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26 February 2020
Share or asset sales can significantly affect employees, particularly with regard to dismissal. This article answers the key questions that all employers should consider when undertaking a share or asset sale.
Must employers inform or consult employees or their representatives of or obtain employee consent for a share or asset sale? What about in regard to dismissal?
Sellers have no obligation under UAE law to consult with their employees before terminating employment. However, there may be specific rights provided for in an employee's contract.
Employers have no statutory obligation to consult with their employees on a proposed sale of shares.
What protection do employees have against dismissal in the context of a share or asset sale? Are employees automatically transferred to the buyer in a business sale?
Employees do not automatically transfer to a buyer in a business sale in the United Arab Emirates. If a buyer wishes to take on the seller's employees, the seller must first terminate their employment and cancel their visa (if they are a visa sponsor). The buyer must then re-employ the employees and sponsor their UAE visa.
Depending on the terms agreed between the buyer and seller, the seller may need to terminate an employee's employment contract by providing the required notice or payment in lieu of notice and settling statutory and contractual dues, including end-of-service gratuity. The buyer may then re-hire on substantially the same or new terms of employment. Alternatively, a buyer may agree to assume all liabilities of the employees to ensure continuity of service, in which case the accrued entitlements transfer with the employees and become the responsibility of the buyer under the Labour Law; however, practically speaking, sales prices may be re-adjusted to account for employee-accrued entitlements.
If an employee wishes to not be employed by the buyer, their employment can be terminated, subject to the terms of their employment contract and statutory requirements. In such circumstances, liability for the employment termination typically remains with the seller.
There is no statutory concept of redundancy under UAE law. Therefore, termination of employees on unlimited term contracts – unless related to poor performance or under one of the specific grounds of gross misconduct – can be treated as arbitrary dismissal. Thus, employees can claim compensation for arbitrary dismissal in addition to their other contractual and statutory entitlements. Redundancy has been recognised by the courts as a lawful reason for termination in the United Arab Emirates where an employer can show documentary evidence that job losses were necessary to avoid closure of the business.
Employees' entitlements can include, subject to the terms of their contract:
End-of-service gratuity may be payable under statute, subject to the employee's length of service. If an individual is leaving the United Arab Emirates, the employer must cover the cost of that person's repatriation flight to their home country. Employers are also responsible for paying for additional contractual benefits (eg, shipment of goods) if applicable and agreed in the employment contract. The employer must maintain the employee's private medical insurance until such point that their visa has been cancelled.
Under a share sale, an employee's contract remains in place and unchanged unless the parties agree otherwise.
If the employer wishes to terminate the employment contract, it must follow the normal procedure, serve the contractual notice period and pay contractual and statutory entitlements.
For further information on this topic please contact Luke Tapp, Andrea Hewitt-Sims or Ruth Stephen at Pinsent Masons by telephone (+971 4 373 9700) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Pinsent Masons website can be accessed at www.pinsentmasons.com.
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