Examining the Shift: Arbitrary Dismissals and Compensation in the UAE Labour Law 

May 13, 2024 thehrobserver-hrobserver-newlabouruaelaw

In February 2022, Federal Decree-Law No. 33/2021 (the “New Labour Law”) was enacted, repealing the provisions of Federal Law No.8/1980 (the “Old Labour Law”). This comprehensive legislative overhaul was to strealine the UAE’s employment regulations, bringing them in line with international standards and adopting best practices observed in global markets. The New Labour Law introduced substantial changes affecting the private sector and all Free Zones across the country, except the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM).

One area of particular focus within the New Labour Law has been the revision of termination procedures, notably the amendment to the arbitrary dismissal provision previously outlined in the Old Labour Law. These changes have garnered significant attention and careful deliberation where some welcome such change and others do not. 

Employment termination

Under the Old Law, termination of employment without notice was provided for under Article 120 which comprised a list of circumstances granting the employer authority to dismiss the employee without prior notice and end-of-service gratuity. Such circumstances included but were not limited to; the adoption of false identity by the employee, dismissal during the probationary period, where the employee commits an error resulting in material loss to the employer, and failing to perform primary duties as stipulated under the employment contract. While the New Law retains most of these circumstances, it has delineated the procedures to be followed in the event of a dismissal of the employee without notice. An example is the reformation of the disclosure of confidential information by an employee, with specific provisions related to industrial and intellectual property information included, further specifying that disclosure leading to harm, loss of opportunity for the employer, or personal gain to the employee can warrant dismissal without notice. 

When an employee cause “notable damage”

Other notable amendments include notification to the Ministry of Human Resources and Emiratisation (“MOHRE”) concerning instances where the employee has caused material loss to be made within seven working days, the employee facing termination must receive two written warnings before dismissal if they fall short of performing their primary duties, and where disclosure of trade secrets results in loss for the employer, loss of opportunity, or personal gain by the employee. Furthermore, two additional grounds of dismissal without notice were added: where an employee abuses their position to obtain personal gain and profit and where they join another establishment without complying with the applicable procedures for such a transfer as per Article 44 of the New Labour Law. 

No open-ended unlimited employment

Under the New Labour Law, open-ended, unlimited-term employment contracts that prevailed under the Old Labour Law have been discontinued. The new regime mandates that all employment agreements be for a fixed duration. This limited-term reality comes with a caveat:  neither party is entitled to compensation should the contract be terminated prematurely. A stark contrast from the Old Labour Law’s protections. The only exception lies in Article 44, which outlines a narrow set of circumstances where compensation may be awarded upon early termination. However, unless those very specific conditions are met, terminated employees will only receive accrued standard employment entitlements. 

Arbitrary dismissal

Arguably, one of the most significant changes revolves around “arbitrary” dismissal, as was provided for under the Old Law. Article 123 of the Old Labour Law stipulated arbitrary compensation for employees where their termination fell outside of the circumstances stipulated under Article 122. The Old Labour Law outlined two primary circumstances where termination not related to the employees’ scope of work would be considered arbitrary; the dismissal was a result of a serious complaint against the employer submitted to a competent authority or if it was due to a valid claim made against the employer by the employee. However, this was not intended to be exhaustive, thus conferring authority and discretion upon the courts to interpret Article 122 as required. 

By revising the terminology governing termination within the New Labour Law, the scope for employees to be entitled to compensation has been significantly reduced. Article 47(2) now links the entitlement to compensation explicitly to instances of “illegal” termination. Specifically, Article 47(1) limits illegality to scenarios where termination of employment results from an employee filing a complaint against the employer with a competent authority or filing a valid claim against the employer. In instances where the termination falls within the bounds of illegality as prescribed by Art. 47(1), the courts remain the competent authority to determine the suitable compensation which is calculated based on the nature of work, extent of damage incurred, and length of an employee’s tenure. The compensation, while capped at three months’ remuneration, is supplementary to any notice and gratuity entitlements due to the employee. 

While the New Law’s attempt to streamline the termination procedures is commendable, the revision to the concept of “arbitrary” dismissal may have ramifications that raise concerns for employees.

Essentially, under the New Law, compensation for unlawful termination is only granted if the termination stems from employer retaliation against the employee for filing a complaint or claim. By preserving what could be perceived as the ‘retaliatory’ aspect of unlawful dismissal and disregarding the broader protection offered by the ‘arbitrary’ dismissal provision, the opportunities for employee recourse may be limited. It would be prudent to mention that the burden of proof thus falls upon the employee claiming their termination was unlawful, and without evidence substantiating their illegal termination in the form of a complaint or claim against their employer, recourse to compensation stands restricted. 

Despite the restrictions in some aspects of the New Labour Law, the New Labour Law made some significant positive strides in clarifying certain provisions of labour relations between the employee and the employer. It is yet to be seen whether the courts, in the application of the New Labour Law, will go a step further and clarify the remaining provisions.

Ahmad Al Khalil

Partner, Crimson Legal

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