Responses by Sara Khoja, partner, Employment and Incentives Group, Clyde & Co, Dubai.
Is there a requirement for employers to legally justify redundancies and if so what reasons do they need to provide?
In UAE the concept of redundancy does not exist in the labour laws. There is no legal definition of 'redundancy', no mandatory consultation requirements or notification requirement to the Ministry of Labour prior to serving notice of termination of employment. An employee is, however, able to challenge an employer's decision to lay them off by claiming arbitrary dismissal.
In the UAE, an arbitrary dismissal is where the reason for redundancy does not relate to the employee's work; the implication being that a valid reason for termination is poor performance or misconduct. However, the courts have recognised an employer's right to restructure the business and thereby terminate employee's employment.
Nonetheless, UAE courts do apply a high evidentiary burden on the employer to justify the dismissal and show a genuine reason for redundancy to the point of examining their business reasons for the job cuts.
An employee is not entitled to written reasons for termination, but an employer who does not give a document the reason for cutting jobs in writing will be in a weak position to defend any claim for arbitrary dismissal. The employee has the burden of proving his claim and, if no reason for the termination is given, it’s easier for them.
The freezone of the Dubai International Financial Centre, where most financial sector workers are based, has its own employment law. Nonetheless, there’s again no concept of redundancy, but (oddly) there is a provision saying than any employee losing their job is entitled to a reasonable amount of time off to search for alternative employment.
What is the statutory minimum notice period?
30 days' written notice is the minimum.
What is the statutory minimum calculation for redundancy payments (if any)?
There is no statutory redundancy payment under the UAE labour laws. An employee is entitled to notice, payment in lieu of accrued untaken holidays and a payment called ‘end of service gratuity’. This is a benefit conceptually intended to be in lieu of pension benefit. It is payable to an employee on termination, regardless of whether the employee resigns or the employer terminates employment and is always payable, unless the employment is terminated for gross misconduct.
End of service gratuity in the UAE is:
- Subject to the employee having at least 12 months' continuous service.
- 21 days' basic salary for each of the first 5 years of employment.
- It then goes up to 30 days' basic salary for each complete year of service over 5 years;
- It’s subject to an overall cap of 2 years on the benefit.
- Bonus and commission should also be factored into the payment calculation if the bonus is guaranteed or the commission is integral to the employee's remuneration and is payable under a clear commission scheme.
- Periods of unpaid service during employment do not count towards calculation of the benefit.
According to law what are the minimum steps that an employer should take during a redundancy process?
When effecting any termination of employment, a three step process should be followed including notifying the employee of the potential decision, meeting the employee face-to-face in order to discuss the potential decision and then confirming the decision and issuing notice in writing.
What are the consequences for employers who fail to comply with redundancy laws? What kind of compensation can employees claim, and is the amount capped?
As discussed above, it’s possible for an employee to claim arbitrary dismissal in the UAE. If successful, the maximum claim is three months’ remuneration in addition to notice and end of service gratuity (essentially a form of severance pay).
The federal labour law also provides for compensation if a fixed term contract is terminated, other than for gross misconduct. The compensation is 3 months' remuneration or what remains of the fixed term (whichever is the shorter period).
In the DIFC, there is also no statutory entitlement to claim unfair dismissal. An employee terminated would have limited recourse to complain, apart from claiming that the decision to terminate was based on unlawful discrimination or that the discretion to serve notice had been exercised unreasonably and therefore breached the employment contract and the implied term of mutual trust and confidence.
Statutory minimums aside, what is the standard practice for making redundancies and calculating payments at banks in the Italy?
Outside of the DIFC, most regional banks follow the guidelines above. However, international banks have company-wide redundancy policies, which would also be applicable in the UAE. It is therefore not unusual for employees to receive more than the minimum statutory entitlements subject to the signing of a waiver and release agreement.