Legal Corner: Employment Law in the UAE - Redundancy Dismissals

EMPLOYMENT LAW IN THE UAE  

Redundancy is a sensitive and challenging topic in any jurisdiction.  For companies operating in the UAE (including within the DMCC Free Zone), the issue is particularly complex in light of the UAE Labour Law No 8 of the Year 1980 and not setting out any express statutory definition of redundancy or a redundancy procedure. 

Redundancy

Businesses operating within the UAE are more diverse, sophisticated and agile than ever before.  Therefore, UAE companies often require support around reorganisation, structuring and cost-saving exercises in order to react to economic developments.  Redundancy is an important issue when discussing those types of topics.

As redundancy is not a defined statutory term, there is often a lot of uncertainty and misunderstanding around the legal approach to redundancy within the UAE.  Although there is no statutory concept of redundancy, the Courts have in the past acknowledged that where businesses dismiss an employee for a cost-saving reason; this can amount to a legally fair and valid reason for dismissal under Article 117 of the UAE Labour Law.

Under Article 117 of the UAE Labour Law, a company may terminate an unlimited term employment contract for a valid reason at any time by providing at least 30 calendar days' notice of termination to the employee (or longer if the employment contract provides for a longer notice period).  It is important to note that Article 117 applies to the terms of an unlimited term employment contract and not a fixed-term employment contract.

Process

In terms of key elements of a redundancy process, this will be subject to the particular aspects of the situation and the size of the workforce, which the process will affect.  A fair and thorough process should broadly involve a meeting with all employees and one to one meetings with each affected employee.  The process should provide the company and the affected employees with an opportunity to consider alternatives to redundancy, such as a change in employee benefits, alternative roles within other parts of the business or of course a reduction in working hours, such as part-time working.  The company should also provide the employees with letters and formal updates throughout the process and appropriate documentary evidence relating to the redundancy and wider economic situation. 

Provided a company is able to set out a clear rationale for a redundancy dismissal, which is supported by evidence and a fair and thorough process is undertaken, an employer will be in a good position to defend any subsequent labour claims. However, it is essential that the grounds for dismissal and the process are supported by clear documentary evidence.

The consultation process and documentary evidence may be prepared in English at the point that it is issued to the employee.  Should a dispute be pursued before the Labour Courts, the employer will at that point translate the documentation into Arabic to submit before the Courts.

Payments pursuant to redundancy dismissal

Where a company dismisses an employee from an unlimited term employment contract for a redundancy type reason, the employee should be provided with the following payments on the termination of employment:

1. Notice pay (minimum of 30 days, subject to the employee completing the probationary period);
2. End of service gratuity, subject to employee completing one year's service;
3. Payment for accrued and untaken annual leave;
4. Repatriation flight, subject to employee returning to his / her home country; and
5. Any other contractual payments arising on the termination of employment.

Arbitrary dismissal

In addition to the above payments, the Labour Courts may also award employees with compensation for "arbitrary dismissal".  Where the Labour Court determines that the dismissal of an employee who is party to an unlimited employment contract is unfair and/or unlawful, it shall determine that the dismissal was arbitrary.  In such circumstances, the Court may award the employee up to three months' remuneration as compensation for arbitrary dismissal.

As there is no statutory concept of redundancy, where a company fails to engage in a reasonable process or there is insufficient evidence to support the dismissal, there will always remain an element of risk in redundancy type dismissals of the employees refusing to cancel their visas and/or pursuing labour claims of arbitrary dismissals.

If an employer adopts a good process and has evidence to support the redundancy situation, it will be in a strong position to defend a claim of arbitrary dismissal and/or mitigate the level of compensation awarded to any dismissed employee. The safest practice is to plan a redundancy procedure in advance and take commercial and legal advice prior to embarking on any particular redundancy procedure. 

Please do not hesitate to contact one of our employment law experts at Pinsent Masons should you have any queries relating to a potential or existing redundancy situation.