Tim Elliot: Hello and welcome to another edition of Lawgical, the legal podcast from the Dubai-based law firm, HPL Yamalova & Plewka. Lawgical is still the Gulf Region’s first and only regular legal podcast. My name is Tim Elliot, on the 18th floor, socially distanced at Dubai’s JLT, Jumeirah Lakes Towers, at the firm’s offices with the Managing Partner, Ludmila Yamalova. Good to see you, Ludmila.
Ludmila Yamalova: Good to see you too, Tim.
Tim Elliot: Now, this edition of Lawgical is all going to be about employment, but in particular and specifically about a number of judgments and decisions regarding terminations and resignations of employment relationship as a result of COVID-19, which of course is still affecting so many of us. Now, to give this discussion some context, Ludmila, can we start by considering Resolution 279 of 2020. Now this is a ministerial decree regarding – and I’m going to quote here – “the stability of employment in private sector companies during the period of applying precautionary measures to contain the spread of the novel coronavirus. Now, that needs simplification which I’m hoping you can provide. What does this decree effectively mean?
Ludmila Yamalova: Effectively, this is a decree that sets out a framework for companies who are negatively affected by the COVID-19 pandemic to mitigate their exposure and their costs with regard to their businesses and employment in particular, among other things. In the simplest of terms, the degree sets out several options that companies have to follow in order to help mitigate their exposure to coronavirus or the pandemic. In particular, it refers to, in the simplest terms, when a company finds itself, as so many companies have, commercially and practically struggling with regard to just keeping afloat. Obviously, employment and employee salaries in particularly are a fairly significant percentage of companies’ business expenses and operational expenses, so what can those companies do under such circumstances with regard to perhaps mitigating their employment or employee costs? This is in light obviously of the current U.A.E. laws and, in particular, employment laws which would under ordinary circumstances set out certain obligations and responsibilities on companies in terms of how they treat the employees and the obligations they have towards their employees.
This particular resolution refers to a scenario where a company either cannot pay salaries permanently or temporarily, and obviously this resolution was introduced at the time when we did not know how long this was going to last, so at the time many companies did not know whether their inability to carry on these salaries would be temporary or permanent because we could not really tell how long the pandemic would last. To this day, we still really can’t quite tell.
But ultimately, it sets out option for companies to help them mitigate this exposure by offering them legally different options that they could propose to their employees. One of which, obviously, is to offer the employees a telecommuting setup, in other words, working from home. Another one is to offer the employees paid leave, and this is in lieu of paying salary.
So first, it is offering to work from home, second is offering for them to just take paid leave, third is taking unpaid leave, fourth is to perhaps take a pay cut temporarily, and then finally, to take a pay cut permanently.
It sets out these different options, depending on interpretation. One interpretation is that in order, before the company ultimately permanently reduces an employee’s salary, it has to go through these other options. In other words, it first has to offer the paid leave, the unpaid leave, then the temporary reduction in salary, and then only then, it would offer or request the permanent reduction in salary. But it depends on how you read the law. Some companies have gone straight to, for example, reducing salaries temporarily. Others have gone straight through to offering or putting the employees on unpaid leave. But at the end of the day, these are the different options that the regulators have offered for companies to consider prior to terminating the employees.
Tim Elliot: The hope is that this encourages, I guess, amongst companies, it encourages good faith on two things, and this will lead to one question. Unfortunately, 2020 has affected lots of people as coronavirus has spread. Dubai courts have had to issue a number of judgments and decisions regarding termination and resignations of employment relationships as a result of COVID. In these terminations, the court considered Resolution 279 of 2020 and whether the terminations were, I guess, reasonable or not. Now, unsurprisingly, it must have taken up a huge amount of court time.
Ludmila Yamalova: For sure, but these are unprecedented times and extraordinary times for many. Obviously, a lot of employees have found themselves either without jobs altogether with no notice or with salaries which are significantly reduced from their previous salaries. Unsurprisingly, a lot of disputes arose. Some of them ended up in courts. Similarly, to be fair, a lot of companies have obviously found themselves in a bind where all of a sudden their income and their earning abilities have been not just dramatically impacted but in many ways almost halted to zero. So, what do you do as a company when the regular income stream that you have reasonably expected just came to a halt without any notice?
Obviously, the courts have been busy dealing with all these different matters, but what we have seen them do, or the position they take is a fairly balanced position. That is, let’s just be fair to both sides. There have been plenty of employees who have been perhaps mistreated by their companies on account of COVID-19 where COVID-19 was used more as an excuse than a legitimate reason. Equally so, there have been a lot of companies who have been genuinely affected by COVID-19. That was the purpose of the regulation, and the courts have been busy, as you said, applying this particular regulation on both sides of the disputes.
Tim Elliot: Now, let me just get this absolutely straight. The basis of the test, the reasonableness test, as it’s become known, was whether the employee was willing to consider paid or unpaid leave or a reduce salary on the basis of Resolution 279 of 2020. Now, if an employee rejected all of the options, the court often didn’t award arbitrary dismissal. However, if the employer terminated the employee without providing any of those options to an employee, the courts would generally award the employees arbitrary dismissal. Is that reasonable to say?
Ludmila Yamalova: Yes. But before we go into that, it’s important or it would be beneficial to highlight why this resolution is relevant and what it means for the employment sector in the U.A.E., and that is because of the U.A.E. labor laws and what rules and regulations would normally apply under ordinary circumstances. When a company would terminate an employee, that employee at the end of the employment, whether in the event of termination or resignation, certain rights and obligations are attached to both sides. For example, if an employee resigns, there is an obligation for the employee to serve notice, at least a one-month notice. Or if they had contractually agreed to something longer, then they would have to either serve that notice or compensate the company for a reduced notice period. If, for example, there is a limited contract, let’s say for three years, and an employee resigns two years into the limited contract, then there is also an obligation on the employee to compensate the company to the tune of a month and a half. These are just some examples that normally arise from the U.A.E. labor law.
Similarly, from a company’s perspective, the company has an obligation, for example, to either honor the limited contract of employment for three years, but if it terminates that contract early, then in addition to paying out the employee his or her notice period and paying obviously the unpaid salary and vacation and so on and so forth, in addition to everything else, the company would also have to pay the employee what is called the arbitrary dismissal. In the limited contract, the arbitrary dismissal is three months of total salary.
In unlimited contracts, there is also an obligation of the company to compensate an employee, even in an unlimited contract, up to three months of total salary in the event there was a dismissal that was unwarranted or an unjustified dismissal.
That is where the arbitrary dismissal term comes from. It is one of the obligations that the company has to abide by in the event the employment agreement or relationship terminates, either prematurely or without cause.
This particular resolution has been applied in particular with regard to the arbitrary dismissal compensation. The idea of why these options were introduced in the resolution was to allow the companies, for example, phase out or test out the gravity of the pandemic and therefore phase out their employees and test to see how many of these employees they are able to carry through and what salaries they may still be able to afford and make their adjustments with time.
Therefore, let’s say if you have an employee that was in a limited contract for three years, and now a year into it, you are in the pandemic. Now companies can no longer carry those employees obviously because they have been directly affected by the pandemic. Under normal circumstances when you terminate the employee, you would have to pay them three months of arbitrary dismissal, three months of full salary as compensation for dismissing them prematurely or earlier than their otherwise agreed contractual term of three years. As you can imagine, it is a fairly significant expense for the company. If all of a sudden, a company has 100 employees and they have to terminate 50 of them, which was a very common scenario under the circumstances, you can imagine taking 50 employees and paying three months of salary to each of them, but the very purpose of why you are terminating the employees is because you don’t have the money to pay their salaries. Now you would have to pay three months of salary to each one of them to terminate them. You can see from a commercial and business perspective, it’s prohibitively expensive, if not impractical for companies to actually abide by those regulations, by those employment laws under ordinary circumstances, and that is why the resolution was introduced.
There have been cases since then that have been filed my employees in particular claiming that they should have been awarded arbitrary dismissal, and in most cases, for example, most employees claim the full three months because let’s face it, three months of salary under any circumstance is quite a significant amount of money, but under current circumstances it is definitely so. There have been many cases filed by employees claiming exactly that.
What we have seen courts do is they take a fairly reasonable and balanced approach in terms of deciding whether companies are obligated or were obligated to pay arbitrary dismissal to those employees whom they have ultimately terminated during the pandemic.
Tim Elliot: Coronavirus, as the pandemic, has changed so much for so many people, whether employee or employer. The sensible thing for many employees was to be at least willing to consider paid or unpaid leave or reduced salary because really, you are left with no choice, but it’s a hard thing to accept when there is no timeline on the virus. We don’t know what’s going to happen. There is no real light at the end of the tunnel. Friends of mine were furloughed, for example, and even though it was never explicitly mentioned, they really just saw it as a matter of time until their employment was terminated. That was just the nature of what we saw just a couple of months back.
Ludmila Yamalova: Yes. In many cases, there were a lot more unfortunate situations where companies just terminated employees right there on the spot just because they did not have money to pay. There were others who offered employees, for example, to take a reduced salary for a certain period of time. But there were also others that perhaps didn’t quite offer, but rather imposed reduced salary. In most cases it was in those circumstances where employees ultimately felt disgruntled and then filed cases with the court seeking compensation for arbitrary dismissal, for example, because they were ultimately forced to accept reduced salaries. In cases like that, the courts look obviously at the specifics of how companies have handled the situations. In those cases where companies have actually offered employees reduced salaries and employees rejected, and on the back of that they either resigned or the company terminated them, and then as a result of the end of this employment, the employees would file cases with the Dubai courts seeking compensation, among other things, for arbitrary dismissal, i.e., three months of salaries. In those cases where courts have found that companies have offered reduced compensation, and asked the employees to accept, but employees refused, in those cases the courts have held that it is the employees who acted unreasonably and therefore they are not entitled to arbitrary dismissal, which is quite interesting because in technical terms, formally speaking, if you just look at the labor law, if you were terminated without notice and without cause, you are entitled to arbitrary dismissal. But the courts here are looking and applying the reasonableness standard on both sides of the equation. If you as an employee were acting unreasonable because you failed or refused to accept reduced compensation, therefore now, you are not entitled to arbitrary dismissal because ultimately the termination of your employment is your own doing.
Tim Elliot: Once again, COVID-19 is the difference. It’s very easy to sit here and come firmly down on the side of the people as it were, but you do have to ask, what can a company do when it is faced with a situation like COVID-19? Where do you go if you simply cannot afford to pay people? It’s a philosophical discussion really. I’m sure there are many companies who are trying to act as honorably as they can. The issue though is the far spicier stories, the sexier stories about those who didn’t act honorably. It is as simple as that, isn’t it?
Ludmila Yamalova: That’s it. We don’t see enough of those cases because at the end most of the cases that end up in court are brought by disgruntled employees who feel they have been mistreated. In most cases, they have been mistreated or companies took the position of either punishing the employees by not offering them all of the things that they are entitled to, and we have seen many cases like that, or ignoring the laws, or being simply ignorant to the laws.
But this is something else. The cases we are discussing today, and there have been surprisingly quite a few of them, they were brought before local courts of employees perhaps who are acting a little bit in bad faith themselves by claiming more compensation than they are otherwise entitled to. Granted, it’s difficult to accept reduced compensation, especially in a place like Dubai where we are all expats, and so we don’t really have necessarily our extended family network to tap into to help us bridge the shortfall in our income abilities, but at the same time if the company doesn’t have money to pay, then it is better to take something than to have nothing. The more employees would resign because they’re not getting their full salary, the harder it would be for the company to survive if all of those employees go and file court cases against the company. That is really what, I think, the courts are trying to do here is to strike a balance, help businesses survive, and at the same time make sure that businesses don’t abuse and don’t use COVID-19 as an excuse to get rid of those employees who they now realize perhaps are costing them too much or not necessarily beneficial to the business.
Tim Elliot: From the government’s perspective, what else can be done? What other steps might be taken as COVID-19 persists?
Ludmila Yamalova: Well, it’s interesting because there are some regulatory authorities these days and DMCC, which is the licensing authority where our firm is, and it is introducing, kind of by default or automatic, insurance for end-of service compensation. We are just discovering this for ourselves. That is, let’s say if we have a new employee now or we are renewing an employee’s visa, now as one of the requirements, part of the renewal, is that the company takes on insurance that would ultimately provide coverage to the employee in the event the company is unable to pay end of service and perhaps whatever other employment entitlements. That’s an interesting twist. I certainly think it’s hugely beneficial for actually both sides because what’s happening right now with the pandemic is very real, and a lot of companies are finding themselves in an extremely difficult position where they cannot compensate their employees, and it’s not by their own choice and it’s not by their own interests. They want to continue to stay in business, and they want to be able to compensate their employees, particularly those employees who have deserved compensation, but they have nothing to pay them from. Presumably, with these new tactics such as the mandatory insurance plans, now at least even if the company is not in the position to pay, there will be an insurance policy that will provide some kind of relief to the employee under those circumstances. That is one new initiative that we have seen implemented, and I think it’s a huge step forward, a huge development, and also if it’s introduced early on, it’s actually even affordable for companies. It’s not hugely expensive. Therefore, it’s not a big capital investment that all companies are now required to do to mitigate against future exposure. It’s more gradual and it’s very palatable for most businesses.
Tim Elliot: It’s an extraordinary time. Extraordinary times call for extraordinary measures. Nobody could have predicted COVID-19. That we know. But post COVID-19, what happens to a resolution like 279? Final question, because very simply companies, employees and employers, can’t be expected to recover overnight.
Ludmila Yamalova: Indeed. This is all a bit of a moving target. This is, as you said, is very unprecedented. The terms that are used in the resolution, such as the pandemic and the challenges that are being brought to the economy by virtue of this COVID-19, the challenges were a lot more grave four months ago than they are today, but yet, the pandemic is still, sort of here, but is it really? It’s not really to the same extent as it was, for example, four or six months ago. But it’s still here. Therefore, there is a bit of uncertainty as to how long the regulation lasts. Is it still applicable? Because it does refer to the pandemic and the challenges that it causes to the overall economy, but it is a bit of a sliding scale. The language of the resolution suggests that it is effective as long as the pandemic is still in effect. I guess it becomes more of a philosophical question. Is the pandemic still in effect? Or is it in effect, but to a lesser degree? Therefore, if it is to a lesser degree, is the resolution still applicable? I think the safest strategy is to assume that the resolution remains until the government mandates otherwise.
Tim Elliot: That’s another episode of Lawgical, an explanation of Ministerial Resolution 279 of 2020. As always, our legal expert here on Lawgical today was Ludmila Yamalova, the Managing Partner here at Yamalova & Plewka. Also, as ever, I’m very appreciative of your legal perspective.
Ludmila Yamalova: Thank you, Tim, as always.
Tim Elliot: If you have a legal question you need answered in a future episode of Lawgical, or if you’d like a consultation with a qualified U.A.E. experienced legal professional, you can now WhatsApp us, 00971 52 525 1611, or just head to LYLawyers.com and click the Contact button.
