Termination of Employment Contract in UAE

Jahid Tapadar

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    An employment contract is an agreement with a limited or unlimited period, between an employer and an employee whereby the employee commits to work for the employer and agrees to work under the employer’s management and supervision, for which the employee receives remuneration from the employer. There are two types of employment contract in UAE, one is limited and other one is unlimited.

    Here in this blog, we are trying to answer some of the questions related to termination of employment contract.

    1. When is a limited employment contract considered terminated?Limited contract is considered terminated in any of the following cases;
      • On expiry of the specified period in respect of limited contracts, unless the contract is explicitly or implicitly extended.
      • Mutual consent by both parties to terminate the contract, provided that the employee’s consent is in writing.
      • If the employee dies or is completely incapacitated from working as evidenced by a medical certificate.
    2. When is an unlimited employment contract considered terminated?
      • At the option of either party in respect of unlimited contracts provided that the correct notice is given and the grounds for termination are not arbitrary; or
      • Mutual consent by both parties to terminate the contract, provided that the employee’s consent is in writing.
      • If the employee dies or is completely incapacitated from working as evidenced by a medical certificate.
    3. Can an employer terminate an employee during their leave?With the exception of cases where the employer has the right to dismiss the employee without notice and without end of service benefit the employer cannot dismiss an employee or serve notice of dismissal during the employee’s leave.
    4. When can an employer terminate an employee without notice?The UAE Labour Law states that an employer may dismiss the employee without notice in the following cases.
      • If the employee adopts a false identity or nationality or submits forged documents or certificates.
      • If the employee is under probation.
      • If the employee commits an error causing substantial material loss to the employer.
      • If the employee violates safety instructions at the place of business, provided that such instructions are displayed in writing at conspicuous places and, in case of an illiterate employee, the employee has been informed verbally of the same.
      • If the employee fails to perform their main duties under the contract of employment and does not remedy them despite formal investigation and warning of dismissal if repeated.
      • If an employee divulges any secrets of the establishment where employed.
      • If the employee is convicted by a competent court, in a crime of honour, honesty or public morals.
      • If the employee is found drunk or under the influence of drugs during working hours.
      • If, in the course of work, the employee commits an assault on the employer, the manager or any colleague.
      • If the employee is absent without valid cause, for more than twenty intermittent days or for more than seven successive days, during any year.
      • If the employee works for another employer during annual or sick leave.

      The UAE Labour Law contains a minimum statutory disciplinary process which employers should follow prior to termination, where appropriate. Please note that termination under Article 120 of the Labour Law is difficult in practice, as it is a very high hurdle to satisfy and may involve referrals to the police and/or other third parties for independent confirmation of the allegations prior to termination. We therefore recommend that prior to terminating under Article 120, an employer seeks independent legal advice.

    5. Can an employer terminate the employee because that employee has a dispute against the employer?If an employer terminates an employee’s employment because the employee has lodged a complaint or claim against the employer, the termination shall be deemed arbitrary. The same applies where the reason for the termination of the employee’s employment has nothing to do with the employee’s work. If an employee is arbitrarily dismissed, they may raise a claim and, if successful, may be entitled to compensation up to a maximum of three (3) months’ remuneration.
    6. When can an employee resign without notice?An employee may resign without notice in the following cases:
      • If the employer does not fulfil their obligations towards the employee as provided for in the contract or under UAE Labour Law; or
      • If the employer or its legal representative has committed an act of assault against the employee.
    7. Can an employer terminate a contract during the probation period? Yes, the employer may terminate the services of the employee without notice and without payment of end of service benefit during the probation period.
    8. Can an employee terminate an employment contract without notice during the probation period? Article 37 of the UAE Labour Law only provides the employer with the right to terminate the services of an employee without notice during the probation period. However, if the contract provides for mutual termination without notice or on reduced notice by both employer and employee during the probation period (i.e. something which is more favourable to the employee than the position under the UAE Labour Law) then the employee will also be able to terminate the contract without notice or on reduced notice during the probation period.
    9. Can the employer terminate an employee who cannot return to work due to illness?  Yes, the employer may terminate the services of an employee, in accordance with the notice provisions, if the employee is unable to resume their duties following 90 calendar days’ sick leave in any year of service. The employer must allow the employee to take the full sick leave entitlement before terminating.
    10. How much notice period is required to terminate an unlimited contract? Both the employer and the employee may terminate an unlimited contract by giving not less than 30 calendar days’ written notice.

      For employees working on a daily basis the notice is less as follows:

      • One week if the employee has been employed for more than six months but less than one year.
      • Two weeks if the employee has been employed for not less than one year; and
      • One month if the employee has been employed for not less than five years.
    11. What are the entitlements of a party if the other party fails to serve notice?If the employer or the employee has failed to serve notice to the other party for termination of the contract or has reduced the notice period, the party obliged to serve the notice shall pay to the other party compensation in lieu of notice.

      The amount of compensation in lieu of notice is an amount equal to the employee’s remuneration for the notice period in full or in proportion to the diminished part.

    12. Who bears the repatriation costs on termination of employment?Expenses for repatriation of a non-UAE national employee (to their place of origin or other agreed place) are covered by the employer regardless of the place of recruitment and whether termination takes place during or after the probation period. The visa status of the employee is also irrelevant for the purposes of whether a repatriation ticket should be provided. However, if the employee takes up employment somewhere else in the UAE, repatriation expenses upon termination of their service shall be paid by the new employer.

      Updating yourself on the rules pertaining to employment contract before signing the contract will help in avoiding any conflicts of interest later on. One must be aware of the termination rules, reasons that can lead to termination, the duration of notice period and everything related to employment termination.

    Payroll Service in UAE

    The process of payroll is a little complicated and time-consuming; hence it is always recommended to outsource your company’s payroll function. Outsourcing payroll will ensure the assistance of a team of trained payroll professionals and it frees up the time of the organization, helping them focus on other projects that add value to their business. One should be extra vigilant while selecting their payroll provider, as payroll data is highly sensitive, and one should opt for a provider that can ensure high levels of data security.

    As a leading payroll outsourcing company, HLB HAMT can help solve your payroll complexities through customized strategies. We take care of our clients’ entire payroll cycle that includes preparation of payroll reports, processing salary payment with WPS compliance, accrual management including Gratuity, pension funds, an online portal for accessing payslips, and many more. Our leadership team spends the necessary hours in every project, ensuring our clients get refined consulting services to take your business forward.

    To know more about our payroll process, click here.

    Disclaimer

    Whilst every effort has been made to ensure the accuracy of this information, HLB HAMT will not accept any liability arising out of errors or omissions. Please note that this blog is not all-inclusive. Our guidance is designed only to give general information on the issues/topics covered. It is subject to change and is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.

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