Most senior executives moving to or joining businesses in the UAE take for granted that their
employment contracts are on par with the same international standard with which they are
accustomed. In fact, most have provisions that do not mirror the country’s distinct legal
environment. If termination rights, bonus arrangements, or restrictive covenants are not written with UAE law in mind, disputes soon arise. For managers, the penalties can be loss of benefits or unenforceable entitlements, and employers are open to reputational and financial risks.
The business environment of the UAE is capable of attracting high caliber talent from all over the world. Yet, since laws vary in mainland, free zones, and financial centers, an executive agreement that holds in a particular setting might not be enforceable elsewhere. The consequence is uncertainty, which is easily avoided using meticulous drafting and legal due diligence.
This article analyzes the most significant contractual considerations for C-level executives and employers in the UAE.
The Legal Framework Regulating Executive Employment
UAE employment law is dualistic in nature. Federal Decree Law No. 33 of 2021 regulating labour relations, as modified by Decree Law No. 20 of 2023, governs onshore employment relations and establishes the overall regime applicable to employment terms, termination, and remuneration.
On the other hand, organizations located within the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) operate under their own common law systems, namely the DIFC Employment Law No. 2 of 2019 and the ADGM Employment Regulations 2019.
Knowledge of which system regulates a contract is essential. A DIFC headquartered executive, for example, might enjoy more transparent common law protection against unfair dismissal or discrimination, whereas an onshore executive is subject to federal provisions that favor statutory rights. The jurisdiction selected decides the forum for dispute resolution, the law applicable, and the enforceability of every clause. Clarity at the start can avoid legal and procedural issues down the line.
Where Executive Contracts Typically Fail
Even though they are sophisticated, executive contracts tend to have weaknesses that render them susceptible to challenge. Termination provisions, for instance, do not always meet Article 43 of the Labour Law, which specifies certain requirements for notice and legitimate grounds for termination. Bonus and performance related pay schemes can fail to specify objective standards or written authorization policies, resulting in dispute regarding entitlement. Covenants not to compete are another common area of conflict; Most covenant are written too extensively in duration or geographical area, in violation of Article 10 of the Labour Law, which restricts such covenants to legitimate business interests.
Furthermore, some contracts do not stipulate the governing law or jurisdiction to apply in case of operations both in mainland and free zone entities, which leaves it ambiguous when the company has operations in both. The lack of a clear provision for end of service gratuity is also very risky, as it is an obligatory right according to UAE legislation and a prevalent basis for litigations if not considered.
How to Structure Legally Enforceable Employment Agreements
A properly drafted executive employment contract has to strike a balance between commercial purpose and UAE law compliance. Precision is critical when it comes to specifying salary elements, allowances, and variable compensation, all of which have to align with Ministerial Resolution No. 46 of 2022 on employment relationships. Termination procedures must prominently differentiate between “for cause” and “without cause” terminations, detailing how notice periods, payment of dues, and last gratuity will be dealt with.
Restrictive covenants, whether of a non competitive or confidentiality nature, must be limited in duration and geography to avoid them being used to secure purely personal interests instead of valid business interests. Governing law and dispute resolution clauses need to specify the correct forum, whether the UAE Labour Courts, DIFC Courts, or arbitration under Federal Arbitration Law No. 6 of 2018. Intellectual property rights and confidentiality clauses should clearly reserve rights for the employer while making it clear what the executive is required to do in terms of duty during and after work.
Accuracy in drawing converts a contract from formality to protection. It minimizes the chances of conflicts and maximizes the enforceability of each term in UAE tribunals and courts.
Equilibrium between Employer Protection and Executive Rights
A good executive contract is not confrontational; it safeguards both sides equally. Employers want to be sure senior management will be discreet, ensure continuity, and stay free from conflicts of interest. Executives, on the other hand, need to have it clear about pay, termination provisions, and the circumstances in which restrictive covenants come into force. If contracts are written openly and equitably, they instill stability, align expectations, and engender trust between leadership and the organisation.
Equitable contracts or balanced contracts also decrease the chance of litigation. Courts in the UAE and DIFC are becoming more sensitive to proportionality and fairness, so agreements that look too one sided may fail to survive judicial tests. Legal specificity thus benefits both compliance and governance.
Incentives, Stock Options, and Equity Linked Compensation
C-level managers are usually remunerated under sophisticated incentive mechanisms like profit sharing, bonus schemes, or equity based awards. As per Article 23 of the DIFC Employment Law, deferred or performance linked pay is enforceable if conditions to entitlement are quantifiable and well recorded. International share plans are commonly administered through offshore holding companies, but agreements need to outline the connection between the issuing body and the local employer to ensure clarity on responsibility.
Transparency is also crucial in delineating eligibility, vesting periods, and conditions of
performance. Conforming these provisions to the corporation’s corporate governance structure not only facilitates compliance but also enhances the executive’s security and motivation sense.
Minimising Risk Through Arbitration and Compliance
Considering the definition of executive positions, the dispute resolution process should be well chosen. Arbitration is still one of the best options for disputes involving high level employment, especially for international organisations looking for confidentiality and speed. Clauses referring to arbitration pursuant to the DIFC LCIA Rules or Federal Arbitration Law No. 6 of 2018 should be clearly worded to prevent procedural issues.
Prior to implementation, contracts need to be subjected to bilingual legal scrutiny to guarantee both the English and Arabic versions have equal validity. Executives moving from overseas need to also make sure that their UAE contracts capture the essential terms of their native country agreements, commonly termed as mirror clauses. This harmonization avoids conflict of jurisdiction and guarantees benefits are not taxed or lost under double arrangements.
Constructing Executive Contracts That Stand Up to Examination
An executive agreement in the UAE is not just a record of work, but it is a document that regulates leadership responsibility, financial entitlements, and company protection. Properly drafted, it facilitates governance integrity, regulatory compliance, and long term stability in the organisation.
To executives, it provides comfort that remuneration, incentives, and exit rights are safeguarded by enforceable legislation instead of promissory commitments. In an area as internationally networked as the UAE, no executive contract can depend on assumptions or borrowed templates. Every clause must be drafted in line with the jurisdiction, the structure of the company, and the obligations of the executive in complete legal specification.
Davidson & Co guides corporate employers and senior executives on the preparation, review, and negotiation of executive employment contracts for UAE, DIFC, and ADGM jurisdictions, Davidson & Co ensure each agreement is commercially acceptable, legally solid, and fully enforceable under local and international laws.
