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End of Service Q&A

End of Service Q&A

Lawgical with LYLAW

06 November 2018

Hanan Arab:  Ludmila, we have one question from a listener.  This employee states that he wants to resign.  He is on a two-year limited contract.  His salary is 10,000 dirhams, and his contract mentions a one-month notice period.  What is he entitled to in this scenario?

Ludmila Yamalova:  This a case of a limited contract and a resignation.  In the event the employee wants to resign, let’s say two years into a three-year contract, (1) there is no entitlement to the end-of-service benefits, and this is because it’s a limited contract which an employee terminates prematurely so end of service is zero.  However, (2) there is a notice requirement which is one month, so the employee must either serve that one-month notice or if he or she wants to resign immediately, then they will have to compensate the company that one month of notice in the value of monthly salary, which in this case would be 10,000 dirhams.  The company will have to pay the employee any untaken leave or holiday and any unpaid bonuses or commissions for the period up to the date of termination.  Since this is a limited contract and an employee is resigning, the law does not obligate the company to pay for the ticket back to the employee’s home country unless the employee cannot afford to pay for his or her own ticket.  All in all, the only entitlements or the only payments would be the unpaid salary and unpaid bonuses and commissions and untaken holiday.

Hanan Arab:  Ludmila, we received another question from an employee.  She is on an unlimited contract and is resigning after her second year.  She has a one-month notice period and a basic salary of 15,000 dirhams.  Her total monthly salary amounts to 20,000 dirhams.  What are her end-of-service entitlements given that she is resigning?

Ludmila Yamalova:  The end-of-service entitlements here would include what’s typically referred to as the end-of-service benefits or EOS, then notice, holiday, bonuses and commissions, and tickets.  With regard to the end-of-service benefits, it would be one third of what end of service would otherwise be if the employee were to be terminated.  This is because under the U.A.E. law if the employee resigns then between year one and three, he or she is entitled to one third of the end of service.  Between years three and five, it is two thirds of the end of service, and then after year five it’s the full end of service.  End of service is 21 days of basic salary for every year of service.

In other words, in this case since the employee is resigning between years one and three, she will be entitled to one week of basic salary for every year of service.  In other words, two weeks of basic salary for the time of her employment.  If she were to resign between years three and five, it would be two weeks of basic salary for every year of service, and then obviously after year five it doesn’t really matter whether the employee is being terminated or resigns, she is entitled to the full 21 days or three weeks of basic salary for every year of service.

Since the employee is resigning, unless she wants to serve that one-month notice, then she will have to compensate the company for the value of the one-month notice if she wants to resign or leave the company immediately.  In this case, let’s say she wants to resign effective immediately, she would have to pay the company 20,000 dirhams, which is her monthly salary.

If there are any untaken holidays, then the company has to compensate the employee.  Even though it’s a case of resignation, they have to compensate her for any untaken holidays.  If there are any unpaid commissions and bonuses as of the day of resignation, once again, the company has to pay those because they’re considered to be as having been earned.

Since it is an unlimited contract and the employee is resigning, the company still has the obligation to pay for a repatriation ticket back to the employee’s home country if the employee leaves the country.  There is no entitlement to the arbitrary dismissal because the employee is resigning and not being arbitrarily dismissed.  Unless there are any other additional benefits provided for in the contract, these are all the entitlements the employee would receive at the end of resignation.

Hanan Arab:  We have one more question from a listener who says that his salary is largely based off of commissions.  He is currently being terminated after four years of employment with his company and is wondering what he is entitled to in terms of end of service.

Ludmila Yamalova:  So this is a question of the calculation of the end of service in an employment scenario where an employee is paid commission as a large percentage of his or her salary.  In the U.A.E. it has been a longstanding principle and a very well settled principle that commission and bonuses are considered as part of basic salary.  So in this case, for example, the employee receives on a monthly basis 3,000 dirhams as basic salary and on average an additional 10,000 dirhams by way of bonuses or commissions.  For the purposes of calculating end of service, the basic salary will be 3,000 plus 10,000 dirhams, which is 13,000 dirhams.  This is a principle that has been very well settled by all courts in the U.A.E. for many years.  In particular, it applies irrespective of how the underlying employment agreement, for example, may be drafted.  In other words, often agreements would state that commission is specifically or expressly excluded from the end of service.  The courts, however, do not consider those agreements as binding because they consider any payments or commissions or bonuses as having been earned and therefore comprising part of an employee’s salary.  Anything that is not an allowance is considered to be basic salary.

For the purposes of clarification, the confusion as to the definition o the basic salary often is based on the language of the law that defines basic salary, but in fact, if one reads that particular provision carefully, the provision actually is consistent with the courts’ precedents thus far.  In relevant terms, the law says that end of service is calculated on the basic salary, and the basic salary is defined is anything minus allowances, or any payment of compensation minus allowances.  Commissions and bonuses are not considered to be allowances because allowances are clearly payments that refer to, for example, housing allowances, educational allowances, transportation and food allowances.  Commissions and bonuses are not allowances.  Any payments that might be otherwise structured, or drafted, or referred to as allowances but in fact are now allowances, the courts will not treat as allowances and will use them as commissions and bonuses for the purposes of adding those payments to the basic salary in calculating end of service.

This is important because we see a lot of cases and a lot of scenarios where employment contracts will refer to arbitrary allowances or additional allowances and where a lot of the times those allowances are 75% of a monthly salary so even though the payments are referred to as allowances, they are obviously not allowances and therefore the courts will disregard the definition as it is referred to in the contract and will look at the actual scenario and apply those allowances or those payments towards the calculation of basic salary.

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