There is a huge amount of uncertainty and misunderstanding surrounding the legal approach to redundancies and restructures within the United Arab Emirates. Redundancies within the United Arab Emirates and wider Middle East were particularly prevalent during the 2008-2009 crash and the more recent oil price slump in 2015-2016. During those periods, many UAE employers received judgments against their businesses after they failed to understand or comply with the legal position and expectations of the local courts when undertaking internal processes.
A redundancy dismissal is typically a situation where an employee is dismissed pursuant to a reduction in the requirement for his or her role. Redundancy dismissals are terminations which should never be the fault of the employee, because the decision has not been taken because of poor performance or misconduct.
Although there is no statutory concept of redundancy in the United Arab Emirates, 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 Labour Law.
The Labour Law provides that a company may terminate an unlimited term employment contract for a valid reason (under Article 117) 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). Notably, different rules apply to the termination of a fixed-term employment contract.
Provided that a company sets out a clear rationale for a redundancy dismissal with supporting evidence and undertakes a fair and thorough process, an employer will be in a good position to defend any subsequent labour claims. However, as the United Arab Emirates is a civil law jurisdiction, the courts place a huge emphasis on paperwork. It is generally not possible to produce witnesses (eg, the dismissing manager or an HR employee) to explain the context of the redundancy process. Therefore, the grounds for dismissal and the process therein must supported by clear documentary evidence.
There is no requirement to provide any statutory redundancy payment to employees. Only the standard statutory termination payments apply, which include:
- notice pay;
- end of service gratuity; and
- accrued and untaken annual leave.
There may also be an obligation to provide a one-way flight to the employee's home country if the individual is unable to obtain alternative employment within the United Arab Emirates. In addition to the above payments, the labour courts may also compensate employees for arbitrary dismissal if the redundancy is held to be unfair or unlawful.
Redundancy dismissals are particularly challenging decisions to take in light of the fact that the residency status of the majority of expatriates within the United Arab Emirates is linked to their employment and visa sponsorship. For this reason, companies are regularly advised to consider legal alternatives to redundancy procedures where they can retain their skilled workforce but also save on costs during difficult financial times.
Examples of restructures which companies often consider before entering into redundancy procedures are:
- transferring staff to different roles within the business;
- moving staff to regional or global offices where capacity is required;
- temporarily reducing working hours;
- temporarily removing non-essential benefits from employment terms; or
- asking staff to take leave during periods in which the business is quieter.
These temporary restructures can benefit companies during quiet periods, which helps to retain their talented staff and instil greater trust and connectivity between the company and its workforce.
Whatever the desired approach for employers, whenever there are financial challenges and the business needs to cut costs, the underlying objective should be to complete the restructure and avoid a dispute or litigation with current or departing staff. Therefore, companies should understand their legal obligations and undertake thorough and open consultation procedures with their workforce before implementing any such changes.
For further information on this topic please contact Luke Tapp or Andrea Hewitt-Sims at Pinsent Masons by telephone (+971 4 373 9700) or email ([email protected] or [email protected]). The Pinsent Masons website can be accessed at www.pinsentmasons.com.
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