Redundancy Law in UAE

It refers to termination or dismissal of an employee by their service, to overcome the reduction in the ongoing business activities.

Redundancy in UAE Labour Law (Federal Law No. 8/1980).  Ministerial Resolution 279 of 2020 was introduced, in an attempt to support private sector employers in the wake of the COVID-19 response.

Preciously the courts have acknowledged that redundancy dismissals can be fair under UAE law employer is legally required to abide by the legal provisions set up to provide employees with certain rights under such circumstances. These include the right to sufficient notice (which is usually 30 days), notice pay (if the employee has completed their probation), and the right to end of service gratuity (assuming one year of service has been

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).

adopts a false identity or nationality or if he submits forged documents or certificates is appointed under a probationary period and dismissal occurred during or at the end of said period 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 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 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 divulges any secrets of the establishment where he is employed is awarded final judgement by the competent court in respect of an offence prejudicing honour, honesty or public morals during working hours, is found drunk or under the influence of prohibited drugs in the course of his work, commits an assault on the employer, the manager or any of his colleagues 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 unutilized 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 recognized 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 organize 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.

Your employer must treat you fairly and act in accordance with your contract and legal rights, if you’re faced with redundancy. This includes making sure that an employee is given a proper notice period and you’re consulted with concerned company officials with respect to redundancy. If these proper steps were not taken from the employer side, then the employee has got a claim for unfair dismissal or claim compensation.

The news of late was sadly full of stories about companies consider redundancies as a result of the impact of coronavirus. The stark reality is that businesses in all sectors are struggling with the impact of coronavirus, and despite efforts by the government to provide support, the impact of this on jobs seems to be inevitable. When redundancies occur, the employer has certain more obligations towards employees, including the duty to consult them and to pay redundancy pay to those who are eligible.

Avoiding Redundancies

From the employer side they can try to avoid redundancies by developing a formal approach to potential staff reduction requirements. Alternative ways of dealing with a need to cut costs or cut back staff numbers could include, like reducing overtime, freezing recruitments or secondments, ceasing sub-contract work, retaining and redeploying staff, offering sabbaticals and reducing hours of work, etc.

Volunteers for Redundancy

It is good practice (although not a legal requirement) for the employer to ask for volunteers for redundancy. A voluntary redundancy is regarded in law as a dismissal rather than a resignation and so employee can attain statutory redundancy pay in the usual way. The logic is that no one should be made compulsorily redundant when someone else is prepared to leave voluntarily.

This does not mean that employers must accept every volunteer. The employer may legitimately decline to accept a particular volunteer, eg if they are a vital member of staff, or have special skills that the employer does not wish to lose.

Individual Consultation

A redundancy dismissal will be unfair if a fair procedure is not implemented in carrying out the dismissal. Indeed, procedure (or lack of it) is often the main cause of a finding of unfair dismissal. Firstly, employees who are to be included in the selection pool should be given as much warning as possible of potential redundancy.

The next key requirement for fairness is that employees must be consulted individually about the redundancy proposals. Each employee should be told of the precise reasons why they have been provisionally selected for redundancy and given an opportunity to make representations. Any comments the employee makes should be taken into account, both on selection issues and on any suggested alternatives to redundancy, before any final decision is taken.