Tim Elliot: Welcome to Lawgical with LY Law, the regular weekly podcast from the Dubai-based law firm, HPL Yamalova & Plewka here in the U.A.E. This week we’re talking employment issues and that dreaded word, the T word, termination. Here in the emirates right now, it’s tough times from an economic perspective, as it is across the world. Companies are feeling the pinch, and they’re obviously looking to keep their costs as low as possible. Now unfortunately, when times are tough, it can mean that jobs are harder to keep, not to mention harder to find. But here in the U.A.E., what should you do? What can you do? And what do you need to do if you lose your job? That is today’s question we will hopefully answer. Ludmila Yamalova is the Managing Partner of the Dubai-based law firm, Yamalova& Plewka. She’s been in the U.A.E. since 2008. She’s seen the good times and, Ludmila, I’m guessing you’ve seen some of the tougher times as well. Nice to see you.
Ludmila Yamalova: Good to see you as well. Yes indeed, I have seen the good and the bad and the transition.
Tim Elliot: Let’s talk about, in simple terms, or in as simple terms as we can, some of the issues that employees, and we’ll start with the employees, and also employers too, some of the things that you need to think about as you go through termination, whichever side you’re on. Just set the stage for us. Just talk me through how things are in the U.A.E. right now
Ludmila Yamalova: Well, from the employment perspective what it’s important to highlight is that the U.A.E. has one law that applies to the majority of the companies across the U.A.E., irrespective of the emirate. There is a perception that the law may be different based on where the company sits, which emirate the company sits in or whether the company is a mainland or the free zone. As many may know, the U.A.E. has many, many different free zones, and there has been a historical impression that somehow law differs amongst the free zones. To set the stage, the general rule is that is not the case, with the exception of one free zone, and that is the DIFC, the Dubai International Financial Centre. Keeping that free zone apart, there is one employment law that applies equally to all companies and employees in the U.A.E. and that is the federal employment law.
According to that law, there are a number of principles that govern employee/employer relationships. In the case of termination, some of the more important – obviously it always comes down to the compensation – so the more important elements of compensation that obviously govern the employers’ process for termination and employees’ consideration upon termination.
Those are as follows:
(1) The notice period: In the U.A.E. there is always a notice period, and the minimum notice period is 30 days, and that is irrespective of whether the contract provides for such a notice period or not. If the contract does not provide for a notice period, then it is the minimum of 30 days. That is why it is important to read the contracts because many contracts may provide for a longer notice period, and if that’s the case, then that would supersede the minimum 30-day notice provided by law. That means if you’re terminated, you either serve that 1-month notice or if the company wants to terminate you immediately, you will be compensated the value of that one month of employment.
(2) The unpaid salary and whatever other expenses or benefits that are due.
(3) Pro rata bonus or commission that might have been earned and not paid yet. This is an important one because a lot of employees and employers believe that if the person is not there at the time that the bonus is being paid out or the commission is being paid out then, therefore, they are not entitled to it. That is not the case. The bonus and the commission in the U.A.E. is considered to be part of the salary, and that is something that is earned. Irrespective of when it would ordinarily be paid by the company, when an employee leaves, they are entitled to receive the pro rata of that amount.
(4) Perhaps the most unique to the U.A.E. compared to some other jurisdictions, and that is a term that has become known as the end-of-service benefits or EOS. That is related directly to the duration of an employee’s term with the company. Employees become entitled to the end-of-service payment after serving in a company after one year. Let’s say you worked for the company for 10 years, you’ll be entitled to what’s called the end of service, and the end of service is calculated depending on whether the contract was limited or unlimited and depending on the duration of the employment.
In general, the calculation is 21 days of basic salary for every year of service for the first five years. Therefore if you worked for a company for let’s say four years and you are now being terminated, you would be entitled to receive all of the other elements I just described, and the end of service which is 21 days of your basic salary times four in that particular case. After five years, that becomes 30 days of basic salary for every year of service, but it’s only after five years and the 30 days only starts counting from five years. Therefore, let’s say if you worked for 10 years, for the first five years you receive 21 times five, that is, the 21 days for the first five years, and for the next five years it’s 30 times five and that is 30 days for every year of service after your fifth year. That’s called your end of service.
Generally speaking, those are the financial entitlements that employees should expect at the end of termination. There are some other nuances, such as whether there is a limited or unlimited contract and whether the employee is being terminated or leaving voluntarily. But, in general, if employment is longer than five years, it doesn’t matter whether there was a termination or a voluntary resignation because the benefits become the same.
There is one other element that is important that is also fairly unique to the U.A.E., and that is one that’s called arbitrary dismissal. In cases of limited contracts, the law provides for an arbitrary dismissal of three months of full salary. For example, if you have a three-year contract, a limited contract, then you were terminated two years into it, on top of all of the other elements I’ve just described, you’ll also be entitled to three months of full salary as compensation for being prematurely terminated, and that’s presuming that you have been terminated arbitrarily. In most cases, it’s very difficult to establish that termination was for good cause as per the law, so therefore in most cases if a limited contract is terminated you should expect a three months arbitrary dismissal.
Now in contracts that are unlimited, and that is when there is just a start date in there and there is no end date mentioned, then the law says it could be up to three months of arbitrary dismissal compensation. In most cases, if employment is longer than three years, from what we’ve seen in the courts, the courts grant three months of arbitrary dismissal even in those cases where contracts are unlimited.
Tim Elliot: Let me just jump in at this point because each case is different and that forms an outline, but what’s the difference between being fired and redundancy? Is redundancy an arbitrary dismissal?
Ludmila Yamalova: Great question. In short, yes. In most cases, redundancy is used as a term of art, but it really isn’t, and perhaps it’s a bit of a leftover of nomenclature from England because redundancy, for example, that word doesn’t exist in the U.S. practice, if you will. There is a termination and there is resignation. Redundancy usually refers to, at least in the classical sense, being terminated because the company is going through restructuring, for example. However, the way the law is structured, in particular in connection with arbitrary dismissal, it looks at who is at fault. With arbitrary dismissal, the burden is on the employer to prove that somehow it was the employee’s fault for why they are being terminated. That’s why it’s called arbitrary. If the company is restructuring and terminating employment because of it, it’s really not attributable to the employee, but to the employer, and therefore, it’s really not an employee’s business that the company has decided to restructure. If you think about it, there’s a lot of logic behind it because companies could always play that card: Well, we’re restructuring, and you could always hire somebody with the promise of a limited contract. People build their lives based on that, and then a year into it the company decides, well, we actually want to do things differently. That’s sort of also the logic behind arbitrary dismissal compensation in the U.A.E. and that is to provide for that transition period, as some sort of additional compensation to allow people to transition more smoothly because of this variability that happens to their lives which were based on the expectation of a limited contract.
Depending on who is hearing this particular legal framework, depending on the jurisdiction, it may seem unfair, but the reason these benefits perhaps exist and were introduced in the law here is because, let’s face it, for most of us here, they apply to employees and most of the employees here are expats. That means that we’re here. This is not our homeland, so in the event we lose a job we need to make some serious decisions about what to do next. As we all know, the expats know here that everything is based on a job here. A job gives you the residence visa, and then your kids are also linked to your residence visa. Your spouse is linked to your residence visa, an everything else is linked to that. Therefore, when you lose a job, all of a sudden, the whole foundation on which families are based starts falling apart. This is why having these additional benefits paid to the employees only makes logical sense because at the very least it allows people to have a little bit of a grace period and some additional compensation to help them with transition.
Tim Elliot: Let me take that into account for a second. Let’s recap I suppose. Imagine for a moment you are arbitrarily dismissed or terminated or made redundant, whichever phrase applies there. What’s an employer legally obliged to do in terms of extending a visa grace period, for example, and return what is an employee obliged to do?
Ludmila Yamalova: From the employer’s perspective, what they’re obliged to do is (1) serve you with the proper termination letter and that termination letter should include your last date. Those two things don’t necessarily always coincide because an employer may decide to terminate an employee, but they may want to see that employee either serve their notice or work a little longer. The termination notice should have a termination date. Then (2) there should be a calculation provided to the employee in terms of what their end-of-service entitlements should be. Those entitlements obviously would include the various elements that I described earlier and that is, in short basically, a monetary figure of what they will be paid. Then (3) all the other elements of basically the parting of the relationship, for example, health insurance. Usually health insurance is tied to the visa. That’s the other element is the termination of the employment visa.
Then also the handover. It is very important to have a very clear handover, and that is, okay, on this day you leave and as part of your departure these are the things you must return. There should be a proper handover form. Generally speaking, handovers would include turning in a computer, laptop, phone, charger, business cards, whatever other business accessories that the employees were given. A proper handover is very important.
Then, in practical terms, the way that the final termination works is that both employer, or the representative of the employer, and an employee would appear before the relevant government agency that sponsors a license to that particular company, and the employee would sign off that they received all the benefits and all the payment towards their end-of-service benefits. They would sign that form. The employer will give them the check, for example, for that amount, and the employee would hand over the password to the employer for a visa cancellation. That’s from the employer’s perspective.
Tim Elliot: Right. What about the employee’s?
Ludmila Yamalova: From the employee’s perspective, obviously they need to right away understand they are on their own and perhaps ideally seek good advice if need be about what they might be entitled to because there are often disputes between what the employer thinks they are entitled to and what the employees’ think they are entitled to. Usually and one of the most common grounds for a dispute is related to the calculation of end of service and how you calculate, for example, basic salary. We mentioned earlier that for every year of service you get 21 days of basic salary. There are often disputes about what constitutes basic salary and that’s one ground for a dispute. The other one is payment of bonuses and commissions. That is another common ground for disputes. This is where the employee should seek counsel if need be if those elements are relevant to their employment relationship about how to ensure that those payments end up in their end-of-service package payment. That’s (1) understanding what they’re entitled to by contract, and then (2) obviously with the visa and that’s an important component because in the U.A.E. all expats are required a proper employment visa in order to work here legally. An employment visa is naturally linked to the employment. When the employment comes to an end, by law this is when the visa should also come to an end.
As I say that, I know that it’s quite common for both employees and employers to extend that residence visa relationship further beyond the duration of employment. It’s common, but legally speaking it’s not proper. In other words, really the residence visa should be terminated at the time that the employment is terminated, and that’s because of all sorts of liabilities that can perhaps happen or arise because ultimately that sponsored relationship continues on from at least the residential visa perspective or immigration perspective even when the employment is finished if the visa is not cancelled.
From the employee’s standpoint, it’s important to make sure that they sort out their visa. It can happen in different ways, so for example, if the visa is not cancelled for some reason perhaps, and then perhaps there is a dispute, and then the employee stays in the country on an expired visa, that can cause all sorts of issues and complications because, for example, in simple terms an employee cannot or a person cannot exit the country on an expired visa. A visa is an important component. It’s also important obviously because in most cases that employee’s family and other support staff may be linked to that visa, so make sure that as you go through the process of visa cancellation you have to cancel your dependents and you have to figure out an alternative way to sponsor dependents, particularly children, when your visa is terminated.
From the employee’s perspective, the rest of it, obviously, is the housing. If you’re renting property and you’re relying on your income coming in, most residential contracts in the U.A.E. are for at least a year and often rent is paid a year in advance, so figure out that component and any other debts you might have, credit card debts or any other loans, car loans, just make sure that financially you figure out all of the payment of all of those debts and that if you do decide to leave the country that you’ve gone through all the things and all the links that you have in this country and you’ve clearly paid all the dues and closed all of those pieces properly so that there are no liabilities left behind when you leave.
Tim Elliot: Final question. Termination is tough here in the U.A.E. and anywhere else in the world. Let’s stick with here in the U.A.E. In there any, in the labor law, duty of care? Any provision for human resources counseling of employees who have been terminated? Does that exist?
Ludmila Yamalova: Great question. No. The short of it, it doesn’t. But now that you mention it, it would certainly be of tremendous value to have that kind of a resource available to employees in the U.A.E. because a lot of employees that are new to the U.A.E. and they’ve been terminated, and they really don’t even know where to turn. But interestingly enough, even those who have been in the U.A.E. for a very long time often under those circumstances don’t really know where to turn to. Presently, there isn’t anything and this is why we do these podcasts and why the podcast might be valuable. We hope it will be valuable because these are the resources that may help employees and employers at times like this, but otherwise right now there is no other centralized resource that parties can turn to.
Tim Elliot: That’s it for another edition of the Lawgical with LYLAW podcast. Ludmila Yamalova is the Managing Partner of the firm. As ever, really good to talk to you.
Ludmila Yamalova: Thank you.
Tim Elliot: Next time on the Lawgical with LYLAW podcast, we’ll be discussing marriage and divorce here in the U.A.E.
