Redundancy and restructuring in the UAE

Out-Law Guide | 10 Apr 2019 | 10:53 am | 2 min. read

Redundancy is a sensitive and challenging topic 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) does not set out any express statutory definition of redundancy or redundancy procedure.

This guide was last updated in April 2019

Businesses operating in the UAE are now more diverse, sophisticated and agile than ever before. This means that UAE companies often require support around reorganisation, restructuring and cost-saving exercises in reaction to economic developments. Redundancy is an important issue when discussing these topics.

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. While 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.

Under article 117 of the UAE Labour Law, 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 article 117 applies to the terms of an unlimited term employment contract and not 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

When a company dismisses an employee from an unlimited term employment contract for a redundancy-type reason, the employee should be provided with the following payments on termination of employment:

  • 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.