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Redundancy and restructuring in the UAE

Out-Law Guide | 07 Apr 2020 | 8:47 am | 4 min. read

Whenever there is a challenging economy, companies and employers have to consider making difficult decisions around the company costs and the impact on the workforce.

Redundancy and restructuring processes are sensitive and challenging topics in any jurisdiction. For companies operating in the United Arab Emirates (UAE), the issue is particularly complex as the UAE Labour Law (Law No. 8 of 1980) has not traditionally set out any express statutory definition of redundancy or redundancy procedure.

On 26 March 2020, the Ministry of Human Resources and Emiratisation published ministerial resolution no. 279 of 2020 (Resolution 279) as part of a package of new measures to support private sector employers in the UAE during the Covid-19 outbreak. Significantly, Resolution 279 introduces the concept of 'redundancy' into the UAE Labour Law for the first time. See our Out-Law Guide: Coronavirus: support for UAE private sector employers.

Redundancy within the UAE

As redundancy is not a defined statutory term in the UAE, there is often a lot of uncertainty and misunderstanding around the correct legal approach.

A redundancy dismissal is typically a situation where an employee is dismissed in response to a reduction in the requirement for that person's role. Redundancy dismissals are terminations that should never be the fault of the employee because the decision has not been taken because of poor performance or misconduct. Rather, it is a dismissal that has arisen as a result of a change in business requirements, a change in workplace location or the closing down of an employing entity in its entirety.

Although there is no statutory concept of redundancy, the courts have in the past acknowledged that where a business dismisses an employee for a cost-saving reason, this can amount to a legally fair and valid reason for dismissal under article 117 of the UAE Labour Law.

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Although there is no statutory concept of redundancy, the courts have in the past acknowledged that where a business dismisses an employee for a cost-saving reason, this can amount to a legally fair and valid reason for dismissal under article 117 of the UAE Labour Law.

The labour law provides that a company may terminate an unlimited term employment contract for a valid reason at any time by providing at least 30 calendar days' notice of termination to the employee (or longer, if the employment contract provides for a longer notice period). It is important to note that different rules apply to the termination of a fixed term employment contract.

The redundancy process

The elements of the redundancy process will be subject to the particular aspects of the situation and the size of the workforce which the process will affect.

A fair and thorough process should broadly involve a meeting with all employees, and one to one meetings with each affected employee. The process should provide the company and the affected employees with the opportunity to consider alternatives to redundancy; for example: changes in employee benefits, alternative roles within other parts of the business, or a reduction in working hours/shift to part-time working.

The company should also provide the employees with letters and formal updates throughout the process, and appropriate documentary evidence relating to the redundancy and wider economic situation.

An employer will be in a good position to defend any subsequent labour claims if it is able to set out a clear rationale for the redundancy dismissal which is supported by evidence, and if a fair and thorough process is undertaken. However, it is essential that the grounds for dismissal and the process and supported by clear documentary evidence.

The consultation process and documentary evidence can be issued to the employee in English. If a dispute is later pursued before the Labour Courts, the employer will need to translate the documentation into Arabic to submit before the courts.

Redundancy payments

There is no requirement to pay any redundancy payment to employees. The standard statutory termination payments apply:

  • notice pay – minimum of 30 days, subject to the employee completing their probationary period;
  • end of service gratuity – subject to the employee completing one year's service;
  • payment for accrued and untaken annual leave;
  • repatriation flight – subject to employee returning to their home country; and
  • any other contractual payments arising on the termination of employment.

Compensation for arbitrary dismissal

In addition to the above payments, the Labour Courts may also award employees with compensation for "arbitrary dismissal". An arbitrary dismissal is the unfair and/or unlawful dismissal of an employee who is party to an unlimited term employment contract, as determined by the Labour Court. In these circumstances, the court may award the employee up to three months' remuneration as compensation.

As there is no statutory concept of redundancy, a company which fails to engage in a reasonable process or does not retain sufficient evidence to support the dismissal will always face an element of risk that an employee will refuse to cancel their visa and/or pursue labour claims for arbitrary dismissals in a redundancy-type situation.

If the employer adopts a good process and has evidence to support the redundancy situation, it will be in a strong position to defend a claim of arbitrary dismissal and/or mitigate the level of compensation awarded to any dismissed employee. The safest practice is to plan the redundancy procedure in advance, and to take commercial and legal advice before embarking on any particular redundancy procedure.

Restructures within the UAE

Redundancy dismissals within the UAE can be particularly challenging in light of the residence status of the majority of expats being linked to their employment and visa sponsorship. For this reason, companies may wish to consider restructuring before entering into a redundancy procedure, allowing them to retain their skilled workforce while saving on costs.

Examples of restructures include transferring staff into different roles within the business, moving staff around regional or global offices where capacity is required, reducing working hours for a temporary period, removing non-essential benefits from employment terms for a temporary period or asking staff to take leave during periods where the business is quieter.

Whatever the desired approach for employers, wherever there are financial challenges and the business needs to cut costs the main objective should be to avoid a dispute or litigation with current or exiting staff. We always recommend that companies understand their legal obligations and undertake thorough and open consultation procedures with their workforce before implementing any such changes.