Tim Elliot: Welcome to another edition of Lawgical, the regular weekly podcast from the Dubai-based law firm, HPL Yamalova & Plewka, still the Gulf Region’s first and only legal podcast. I’m Tim Elliot, here as ever at the firm’s offices on the 18th floor of Reef Tower in Jumeirah Lakes Towers with the Managing Partner, Ludmila Yamalova. Ludmila, lovely to see you.
Ludmila Yamalova: Good to see you as well.
Tim Elliot: Now in this edition of Lawgical we’re talking about the implications of two very specific instances of employment termination. Now, let me just paint a picture for you. You’ve just enjoyed your annual leave. You’ve caught up with family. You’ve ticked a few more things maybe off the vacation bucket list. You get back to work and you find you no longer have gainful employment, or at least the gainful employment that you previously had.
Let’s consider these two instances as follows:
- The first, a redundancy, and the person just happened to be away when the announcement was made at the firm they worked for.
- The second, “we no longer need or want you” type of decision when the person got back after three weeks away.
Two instances. Ludmila, let’s first take the instance of the person who arrives back to find that redundancy has been “offered” while they were on vacation. It’s not the greatest welcome back from a holiday, of course, but what can you do?
Ludmila Yamalova: Those are both very good questions and interesting scenarios. They certainly are very relevant and very topical for the same reasons you just mentioned. We just passed our summer and, as is typical in the U.A.E. in particular, a lot of people go away for the summer. Now, school is back so all of them by now have returned. Things have changed and evolved and developed throughout the summer, and we have also heard a lot of cases of companies making HR decisions during the summer while many of the employees were away. So yes, these are very typical questions and they are very common scenarios in this day and age.
What do you do? In the U.A.E., it’s a little – I don’t want to say simpler, but we don’t really distinguish here in terms of types of terminations. The term or the word redundancy is perhaps more of a European import word than the legal concept in the U.A.E. It appears just as a termination. Now, there are different types of termination. There is a termination, for example, for cause, and there is an arbitrary termination. But in terms of a redundancy package, which is what you mentioned, there isn’t really a legal concept for what that means.
But what it means here is that – I’ll break up your questions – with regard to someone being terminated while they’re away; that is not allowed in the U.A.E. That is against the law. In other words, and to be more specific, let’s say if you were in Ireland for the summer and while you were away you perhaps received by email a notice of your termination. Well, if you are on vacation, you shouldn’t really be receiving emails and shouldn’t be reading emails, so it’s very likely that you might not have read that email and therefore you’re not aware that you have been terminated while you were away. That being said, we’re all very connected in this day and age and chances also are that, depending on your position, you actually might have had your mobile phone with you and might have received an email, so you are aware of the termination. But irrespective of whether you are aware or not, the U.A.E. labor law or employment law clearly states that one cannot be terminated while they are away.
So what does that do? Let’s say you did receive that termination and you were one who actually opened the email and read it and therefore you were put on notice. Because of the way the U.A.E. law is drafted, effectively that notice becomes invalid, irrespective of whether you had knowledge of it or not.
In the previous scenario, if you had not opened your email and had not known about your termination, what does that do? How could you be terminated, and you come three weeks later, and what does that do to your notice period, for example? Because the whole idea of the notice is that you need to be put on notice, but if you never opened your email and never knew about being terminated, then how can you be put on notice? So that is one argument.
But even if you were put on notice, because the law clearly states one cannot be terminated while they are away, and the reason perhaps for that law is exactly that, (1) so it’s not fair to expect people to be put on notice of something like this while they are on vacation. Also, (2) the law does not want companies to abuse the process and use people’s vacation as substitutes for a notice period.
Therefore, however you look at it, irrespective of the scenario, the law clearly states one cannot be terminated. Now, if you did receive that notice and now you come back to work, what does that mean? Well, effectively the law clearly states that any termination notice that has been served while the person is on vacation is invalid. That means the whole notice is invalid. Legally you could argue that you never received the notice. Because if the notice is invalid, therefore, even when you return and now you actually have a copy of it, but the copy dates back to when you were on vacation, then effectively the notice is invalid and therefore you can disregard it all together.
The company can, however, argue later that in fact you were put on notice because the whole idea of notice is to put you on notice, and so therefore you knew that you were going to be terminated and therefore that notice is still valid. Why I say that is because it depends on how you interpreted the actions of company matters next, and that is, does the company need to submit a new notice?
Let’s say it is October 1st. Now I am submitting a new termination notice that is effective October 1st. Can the company rely on the previously submitted notice as the notice? The safer way for the company to do is to submit a brand-new notice that has a new date versus relying on the previous notice because by law that notice is rendered invalid. We have had cases exactly like that where companies would argue: No, no, no, but we did give the notice, and the person therefore knew. And the person, knowing the law, argued that: No, no, no, I still have not received a notice. Sometimes these disputes go for months, and the employee would argue: I have not received a notice because that notice that you gave me back when I was on vacation is effectively invalid, and therefore the whole document is invalid and of no effect, and therefore even as of now I am still employed.
Something as nuanced as that can actually significantly and substantially alter and change the course of an employment relationship. We have seen companies who were forced, obviously because their own mistakes, to later on, fast forward a few months, issue new notices with new notice periods, and therefore extend compensation to incorporate or take into account those additional months of employment. It’s kind of a small nuance, but it can, if not managed correctly, lead to much more significant expenses for the company and give the employees additional time to manage their termination.
Tim Elliot: For this instance, let’s take this as an example. You are fired when you are on holiday. You come back and the company issues a new notice. You have a 30-day notice period. Let’s take that as an assumption. What’s your legal position thereafter?
Ludmila Yamalova: Thereafter, let me give you the maximum and the minimum compensation package that could be granted to an employee upon termination. Just for clarification purposes, in the U.A.E. for the most, apart from one particular free zone, being the DIFC free zone, there is one law that applies to all companies throughout the country, and that is the U.A.E. labor law, and so that is irrespective of what free zone, the company or the employees might be located in or which emirate. It is a federal law that applies across the board, apart from the DIC companies and employees.
As per this employment law, and we will call it U.A.E. labor law as it is often referred to, the maximum compensation an employee can expect is as follows: It has several components. (1) There is a notice period, and the notice period by default, the minimum notice period is one month. Even if, for example, either the underlying employment contract or the termination notice does not include the notice period, the default will always be a minimum of one month. That is one month of full salary. Unless one of the employment documents provides for a longer notice. You cannot shorten it by contract, but you can make it longer. In the past, and in particularly for more senior positions, notice periods are often, well, at least in the past they used to be six months and often for more senior staff they can be three months, so the notice period is anywhere between one month to in general it’s about six months as per the agreement, but a minimum of one month. You can expect that.
Let’s say if you came back and now you have been terminated as of October 1st. The company can do one of two things with regards to the notice. It can have you work for that one month and that would be your notice, or it can decide that they do not want you to come in to work anymore as of October 1st and pay you in lieu of that notice.
Tim Elliot: Garden leave effectively.
Ludmila Yamalova: Yes, that is the European term, garden leave, but in the U.A.E. it is commonly used, but in legal terms there is a really formal definition for that. But yes, basically you are being paid not to work.
Tim Elliot: And there is very little gardening often involved in garden leave.
Ludmila Yamalova: Indeed. That is one element of compensation. The other element (2) is what’s called the end of service benefits, and that is the U.A.E. equivalent, if you will, of a pension payment. That is based on the employee’s term of duration with the company and their total salary. In general terms, it’s 21 days for every year of service based on basic salary. For the first five years of employment and after the fifth year of employment, it is 30 days per year of basic salary. That is called the end of service benefits.
Let’s say you worked for six years. You received 21 days times 5 of your basic salary, plus 30 days of whatever your basic salary is. You accumulate that and it more or less adds up, probably being three to four months of full salary. That is called the end of service. But that end of service is only due if the employee worked for a company for more than one year. That is the second element.
The third element (3) is what is called arbitrary dismissal. This is the element that is relevant to your original question based on the type of termination that you’ve been served, either redundancy or just termination. Arbitrary dismissal is compensation for either arbitrary termination or premature termination. Let’s say if you have a fixed contract for three years and now you have been terminated a year and a half into it. Then irrespective of the reason, more of less because you have a fixed contract, you have been prematurely terminated, so by law you are entitled to three months of full salary as compensation, and that is in addition to the notice and in addition to the end of service benefits payment that you would have accrued.
Now for unlimited contracts, the law states that it can be up to three months of compensation if you are terminated arbitrarily. In general, the definition for what it means to be arbitrarily terminated is not specified in the law but in practice it has been defined as something that is due to the employee’s code of conduct, an employee’s performance. In other words, if the company is not doing well and you are now being made redundant, to use that word, that’s really not attributable to the employee. It is attributable to the company. It is not fair for the company to say you are not entitled to any compensation because the company has now decided to phase out your job because it’s really a company decision to do so and it has nothing to do with an employee’s performance. Because of that, in termination for reasons of redundancy does not really legally exist in the U.A.E. and therefore it would ultimately be considered as an arbitrary dismissal.
I will tell you, most terminations would lead to compensation for arbitrary dismissal. For fixed contracts it is for three months and with unlimited contracts it is up to three months and, depending on the duration of a job, in most cases it is the full three months. That is even when the company may have legitimate reasons to terminate somebody for issues of performance. That is because the only other way not to compensate an employee or not to grant arbitrary dismissal compensation is if an employee violates the U.A.E. labor law under what’s often referred to as Article 120, and that is basically gross misconduct. If an employee is terminated for gross misconduct, then the company can avoid paying these various elements I just mention and only pay the pro-rata salary and pro-rata vacation and nothing else. No notice, no arbitrary dismissal, no end of service. That’s called termination for cause or a valid termination, and that’s under Article 120.
However, in reality, the burden of proof and the burden of action to the company must go through in order to fire someone under Article 120 is quite high, quite stringent, and in our experience most companies have not really been able to meet that threshold. Therefore, even if internally they have documents to show the employee somehow did not perform properly or did something that violated the company’s protocol or code of conduct, in most cases the companies do not have enough proof to show that they followed the whole scrutiny of things that they needed to do under the law in order to avail themselves of the Article 120 termination.
Therefore, just to bring it all back, in most cases in the U.A.E. the most the employee can expect to receive is the payment for the notice period, the end of service, the arbitrary dismissal, and unpaid salary and vacation up until that point, and there is one more element, and it is very important, any bonuses or commissions they might have been entitled to. This particular last element is quite interesting because in many companies’ employment manuals, if you will, are bonus structures. There is often language that an employee will only receive their bonus or commission if they are still with the company on the day when that particular commission or bonus is being paid out. The U.A.E. courts do not accept that interpretation of agreement, if you will, because they look at bonuses and commissions as part of salary. In other words, bonuses and commissions someday that you have earned and so therefore it shouldn’t matter that you are no longer with the company when the money is being paid if you will have already earned it before then. That is very typical for a company to have earned, for example, sales. But to actually pay out commissions and bonuses at the end of the year just because the employee is no longer there, does not mean that they are no longer entitled. So the courts look at this as part of the salary and therefore is an obligation of the company to pay to the employee and, if appropriate, they will use a pro rata amount of that payment, but generally that is considered to be salary earned and therefore has to be paid upon termination.
Tim Elliot: So if you’re part of a bonus scheme, and you don’t receive a bonus, even if you may have left the company 11 months previously, you are entitled by U.A.E. law to have that bonus applied to you.
Ludmila Yamalova: Absolutely.
Tim Elliot: Okay. Let’s back up a little bit further. I want to look at acceptable grounds for employment termination. Could you briefly just run through what the U.A.E. label would hold as acceptable.
Ludmila Yamalova: Let me say one thing. In the U.A.E., similar to, for example, the employment law in the U.S., employment is considered at will. Employment at will means that any party can terminate employment at any point in time for any reason, but it becomes a matter of compensation. But generally, it’s a free employment relationship. Therefore, even if you signed a three-year contract, if you want to leave six months after that, as an employee you have full reasons to leave. Therefore, you don’t really need to give any reason for why you want to leave or why the company wants to terminate you, but it just becomes a matter of compensation. If the reason is not given or, depending on the reason, perhaps the company may be required to pay more than they would have to pay if there was a legitimate reason. But it really just is a matter of compensation. In other words, in regard to reasons, you don’t need to give any reasons. The law looks at it as they don’t want to force somebody to work either against their will or for a company to hire somebody against their will. Therefore, it’s employment at will.
Now, with regards to compensation, let’s say one day I came to the office and my manager doesn’t like the color of my hair and so I get terminated in my fixed contract or a limited contract, and I get terminated halfway into it. They can do it, and I cannot do anything about it except that I can expect compensation because in that case it would be called an arbitrary dismissal. In that case, I would be entitled to (1) the notice period, (2) the end of service, (3) arbitrary dismissal of three months of full salary, and (4) whatever other unpaid salaries or commissions or bonuses I might have accrued as a result. That’s the maximum compensation that one could expect.
However, if a company is trying to avoid paying all those, because it can be quite significant, especially somebody who has worked for a number of years, if the company is trying to avoid paying all that because they clearly believe and legitimately believe that an employee has done something that could damage the company, then that’s when we go back to Article 120. The Article 120 states a few elements which would constitute valid termination or termination for a cause, allowing a company to avoid paying all these elements of a termination claim. There are different scenarios, but generally, it has to do with gross misconduct, for example, when somebody caused damage to the company. But even then, you have to prove damage and you also have to report damage. It cannot be that six months into it the company looks back and says, well, six months ago we knew this employee did something and they damaged the company, so now we want to terminate him. By law, you have to report if there is any significant damage to the company that an employee might have caused, and you need to report them to the relevant authority. Usually, it’s the regulating entity that licenses the company. If you’re claiming damage, then you need to make sure that (1) you have reported one, (2) ultimately, you also need to prove damage because, let’s face it, a company can always say somebody caused damage, but they have to be able to prove it if they ever want to rely on that before the courts. They cannot just say that somebody damaged the company’s business.
Some of the other grounds is that the person, for example, has been found guilty of, particularly, let’s say, a criminal act, but even in that case, just accusation alone or a claim alone is not enough. There has to be a final judgment. For example, someone has a criminal case against them for, let’s say, a bounced check. We’ve had a lot of companies who have tried to use that as grounds to terminate someone under Article 120, but the law clearly states that there has to be a final judgment. The allegation itself or an ongoing case does not suffice or does not warrant termination under Article 120. The examples are of very egregious acts. Usually they have to do something with either the company’s business and therefore damaged the company’s business or employee’s own values or code of conduct. If they have criminal proceedings against them, it is understandable why a company might not want to have them continue working for them. Those are really the only grounds that could warrant termination under Article 120, thereby allowing a company to avoid paying all these payments such as the end of service, the notice period, and arbitrary dismissal.
Tim Elliot: And the burden of proof clearly with the employer. Let’s move back, finally, to the employee and talk about recourse. If you feel you’ve been terminated unfairly, if you feel there was no gross misconduct, it hasn’t been proved, what recourse do you have? Or, for example, you simply don’t your dues. What can you do?
Ludmila Yamalova: The recourse again comes down to what an employee is entitled to. Just as a wrap up, the maximum the employee is entitled to are all the salaries, commissions, end of service notice, and arbitrary dismissal. That is the maximum. All employees can ultimately just ask for that, and if the company pays for it then there is no other recourse. In fact, a lot of companies do exactly that. Many of them, when they go through redundancies, they realize they can no longer carry these roles, but they know that by law they don’t want to face court cases and they don’t want to get stuck in protracted disputes with their employees, so they just offer them the maximum, and the maximum being the arbitrary dismissal of three months, the notice period, and the end of service, and whatever else has been not paid. That’s the maximum. If you’ve been paid that, there is nothing else you can ask. We’ve had employees, for example, who want to also claim damages that they might have suffered as a result of not being able to find a job timely because of when they were fired or how they were fired, but these are not valid grounds under the U.A.E. law. This is really the maximum.
Tim Elliot: Where would you go if you were not paid your dues by a company?
Ludmila Yamalova: If you were not paid your dues, and it usually comes down to that, because a lot of the times that employees actually may be entitled to the maximum, the companies don’t want to pay that to them because they know . . .
Tim Elliot: These are often acrimonious situations.
Ludmila Yamalova: Absolutely. The way to do it in the U.A.E., there is a labor court. It depends on which emirate because most of the time you have to go to the emirate where you were employed. But every emirate has a so-called labor court, and it’s basically a labor division under the umbrella of the court. Depending on where the employee worked, there may be another step before you go to labor court. All free zone employees first have to receive what’s called an NOC or a no objection certificate from their licensing authority, or free zone authority before they go to labor court.
In other words, if you work for TECOM, or say Silicon Oasis, or DMCC and you have an employment dispute and you want to file a case against your company, before you go to the labor court to file that, you need to go through a mediation process with that particular free zone. If the mediation process is not successful, then the free zone will issue you an NOC or a no objection certificate, and with that NOC you would go to court and then you will file a claim before the labor court.
Tim Elliot: Ludmila Yamalova is the managing partner of the Dubai based law firm, Yamalova & Plewka. As ever, Ludmila, thank you.
Ludmila Yamalova: Thank you.
Tim Elliot: That’s it for another edition of the Lawgical podcast. As you can appreciate, we are unable to cover every aspect of the U.A.E.’s legal framework in each episode of Lawgical, but if there’s a specific question you would like an answer to, get in touch by Lyawyers.com or any of the social channels and we’ll try to answer it in a future edition of Lawgical. For a legal consultation, Lylawyers.com is the best place to start. Just hit the Contact button.
