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Firms must know UAE law before downsizing

A company must be well versed with labour law before terminating employment

Corporate downsizing
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Under the UAE Labour Law, the termination of anunlimited term contract(other than in the circumstancesprovided for in Article120) must be on writtennotice and for a “validreason” (that is, a reasonconnected to the employee’swork).
Gulf News

Employee terminations involve an inevitable degree of emotion and are never easy. In these times of econ-omic uncertainty, many companies are considering the possibility of reducing their payroll costs by reducing their headcount. From a legal perspective, there are certain points to consider when proposing to make staff redundant.

Under the UAE Labour Law, the termination of an unlimited term contract (other than in the circumstances provided for in Article 120) must be on written notice and for a "valid reason" (that is, a reason connected to the employee's work). The labour court may award compensation of up to three months' remuneration should the termination be deemed by the court to have been arbitrary.

Although there is no statutory definition of redundancy in the UAE Labour Law, the labour courts have recognised an employer's right to restructure its business and have held that redundancy is a valid non-arbitrary reason to terminate an employee.

However, any decision to make a particular employee or group of employees redundant should be capable of justification and, in all the circumstances, be reasonable, fair and transparent in the event that any redundant staff member(s) chose to bring against the company a claim for arbitrary dismissal.

To limit exposure, employers should undertake a limited consultation process. In the case of fixed-term contracts, in the event that the employer (or employee) terminates it for any reason other than those under Article 120 (or Article 121) of the UAE Labour Law, unless the employment contract provides otherwise, early termination compensation for a period of three months (at full pay in the case of a defaulting employer and half pay in the case of a defaulting employee) or salary for the residual period of the contract, if shorter than three months, will become payable.

Moreover, there are restrictions on the dismissal of UAE nationals, following Ministerial Decree No. 176 of 2009, "Restricting the Dismissal of UAE Nationals".

Termination under the DIFC Employment Law

The DIFC Employment Law, as currently drafted, implicitly recognises the concept of ‘redundancy' by providing that those "dismissed as redundant" are entitled to take reasonable time off during working hours, and before the end of the notice period, to look for new employment.

However, as at the present time, there is no statutory definition of ‘redundancy' or any prescribed redundancy process or procedure to follow; and nor does there exist an express concept of unfair dismissal. Termination without notice is permitted but only where an employee commits an act of "misbehaviour" which is defined in broad terms to encompass where an employee's conduct warrants termination and a reasonable employer would have terminated the employee (that is, in such circumstances).

Discrimination and fostering a diverse work environment

Protection from discrimination is expressly provided by the DIFC Employment Law. The rationale of the DIFC Employment Law is to ensure, among other things, that all employees based within, or ordinarily working within or from, the DIFC, are treated in accordance with "minimum international standards and conditions of employment."

To succeed in a discrimination claim, the claimant must show that he or she has been subjected to differential treatment based upon either his or her gender, marital status, race, nationality or religion, mental or physical disability (protected characteristics) and that such treatment has had the net effect of either (i) imposing upon him or her burdens, obligations or disadvantages not imposed upon other persons or, (ii) limiting access to opportunities, benefits and advantages available to others.

In the case of physical or mental disability, the condition must be long-term (that is, not less than 12 months in duration).

Allied to that, there exists a positive duty on the part of the employer to accommodate the disability by provision of reasonable adjustments.

The DIFC Employment Law continues by providing that an employer shall not refuse to employ or refuse to continue to employ, or discriminate against a person regarding employment or any term or condition of employment because of a protected characteristic unless there is a bona fide occupational requirement.

The Director of Employment Standards — the officer of the DIFC Authority responsible for the administration of the DIFC Employment Law — may determine what constitutes a bona fide occupational requirement.

Its scope is extensive, covering all aspects of employment including recruitment, promotion and dismissal.

Although the UAE Labour Law does not contain any express or specific anti-discrimination provisions (on the basis of gender or race or otherwise), a termination which could be shown to be based on discriminatory reasons would be viewed as an arbitrary dismissal, giving rise to a claim for compensation.

Employers should accordingly have due regard to the need to eliminate unlawful discrimination and harassment, and promote equal opportunity between the sexes.

Consideration should therefore be given to both their policies and working practices in relation to all aspects of the employment relationship.

Employers with genuine equal opportunity attitudes that advance or support diversity will find themselves much less likely to be subjected to allegations of unlawful discrimination.

Striking the right balance is critical and, in this regard, there are recommended courses of action that can be taken including:

  • Familiarisation with the relevant anti-discrimination provisions, as applicable;
  • Having in place a clear and robust equal opportunities policy that is issued to all employees at every level of the company;
  • Ensuring that all employees receive training on the equal opportunities policy and, in addition, that those managers and HR professionals responsible for enacting the policy receive adequate training on how to deal with complaints made under it;
  • Ensuring that employment policies and practices are reviewed and audited on a regular basis in order to establish the existence of any patterns that may indicate underlying or unintentional discrimination.

For employers:

  • There is no statutory definition of redundancy in the UAE Labour Law or DIFC Employment Law (and no prescribed process or procedure to follow);
  • Any decision to make a particular employee or group of employees redundant should be capable of justification and, in all the circumstances, be reasonable, fair and transparent;
  • The labour court may award compensation of up to three months' remuneration should the termination be deemed by the court to have been arbitrary (under the UAE Labour Law); and
  • Although the DIFC Employment Law does not currently recognise the concept of unfair dismissal, there are in place express anti-discrimination provisions;
  • Implement clear and robust dismissal and equal opportunities policies to ensure that there is transparency in the workplace

For employees:

  • Familiarise yourself with your employers internal policies;
  • Be mindful that there areexpress anti-discrimination provisions under the DIFC Employment Law;
  • Under the UAE Labour Law, termination of an unlimited-term contract must be for a "valid" reason, i.e. a reason connected with your work. A dismissal deemed arbitrary by the labour courts will result in a claim for compensation (capped at three months' salary); and
  • There are statutory entitlements due on termination including (as applicable) notice pay, accrued untaken annual leave and end of service gratuity.

The writer is an Associate at UAE law firm Hadef & Partners. The opinions expressed here are his own and do not reflect those of Gulf News