Termination Compensation under the new UAE Labour Law

In November 2021, the Ministry of Human Resources and Emiratization (“MOHRE”) issued Federal Decree No 33 of 2021 regulating labour relations (the “Current Law”) which repealed and replaced the previous Federal Law No 8 of 1980 (the Old Law”) in its entirety effective 02 February 2022.

One of the most significant changes brought about by the Current Law is the removal of the concept of ‘arbitrary dismissal compensation’ and the inclusion of a different provision for unlawful termination.

By way of background, any termination under the Old Law (i) that did not meet the narrowly defined requirements to constitute gross misconduct; or (ii) whereby the employer relied upon poor performance in circumstances where it was unable to provide enough evidence to the court to support said poor performance almost inevitably gave rise to a compensation award of up to a maximum entitlement of three months gross salary namely ‘arbitrary dismissal compensation’.

The amount of compensation awarded to the employee was subject to the court’s discretion which usually considered factors such as the employee’s position, length of service and the damages suffered from the termination.

This concept is not provided for under the Current Law. In the alternative, Article 47 of the Current Law only includes provision for compensation of up to three months’ wages for unlawful termination of employment.  This concept is very narrow and it is limited to circumstances whereby an employee’s service is terminated by the employer due to the employee raising a serious complaint with the relevant labour department or a court case. In other words, according to the Current Law, unlawful termination compensation is only payable in cases of victimization whereby the employer has terminated the employee by reason of them having filed a complaint to the applicable authorities.

This is a significant change and much reduces the scope for terminated employees to pursue compensation before the UAE labour courts. It effectively means that the employer now has the ability to terminate and dismiss an employee for any reason (provided that said reason is not discriminatory given that the Current Law includes protection in such a scenario) without having to establish a just cause or a valid reason for the termination.

Both the Dubai Courts and Abu Dhabi courts at all levels (Court of First Instance, court of appeal and cassation) have now issued final judgments upholding the position and the above interpretation of Article 47, namely;  no compensation for unlawful dismissal unless the employee filed a valid complaint first before the relevant labour department or a court case and was terminated for doing so, in which case the employee may be awarded up to three months’ salary as compensation at the judge’s discretion based on the employee’s title, job description, length of service and any damages suffered due to the termination.

In conclusion, the Current Law will impact the number of cases being filed before the UAE labour courts given the limited circumstances upon which  an employee may successfully claim termination compensation.  On the flip side, it will provide employers with more flexibility in terminating employees and more certainty that a decision to do so is unlikely to lead to adverse consequences.