Banks Freezing End of Service Entitlements

What to Do if Bank Freezes Final Settlement After Switching Jobs
Suppose this were to happen: you lose your job and find another one that pays less, so you immediately intimate your bank of the change in employment and find your final settlement frozen just because the new employer is not listed with the bank. You have enough salary coming in from your new job to service the installments on your existing loans, yet the bank will have nothing of releasing your dues.

This is not an isolated incident in the UAE, and if this were your case, then it’s time to know about your rights and options. So, can your bank, legally, withhold your end-of-service entitlements or final settlement in this context? Let’s break it down.

Understanding the Bank’s Actions
The basis on which the bank will freeze your funds, even when you are still able to service your loan obligations, usually rests on the terms of the loan agreement you signed. This, in turn, means your options are going to largely depend on what the details of your agreement show. Two possible scenarios exist:

Scenario 1: Contractual Provisions Allowing the Freeze
Sometimes, your loan agreement can specify that you need to draw at least a certain minimum monthly salary as a prerequisite for the loan. This is typically employed as a kind of guarantee that gives assurance in particular of your capability to repay the loan amount taken in advance. If your monthly salary drops below this minimum value, the bank may trigger a clause that enables them to freeze your final settlement, whether or not you are in default on the loan payments.

In this case, the bank can legally hold on to the final settlement depending upon the conditions of the contract between them. Laws in UAE like Article 715 of UAE Civil Transactions Law permits allowing a loan to be tagged along with the condition of security, pledge, or mortgage.

In other words, if these are the conditions in your agreement, then the bank is not in contravention of UAE law and/or public order. This therefore will give the bank the right to lawfully deduct or freeze your settlement, as they approved the loan at a salary level that they considered adequate to protect their interests.

Scenario 2: There Are No Such Contractual Provisions
It may not be legally justified for the bank to hold the final settlement if there were no clauses in the loan agreement related to the minimum salary requirement or any clause that allows the bank to withhold your final settlement upon a decrease in salary.

In this regard, the bank shall not freeze your final settlement in case:
• You are not in default of your loan obligations, and
• Your new salary is still sufficient to pay the monthly installments of the loan.

If both of the above exist, then you have enough reason to approach the bank to unfreeze your account. You may need to approach the bank with proof that your new salary can still meet your loan obligations. It is also likely that even now, the bank may offer to restructure the loan in view of change in your salary. This may sound superfluous, but the restructuring can actually offer an opportunity to cut down on your monthly payments, making it easier for you to be able to afford it longer term.

What Should You Do If the Bank Refuses to Release Your Settlement?
If, in case of a bank continuing not to release your end-of-service entitlements despite approaching them to resolve the matter, you may do the following:
• Review Your Loan Agreement: Check your agreement for any clauses that enable the bank to apply this action. Look at every word regarding salary requirements or end-of-service payments being in the nature of collaterals.
• Approach the Bank: Write to the bank while providing proof of your current salary and financial ability with which to service the loan.
• Loan Restructuring: You can also demand loan restructuring according to your revised salary. This is either an extension of the tenure of the loan or the amount you pay every month.
• Lodge a Complaint: If, after all, the bank does not release your settlement, you can file a formal complaint to the Central Bank of the UAE or to Sanadak, the UAE’s consumer protection platform. Your complaint should mention your right to have your money returned based on the UAE Civil Transactions Law and what the bank is supposed to do based on the regulations and guidelines on consumer protection by the Central Bank.

Protecting Your Future
It always pays to be one step ahead, and as transparent as possible with your bank when there is a significant change in the status of employment or income. This may reduce chances of funds freezing for an unknown reason. Secondly, read your loan agreement in detail before signing, making sure you know what rights the bank has, and what you are obliged to do.

Conclusion
Whether your bank has legal rights to withhold your final settlement in case of a job change is, of course, a matter of the exact contractual terms agreed upon between you and the bank. In that case, if there is a provision in the contract stating that they could freeze one’s funds due to a salary decrease, then they can be considered justified. In the absence of this, it may not be justified for the bank to freeze your funds if the salary is sufficient to cover installments on a monthly basis.

In such a case, one would be advised to consult with an attorney who can best discuss and make the proper decision regarding one’s rights. For a situation like this, at LYLawyers, we can represent you in court due to the financial situation presented and give you the legal representation needed to settle your case. Feel free to call us today and book your appointment so that we may take you through such woes.

New UAE Employment Law Amendments

Employment Law in the UAE has undergone significant updates with the introduction of the Federal Decree-Law No. 9 of 2024. This decree amends certain provisions of the UAE Employment Law, specifically Federal Decree-Law No. 33 of 2021, with particular focus on Articles 54 and 60. These changes, effective from August 28, 2024, bring four major amendments to the existing legal framework.

I. KEY AMENDMENTS

1. Longer Statute of Limitation for Employment Cases
Perhaps most notably, the new statute extends the statute of limitation to file employment cases. This new law allows parties to file a court case as long as 2 years after the employment relationship has been terminated. Actually, it extends the time period from the previous 1-year statute to 2 years. Where the statute of limitation is the time within which parties ought to come to the court with their disputes, and after that time lapse, the right to apply to the courts gets forfeited. In this new period, employers and employees both are subjected. This amendment comes through Federal Decree-Law No. 9 of 2024, amending Article 54 of Federal Decree-Law No. 33 of 2021.

2. Amendment in the Procedure for Appeal against MOHRE Decisions
It has also amended the procedure for disputing the decisions of the MOHRE. The right to decide on the employment disputes whose claim amount is less than AED 50,000 has been given to MOHRE. Parties who will disagree with the MOHRE’s verdict would approach the Court of Appeals earlier. Objections under the new law in this respect are, therefore, to be submitted to the Court of First Instance but no later than 15 days. A judgment of the Court of First Instance is now final and may thus be enforced. An appeal to the Court of Appeals will no longer be possible. This is accordingly the content of Federal Decree-Law No. 9 of 2024.

3. Increased Sanctions for Violations of Labor Laws
Sanctions for violations of UAE Labour Laws have lately been considerably increased. The quantity of the sanctions that have just been set ranges from AED 100,000 to AED 1,000,000 in respect to, amongst others, the following contraventions:
• Hiring and employing employees without a valid work permit.
• Abuse of a work permit by placing it at the disposal of an unintended party.
• In the event of any winding up or closure prior to making payments to the workers’ dues.

Examples are the hiring of non-well-registered employees and the selling of work visas to people not related to the business. On the positive note, the revised fine amounts to five times more than the previously recorded fines standing between AED 50,000 and AED 200,000, indicating a more strict application/implementation. This was through the amendment to Article 60 of the UAE Employment Law by way of Federal Decree-Law No. 9 of 2024.

4. New Fines for Violations in Respect of Emiratization
The new law for the first instance introduced a type in penalties with respect to the Emiratization requirements whereby serious punishments are imposed on employers who employ fictitious employees just to fulfill legal obligations of employers or assist them to fulfill their obligations. Further, fictitious employees reap benefits from any program, scheme, or pension which punishes them. To this, some fines include:
• Fines: The minimum amount is AED 100,000 and goes up to AED 1,000,000.
• Benefits that were an incentive or returned benefit for which the employer has already paid out of pocket should be returned without charging their value from the employees.

These penalties help in harmonizing the policies of Emiratization and preventing abuses with regard to benefits related to employment. The Federal Decree-Law No. 9 of 2024, which amends Federal Decree-Law No. 33 of 2021, makes the aforementioned modification to Article 60.2.

II. CONCLUSION
Recent amendments to the UAE Employment Law demonstrate a serious movement as far as the way employment disputes are dealt with and violations are penalized. The extension of the statute of limitation also comes into focus, besides a new mechanism of appeal against the decisions of MOHRE, increased fines for a host of violations, and penalties relating to Emiratization—all points toward a more strict regulatory regime in the days to come. All these changes, therefore, coming into effect from August 28, 2024, reflect that the UAE is seriously committed to enhancing the regulations of the labour market and their compliance in a much better way. The changes would be in place so that both employers and employees can be at par with each other, acquainted with the changing face of the legal world.

UAE End of Service Pension Scheme

UAE End of Service Pension Scheme

End of Service payments for UAE employees can soon be subject to a different scheme.  Or rather an alternative scheme.

In fact, that is exactly how it is called – an Alternative End of Service Scheme.

In brief, as per this new Scheme, Employers or Companies will soon have the option to deposit, on a monthly basis, employees’ statutory End of Service payments into a specialized Investment Fund. 

At a high level, for employees who have been with the company for up to 5 years, the company will contribute 5.83% of the employee’s monthly basis salary, into the Fund.

For the employees with the tenure of more than 5 years, the percentage will be 8.33% of their monthly basic salary.  

Notably, these percentages match the current 21 days or 30 days of basic salary, for every year of service, under the traditional End of Service Scheme.  

Importantly, these contributions are to be paid by the company, and not to be deducted from employee’s salaries.

This is called the Mandatory Contribution, under this new Alternative End of Service Scheme.

And this new Scheme has been introduced recently, by virtue of the UAE Cabinet Decision No. 96 of 2023, re: the Optional Alternative Scheme for the End of Service System. Which came into effect in October 2023.

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