary dismissal:

1. The dismissal of an employee by his employer shall be arbitrary if the employee submits a serious complaint to the ministry or files an action proven to be valid against the employer.

2. The employer shall pay the employee a fair compensation estimated by the competent court, if it is found that the dismissal is arbitrary pursuant to paragraph (1) above.

The amount of compensation shall be determined based on the type of work, the extent of harm sustained by the employee and the length of his service. In any case, the amount of compensation shall not exceed 3 months’ wage of the employee calculated based on the last wage received by him.

3. The provisions of paragraph (2) above shall not prejudice the right of an employee to the pay in lieu of notice and severance pay due to him under the provisions hereof.

Following Article (47) of the Employment Law, a mere unilateral decision by the employer to terminate an employment relationship for “restructuring” may not be considered a valid reason or good cause for the termination of employment of an employee.

However, if an employer is facing a severe financial crisis, it may have to wind up its operations by obtaining an order from a local authority/court which has jurisdiction in the UAE. Under such circumstances, the employer may validly terminate an employment contract of an employee. This is in accordance with Article 25 (1) (b) of the Cabinet Resolution No. 1 of 2022, read with Article 42 (8) of the Employment Law (noted hereinabove), which reads as follows:

"Subject to the provisions of Federal Decree-Law No. 9 of 2016 on Bankruptcy, Federal Decree-Law No.19 of 2019 on Insolvency and the provisions of Clause (8) of Article 42 of the Decree Law:

1. The employment contract shall be terminated by:

(b) Issuance of a decision by the concerned authorities to the effect that the employer is unable to continue his activity for exceptional economic reasons beyond his control."

Given the position of the UAE’s laws, as noted above, the employment relationship may ideally be terminated by mutual agreement of the employer and employee in writing. A unilateral termination may attract claims for compensation from the employee, at the employee’s discretion. If the claim is allowed then the employer will have to pay compensation to the employee for arbitrary dismissal, for an amount up to three months’ salary of the employee, calculated based on the employee’s last drawn salary.

Ashish Mehta is the founder and Managing Partner of Ashish Mehta & Associates. He is qualified to practise law in Dubai, the United Kingdom and India. Full details of his firm on: www.amalawyers.com. Readers may e-mail their questions to: news@khaleejtimes.com or send them to Legal View, Khaleej Times, PO Box 11243, Dubai.

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