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Overview: Redundancy under Labor Laws in the UAE

Published on : 07 Mar 2021

Redundancy under Labor Laws in the UAE

The primary legislation regulating workplace relations in the United Arab Emirates is Law Number 8 of 1980 on labor relations, as revised by Federal Laws Number 24 of 1981, Number 15 of 1985, Number 12 of 1986, Number 8 of 2007 and Number 6 of 2019 (Labor Law), and the relevant ministerial directives incorporating those provisions. The Labor Laws and various ministerial decisions contain specific provisions that seek to protect the interests of UAE nationals. The Labor Law is applicable throughout the UAE, except for those working within the DIFC (Dubai International Financial Centre) who are subjected to the DIFC Employment Law Number 2 of 2019 (DIFC Employment Law) and the ADGM (Abu Dubai International Financial Centre) who are subjected to ADGM Employment Regulations 2019, the officials, employees and workers in federal and local government departments, or appointed for federal and local government projects, members of the armed forces, police and security officers, domestic servants working in private households, workers employed in agriculture (apart from employees of agricultural companies engaged in processing products or operating or repairing machinery required for agriculture). 

The term "redundancy ", in the context of labor law, refers to a scenario in which an employer reduces its workforce if a certain job or jobs are no longer needed or it becomes 'superfluous'. A situation may arise due to factors that are beyond the employer's control, such as, but not limited to, the closure of the business, the employer's need to cut costs, the job no longer exists, or the ownership of the company changed hands, and therefore, in most circumstances, the dismissal is not a reflection of the employee's ability to do their job, but rather it is caused by unforeseen circumstances which sometimes can be plausible. 

It is pertinent to note that earlier, with regard to the redundancies and economically motivated workforce reductions were not recognized by local law in UAE. Hence, there were no specific economic reasons that the employer was obligated to prove to justify the dismissal. Instead, the dismissal procedure has been governed by the applicable labor laws (Federal Law Number 8 of 1980 on the Regulation of Labor Relations), and if it was found that there is no valid reason for an employee's dismissal, he/she was entitled to compensation of up to 3 months of their salary.

Redundancy is a sensitive and difficult aspect at any point in time and under any jurisdiction in the world. For firms operative within the UAE (including inside the DMCC Free Zone), the difficulty is especially advanced in lieu of the UAE Labor Law Number 8 of the Year 1980 and not taking off any specific statutory definition of redundancy or a redundancy procedure.

The year 2020 and the unforeseen events that followed may have been a blessing in disguise in terms of Environment Protection and to bring to light the importance of Healthcare around the world. However, no one can deny that the economic streak of the globally leading countries has been cursed, and it has not been easy on either the Employers or the Employees to sustain financially in the times where the money is prime to have good healthcare support if the situation may arise. For the conventional workplace, COVID-19 has raised a daunting challenge. 

As nations across the globe have struggled to minimize transmission speeds, many firms have enforced to operate remotely or face the risk of shutting down. Various employers have been forced to adjust and adapt their established environments, such as an office setting, to operate remotely with policymakers around the world enforcing stringent lockdown restrictions. It is thus, extremely difficult for employers and companies to make informed business decisions with minimal impact on their employees. In UAE, the predicament is compounded by the fact that local labor laws, in particular Labor Law Number 8 of 1980, do not contain a legal definition of termination of employment. To help private sector employers fight isolation measures, the UAE authorities announced the dismissal by Ministry Decree (Decree Number279 of 2020). This means that when an employer dismisses certain employees to cut costs in a difficult economy, it is legal to dismiss an employee as there is a valid reason for the dismissal, thereby empowering the employers to terminate unlimited term contracts for employment if there's a reason deemed fit by the authorities. The employees, however, are to be given a notice of termination of at 30 days. If the employment agreement requires a much longer notice of contract termination, then the agreement will supersede. It is pertinent to note the fact that different rules can apply to the termination of fixed-term employment contracts. 

An essential part of the regular backup process is to ensure that it is done correctly. Under the UAE labor law, the dismissal process should be conducted transparently, including a face-to-face meeting with all affected workers. 

  1. It is the responsibility of the employer to ensure that the process is formally and regularly updated, as well as providing appropriate documentary evidence of the same;
  2. Moreover, all accrued benefits, such as unused vacation, must be paid to the departing employee;
  3. The outgoing employee must receive a termination notice or compensation in lieu of termination, which must be served at least 30 days before the employee ends, and this restriction cannot even be lifted with the employee's consent;
  4. If the employee does not find suitable employment in the UAE within the specified time, the employer is required to return the employee to the country of origin;
  5. The outgoing employee has not benefited from any pension scheme managed by the company; the employer must pay the severance pay (or tip).

Most importantly, Resolution 279 introduces the term 'dismissal' into UAE labor law for the first time. If the employer has identified a surplus of non-UAE workers whose jobs will be made redundant, Resolution 279 requires the employer to do the following:

  1. Continue to give the former employee all rights other than basic wages, including accommodation, transportation and other allowances, and private health insurance, until the employee finds another job or leaves the UAE;
  2. Enroll a person on the MOHRE virtual labor market so that they can work for another organization, which is particularly useful in industries where the company's activity is increasing with the current suspension of employment abroad.
  3. The new employer may then legally employ an employee by selecting one of the following permit options for work: transfer of a work permit, temporary work permit or part-time work permit. 

Resolution 279 does not go so far as to clearly define the terms of layoffs - whether in connection with COVID -19 or otherwise - as a "valid" reason for categories of workers under UAE labor law. However, the Hon'ble Courts are likely to rule in favor of the employers who can show that ending layoffs was the only viable option for the company.

Resolution 279 also aims to help employers change their corporate structure by gradually adopting the following principles: 

  1. Creating a remote working system; 
  2. The offer of paid holidays to employees; 
  3. Providing unpaid leave to employees; 
  4. A temporary reduction in wages as well as a steady decline in wages.

In addition to the above payments, the labor courts in the UAE may ward compensation to workers if they are dismissed of their own accord. The amount of compensation will be determined by the Hon'ble Court and will take effect if the dismissal was illegal or unfair in relation to an employee who has a permanent employment contract. In this case, the court can award workers compensation for up to 3 months. A company that cannot find a valid reason or retain sufficient evidence to justify the lawful termination of an employee may put the employee at risk of being denied a visa and/or applying for a job due to arbitrary dismissal. If the employer follows a flawless procedure to maintain evidence of the termination situation, the employer will be able to protect himself from a statement of arbitrary termination and reduce the amount of compensation awarded to the terminated employee.

The balance of convenience here lies in favor of both the employees and employers; one gets compensated for their hard work and dedication with a good chance of working in another organization within the UAE if their termination was not due to their performance and on the other hand it gives the employers in UAE a legible space to make more economically benefiting decisions that may keep the organization alive as a going concern and a fair chance for more efficient administration. 

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