Introduction to the UAE Labour Law

Labour law issues in the UAE are governed by Federal Law No. 8 of 1980 Regulating Labour Relations (as amended) (the “Labour Law”). In addition, some other areas of Dubai such as the Dubai International Financial Centre as well as some of the free zones in the UAE, such as the Jebel Ali Free Zone have their own particular labour laws and regulations.

The Labour Law is a widely drafted piece of legislation which contains provisions relating to all the main aspects of employment that you would expect. These include amongst others, matters relating to salaries, holidays, working hours, employment contracts, termination of employment contracts, end of service benefits and disciplinary matters. The UAE announced a new labour law in 2022. Click here to read about it!

In this newsletter, we will be focusing on some of the most topical aspects of the UAE Labour Law:

A particularly issue of late for M.A.C Davidson, has been clients (both employees and employers) requiring advice and clarification on their rights and obligations following the termination of employment. Specifically, the issue that tends to cause the most disputes is the question of what (if anything) the employee is entitled to following termination.  To answer this question, we therefore need to look at the provisions in the Labour Law relating to termination and end of service benefits. The main points to consider can be summarized as follows:

• The term “basic wage” is defined in the Labour Law as an employee’s wage excluding all allowances.
• The reference to “basic wage” is important because it is this figure that is taken into account when calculating the end-of-service gratuity, which is determined on the basis of an employee’s last basic wage received.
• Upon termination of an employment contract, an employee may be able to claim all or any of the following:

For unlimited contracts:

• Where the termination of the employee’s contract is not for reasons of severe misconduct (such as those set out in Article 120 of the Labour Law), then the employee is entitled to a notice period, or payment in lieu of the notice period.
• Compensation for unreasonable dismissal if the contract was terminated arbitrarily by the employer.  This provision in the Labour Law is slightly ambiguous as it does not provide a clear definition of arbitrary dismissal. In any event, any claim for arbitrary dismissal by the employee is only up to a maximum of three months of the last salary paid by the employer.

For fixed contracts:

• Compensation of an amount equivalent to the period until the end of the fixed contract, or three month’s wages, whichever is lower.

For both unlimited and fixed contracts

• End of service gratuity. If an employee has completed at least twelve months in continuous employment with that employer, then they are entitled to payment of an end of service gratuity upon the termination of their employment.  The end of service gratuity is calculated as follows
  • 21 days wages for every year of employment completed, and for each year of the first five years of employment.
  • 30 days wages for each additional year of employment after five years, subject to the limitation that the total of the gratuity does not exceed two years salary.

Restrictions on the payment of the end of service gratuity are as follows:

• In the event that termination is for reasons of severe misconduct (as mentioned above) then the employee is likely to lose the right any end of service gratuity.

• In the case of an unlimited contract, if the employee resigns from their employment, then the gratuity payable is reduced to:
  • 7 days for the first three years of employment
  • 14 days for the fourth and fifth years of employment
  • Full severance pay as above for employment exceeding five years.

• In the case of a fixed contract, if the employee resigns then they are only entitled to payment of an end of service gratuity if they have been in employment for more than five years.

• • • Repatriation expenses. It should be noted that the right to repatriation expenses will depend on the circumstances of the individual case.  As a general guide, you should refer to the employment contract to clarify whether furniture and goods are included as well as repatriation of family members. In addition, repatriation is to normally the point of hire or alternatively where mutually agreed upon, and will not apply if the employee remains in the UAE and obtains a new job with a different employer. In that situation, the new employer takes over the responsibility for repatriation. In addition, in some cases, the employee may lose the right to repatriation expenses if they resign from their employment.

• • • Payment of an amount equivalent to any annual leave not taken by that employee and which has accrued to that employee.

• • • Payments for overtime or any balance of wages which have not yet  been paid by the employer.

The above is designed as an introduction to the Labour Law in the UAE and a brief summary of some of the present topical issues, in particular termination of employment.  In any situation the individual facts of the employment and the circumstances surrounding the termination would need to be fully explored.

For further information on how we can assist you in your enquiries regarding labour laws, or to discuss in more detail the general principles raised above, please contact  us on 04 343 8897 where one of our team will be delighted to assist you.