Unlawful termination as per the new UAE labour law

In this context, the legislator has – presumably intentionally – made a minimal change in the wording of the law compared to the previous regulations, which – on one hand – provides clarity in regard to the interpretation and therefore probably also corresponds to the purpose of the law. At the same time, this change is likely to have far-reaching consequences to the detriment of employees and thus could significantly restrict employee protection and their entitlements.

 

Before delving into the actual topic of entitlements and compensations of employees in the UAE in case of arbitrary dismissals, it must first be clarified that in the UAE, as well as in most of the GCC Countries, for foreign employees, no legal remedy for the reinstatement of the employment relationship comparable to known in German-speaking countries is existing. Consequently, an employee's legal remedy in the event of illegal termination, at least in the complaint, is not aiming to the reinstatement of the employment relationship, but only for compensation. 

 

The legal requirements of such a compensation for an unlawful termination have now been redefined by the legislator within the new Labour Law (Federal Decree Law No. 33/2021) and, at least from a first point of view, largely restricted within the requirements of such claim to the detriment of the employee. 

 

In the past, Article 123 a) of the old Labour Law provided the basis for the compensation in the event of arbitrary dismissal. Accordingly, the court could have ordered the employer to pay a compensation not exceeding a three months' salary, whereby the basis for the calculation this is the gross salary, and not the basic salary as in the case of the end-of-service gratuity. The amount of the compensation is determined considering factors such as the duration of the employment, the employee's position and the extent of damage incurred to the worker.

 

However, the question arises what must be considered as an “arbitrary dismissal” in this regard, which gives rise to such a claim. Therefore, Article 122 provided a legal definition of the arbitrary dismissal. According to this, an employer's dismissal was to be deemed as arbitrary if the cause for the dismissal was not related to the work, in particular, if the dismissal was made as a result of filing a serious complaint against the employer at the competent authority – such a complaint is in general mandatory before an action is submitted to the competent court – or if the dismissal was preceded by a valid claim by the employee against the employer. 

 

Certainly Article 122 provided two standard examples for the legal definition with the "filing a serious complaint at the competent authorities" on the one hand, and the "valid claim against the employer" on the other, in which the reason for termination was to be considered as "not related to the work" and therefore as arbitrary. However, this was not intended to be an exhaustive list of examples, so that the court had scope to interpret the wording and could also exercise this scope in favour of the employee, as the court was not bound by the (non-exhaustive) examples mentioned within the law. Therefore, other cases were not excluded in which a reason for dismissal was to be considered as "not related to work" and therefore arbitrary.

 

In Article 47 No. 2, the new Labour Law also provides the right of compensation in the event of illegal termination. The amount of this compensation is again limited to a maximum of three months' salary, whereby (as already before) factors such as the length of the employment relationship, the type of work and the damage sustained by the employee must be taken into consideration when determining the amount. 

 

Furthermore, Article 47 No. 1 also provides a legal definition of the term "illegal termination", which on a first point of view hardly differs from the previous wording. So far so good!

However, when examining the wording of Article 47 No. 1 in detail, it is noticeable that it now lacks the characteristic "related to work" and the termination is only to be considered as illegal if it is due to filing a serious complaint with the Ministry of Human Resources and Emiratisation or filing a lawsuit against the Employer that has been proven to be valid. Consequently, the legislator has (probably intentionally) refrained from giving the courts further room for employee-friendly interpretation. Instead, an illegal termination and therefore the existence of the claim requirements shall be expressly restricted to the two cases mentioned within the scope of the exhaustive enumeration of Article 47 No. 1.

 

In this respect, the legislator requires, as it were, a certain moment of retaliation on the part of the employer for an intrinsically lawful measure by the employee. In practical terms, if the wording is applied accurately, there should hardly be any more circumstances under which such a claim of compensation will arise. 

 

Considering the change of the wording and therefore in the requirements of such entitlement and further legal ambiguities are evident in this context. Reference should be made to Article 43, which sets out the requirements for ordinary termination. 

 

According to Article 43 No. 1, both, the employer, and the employee may terminate the employment relationship for any legitimate reason, considering the agreed notice period. The law does not provide a legal definition of the term "legitimate reason", so that a weighing of interests considering the specific case would have to be carried out here. 

 

With reference to Article 47, the question arises, ‘what is the relevance of the requirement of “any legitimate reason” within the meaning of Article 43 No. 1, if a compensation pursuant to Article 47 is only to arise if the requirements – as mentioned above – are met, but not, according to the wording of Article 47, if there is a lack of legitimate reason within the meaning of Article 43’. 

 

Although the law explicitly states that in case of failure of the notice period, the other party is entitled to a compensation in the amount of the salary of the notice period, even without sustaining any damage, the role of the factual characteristic "legitimate reason" remains largely unclear. In case of applying the Labour Law literally, no negative consequences or compensation payments are to be expected in case of termination without a legitimate reason. 

 

Consequently, the only option for the contractual partner to claim a compensation would be to assert a compensation by invoking claims under the Civil Code based on the contractual liability, in which case the sustain of an actual damage would have to be proven.

 

By amending and at the same time restricting the legal definition of the term "illegal termination", the legislator has likely, complied with the purpose of the Labour Law as defined in Article 2 No. 2 of the new Labour Law, i.e., the clear regulation of the employment relationship and the definition of obligations and rights. At the same time, this contradicts the latest trend of an employee-friendly legislation and case law by depriving the courts of the power to interpret an illegal dismissal in an employee-friendly manner. At first glance, this has far-reaching consequences, in that neither the absence of a legitimate reason as per Article 43 in connection with an ordinary termination, nor the lack of one of the exhaustive reasons within the meaning of Article 44 in connection with a termination without notice, leads to a compensation as per the Labour Law.

 

Based on the wording of the new Labour Law, the employer may unilaterally terminate an employment relationship at any time, considering the agreed notice period without any financial counterclaims under the Labour Law, unless the employee has previously taken any administrative or judicial action against his employer. However, if the employee does not expect such a termination in advance, this circumstance appears to be rare, since a complaint or cause of action must be presented by the employee for these measures as well.

  

At second glance however, the employee still has remedies against illegal terminations without legitimate reason or other violations on the part of the employer, with reference to the bases of claims from contractual liability as per the Civil Code. However, in each case proof of sustained damage is required, which may be a high hurdle for the employee. In addition, those claims are general such under liability law but are not geared to disputes under employment law so that the enforcement of these claims can involve considerable difficulties for the employee. On the other hand, it appears to be an advantage that, contrary to the claim for damages under the Labour Law, such claims are not limited in amount but relate to the full damage. 

 

Finally, it remains to be seen how case law will develop regarding these claims, although – as described – the courts are unlikely to have much room for interpretation. It also remains doubtful whether the effects described are in line with the legislator's intentions.