Redundancy in the UAE: Understanding Your Rights and the Legal Framework

Introduction

We take this opportunity to discuss a very hot topic of Redundancy, a term frequently used by employers, but not always properly understood or fairly applied.

• 2016: Initial recognition of redundancy under UAE Labour Law, providing a foundation for lawful termination due to business needs.
• 2020: Ministerial Resolution No. 279 of 2020 introduced during the COVID-19 pandemic to regulate redundancy dismissals, mandating compensation and outlining procedural requirements for employers.
• 2021: Federal Decree Law No. 33 of 2021 and its executive regulations further detailed the conditions and processes for redundancy, emphasizing transparency and fairness.

This article outlines the legal framework, rights of employees, and obligations of employers under the UAE Labour Law as follows:

• Federal Decree-Law No. (14) of 2022 amends certain provisions of Federal Decree-Law No. (33) of 2021
• Federal Decree-Law No. (20) of 2023 further amends specific provisions of Federal Decree-Law No. (33) of 2021
• Cabinet Resolution No. (1) pertains to the executive regulations of Federal Decree-Law No. (33) of 2021

When Can You Be Made Redundant?

Redundancy in the UAE is a critical and often misunderstood aspect of Employment Law. The UAE Labour Law recognizes redundancy under specific and narrow circumstances. Below are the conditions under which an employee can be made redundant:

Bankruptcy or Insolvency of the Employer

Under the UAE Labour Law, if an employer is declared bankrupt or insolvent, the employment contract may be terminated as a consequence. This provision ensures that employers who are financially incapable of continuing operations have a legal pathway to terminate employment contracts lawfully. The UAE has developed comprehensive laws to address bankruptcy and insolvency, providing mechanisms for companies to handle financial distress and ensuring fair treatment of employees during such processes.

1. Key Laws Governing Bankruptcy and Insolvency:

• • Federal Decree-Law No. (51) of 2023 – Financial Restructuring and Bankruptcy Law: This law provides a framework for the financial restructuring and bankruptcy proceedings of companies, ensuring orderly management of financial distress and protection for stakeholders, including employees.
  • Federal Decree-Law No. (19) of 2019 – Insolvency: This law focuses on the insolvency of individuals and provides clear and easy-to-apply rules for managing insolvency, protecting debtors’ dignity, and encouraging financial rehabilitation.
  • Cabinet Resolution No. (47) of 2021: This resolution pertains to determining the debt amount that necessitates the initiation of insolvency procedures and the liquidation of assets. It also amends certain periods and amounts specified in Federal Decree-Law No. (19) of 2019 concerning insolvency, further refining the process and criteria for insolvency proceedings.

These laws ensure that both employers and employees have a clear understanding of their rights and obligations during financial distress, promoting fairness and stability within the business environment.

2. Exceptional Reasons

Exceptional reasons that prevent the continuation of a project can also lead to redundancy. These include unforeseen events or significant changes in business conditions that make it impossible to continue the project. The termination of the employment contract under such conditions is subject to a court ruling or an official statement from the relevant authorities.

Legal Framework:

• • Clause No. 8 of Article No. 42 of Decree-Law No. (20) of 2023: This clause permits the termination of employment contracts for valid reasons, which can include significant economic shifts or operational restructuring. It ensures that redundancies are justified by substantial business needs and not arbitrary decisions.
  • Ministerial Resolution No. 279 of 2020: Introduced during the COVID-19 pandemic, this resolution was designed to regulate redundancy dismissals, emphasizing the need for a fair and transparent process. It outlines specific procedures and compensations to ensure that employees are treated fairly during such exceptional circumstances.

These provisions ensure that employers can lawfully terminate employment contracts due to exceptional reasons while protecting employees’ rights through a regulated and transparent process.

Legal Grounds for Redundancy

Employers must adhere to the following legal grounds and procedures:

• • Valid Reason: Redundancy must be based on valid business needs such as reorganization, cost-saving measures, or economic changes.
  • Notice Period: Employers are required to provide at least 30 calendar days’ notice
  • Termination Letter: The termination letter must specify that the termination is due to redundancy, including details about the notice period and any payment in lieu of notice.

Employee Rights

Employees facing redundancy have specific rights and entitlements:

• • Notice Period: A minimum of 30 days’ notice must be provided.
  • End-of-Service Gratuity: Employees with at least one year of service are entitled to end-of-service gratuity.
  • Accrued Benefits: Payment for unused annual leave and other accrued benefits.
  • Repatriation: Employers must arrange a return ticket for the employee to their home country if the employee plans to return.
  • ILOE Insurance: Eligible employees can claim benefits under the Involuntary Loss of Employment (ILOE) insurance scheme.

Challenging Redundancy

Employees in the UAE have the right to legally challenge redundancy if they believe their termination was arbitrary or unfair. The UAE Labour Law provides mechanisms for employees to seek justice and ensure that employers adhere to legal standards during the redundancy process.

Arbitrary Dismissal Claim

• • Employees’ Rights to File a Claim:

    Employees can file an arbitrary dismissal claim if they believe their termination was not conducted in accordance with the legal requirements. This claim can be lodged through the concerned labour department or the Court of First Instance. According to Article 47 Unlawful Termination of Worker’s Service of Federal Decree-Law No. (20) of 2023, a dismissal is considered arbitrary if it is not based on a valid reason related to work or if the employee is dismissed for filing a serious complaint against the employer​​.

Legal Obligations of Employers:

• • Employers must provide substantial evidence that the redundancy was necessary and conducted in compliance with UAE Labour Law. This includes demonstrating that the redundancy was due to valid business needs such as economic changes, reorganization, or cost-saving measures, as specified under Article 42 of the UAE Labour Law​​.
  • Employers must also prove that they followed the proper procedures, including providing the required notice period, issuing a termination letter specifying the reason for redundancy, and offering any due compensation such as end-of-service gratuity and redundancy payments​​​​.

Potential Outcomes of a Successful Claim

• • Reinstatement: If the court finds that the redundancy was arbitrary or unfair, it may order the reinstatement of the employee. This means the employee would return to their position and continue their employment as if the termination had not occurred.
  • Redundancy Payment: Employees who successfully challenge their redundancy may be entitled to a redundancy payment.
  • Full Notice Payment: The court may also order that the employee receive full notice payment. This compensates the employee for the notice period that was not properly observed by the employer, ensuring the employee is financially protected during the transition period​​.
  • Support and Compensation: In cases where an employee proves that the redundancy was conducted unfairly or unlawfully, they are entitled to seek further compensation for any damages incurred due to the arbitrary dismissal. This includes compensation for emotional distress, reputational damage, and any other financial losses suffered as a result of the unlawful termination​​.

Employer Obligations

Employers must ensure transparency and fairness throughout the redundancy process:

• • Compliance with Legal Provisions: Adherence to UAE Labour Law No. (20) of 2023 further amends specific provisions of Federal Decree-Law No. (33) of 2021
  • Documentation and Communication: Clear communication and proper documentation to avoid disputes regarding the nature of dismissal.
  • Comprehensive Redundancy Plan: Employers must present a detailed plan outlining the redundancy procedure, implementation schedules, and selection criteria for affected employees.

Conclusion

Understanding the legal framework surrounding redundancy is crucial for both employers and employees in the UAE. While the law provides specific guidelines and protections for employees, employers must follow stringent procedures to justify redundancies and ensure a transparent and fair process. Employees facing redundancy should be aware of their rights and can seek legal recourse if they believe their termination was unjust.

How Motei & Associates Can Be of Legal Assistance

Facing redundancy can be challenging, but Motei & Associates offers expert legal assistance to help you understand and protect your rights under UAE law.

• • Legal Guidance and tailored Legal Advice on UAE Labour Law, including the specifics of redundancy and employment termination laws.
  • Challenging Redundancy – If you believe your redundancy was unfair, the firm can help you file an arbitrary dismissal claim, navigate the legal process, and present your case effectively to ensure fair treatment.
  • Securing Compensation – We can assist you in securing your entitled compensation, including end-of-service gratuity, redundancy payment, and notice payment.
  • Legal Representation and Support in Court and Strategic Advice for negotiating severance packages and understanding additional benefits.

At the beginning of the COVID-19 period and the measures implemented to mitigate the pandemic’s impact on the labour market, these measures were gradually revoked with the return to normalcy. Consequently, Ministerial Decision No. 279 of 2020 concerning the stability of workers in private sector establishments during the period of precautionary measures to limit the spread of the novel coronavirus has been cancelled.