‘Drastic time calls for Drastic Measures’. In such a situation of financial uncertainty, employers are always considering implementing cost reduction measures, including lowering their salary costs. In the UAE, the Federal UAE Labor Law No (8) of 1980 makes any explicit reference to the concept of redundancy. Redundancy is a sensitive and challenging topic in any jurisdiction. This problem is quite complex for companies working in the UAE (including the DMCC Free Zone), and does not set out anywhere in the definition or procedure that legitimately describes Redundancy. Recently, Redundancy has been the subject of Termination Letters which have caused many people to lose jobs in the UAE. In this case, many people have a lot of doubts about Redundancy and Redundancy rights. Under the UAE Labor Code, an employee who is employed in a Limited Contract or Unlimited Contract can be legally dismissed for the following reasons:

• (a) if the employee is dismissed for a legitimate reason (it must be related to the employee’s employment), by giving notice in accordance with the terms of the employment contract in which it is provided; Or
• b)  in accordance with the provisions of Article 120 of the UAE Labor Law which provides a list of instances where an individual may be summarily dismissed (for cause).

1. adopts a false identity or nationality or if he submits forged documents or certificates
2. is appointed under a probationary period and dismissal occurred during or at the end of said period
3. commits an error causing substantial material loss to the employer provided that the latter advises the labour department of the incident within 48 hours from having knowledge of the same
4. violates instructions concerning safety of the place of business provided that such instructions are displayed in writing at conspicuous places or verbally informed to an illiterate employee
5. 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
6. divulges any secrets of the establishment where he is employed
7. is awarded final judgement by the competent court in respect of an offence prejudicing honour, honesty or public morals
8. during working hours, is found drunk or under the influence of prohibited drugs
9. in the course of his work, commits an assault on the employer, the manager or any of his colleagues
10. absents himself without lawful excuse for more than 20 intermittent days or for more than 7 successive days during one year.

Moreover, the UAE Labor Law observes that termination of an employment contract is arbitrary unless it is not for a valid reason (for example, performance or misconduct) or for any reason listed under Article 120. Arbitrary or unfair dismissal takes place when an employer terminates an employee or forces him to resign without any justifiable reasons. According to Article 122 of the UAE Labor Law, arbitrary termination of an employee happens when an employee is fired for reasons not related to work performance, or when the employee files a valid complaint against an employer, which made the latter terminate him maliciously. As per Article 123 of the UAE Labor Law, if arbitrary dismissal is proven, the court will order the employer to pay compensation to the employee. The court will assess the value of compensation taking into account the type of work, the extent of damage incurred to the employee and the duration of the employment. In all cases, the amount of compensation must not exceed the wage of the employee for a period of three months, calculated on the basis of the last wage the worker is entitled to.Under the UAE Labor Law, Article 115, if the employer unilaterally dismisses the worker for any reason other than the reasons set forth in Article 120, the Labor Contract may pay a period of up-to-date pay or 3 months’ pay. Whatever the amount is less, the employer will have to pay the worker. In short, if an employee has been working continuously for at least two years for an employer and has been terminated due to Redundancy, he is obviously entitled for 3 months’ salary as compensation.

One of the most important questions for an employer who wants to cut costs in business is how much will it cost to make an employee redundant. When an employee is terminated, the employer becomes obligated to pay or compensate the worker in accordance with the specific conditions set out in the employment contract with him.

The UAE Labor Law sets out an employee’s entitlement upon the termination of his/her employment:

a)       the provision of notice or compensation in lieu of notice. The UAE Labor Law provides for a minimum of 30 days’ notice which cannot be waived even with the consent of the employee

(b)       all accrued benefits (such as accrued but unutilised leave) must be paid to the employee

(c)       provided the employee has not participated in a company maintained pension scheme, end of service benefit (or gratuity) must be paid

(d)       the employer is also obliged to repatriate the employee to his place of origin if the employee does not find alternative employment in the UAE within a set period of time.

Whilst the payments set out above are statutory entitlements, a common query from employers is if there is any obligation to pay compensation for redundancy  as is the case in many jurisdictions around the world. Since the UAE Labor Law does not provide for the concept of redundancy, consequently, there is no provision for redundancy compensation. Moreover, the UAE Labor Law states that where an employer is considered to have terminated an employee for any reason other than a valid reason, or one of the grounds set out under Article 120, the employer will be liable to pay compensation to the employee. The maximum compensation is three months salary to be paid over and above any other contractual or statutory liabilities.

Therefore, on the face of it, a redundancy could potentially create a liability on the employer to pay compensation to the employee. However, the UAE labour courts have recognised an employer’s right to restructure its business and have held that redundancy is a valid non-arbitrary reason to terminate an employee. As the UAE courts do not follow a binding process of precedents, it is prudent to organise a limited consultation process and make sure that any decision to make a particular employee, or group of employees, redundant is capable of justification and is reasonable, fair and transparent to limit the risk of defending a claim by an employee for arbitrary dismissal.