UAE end-of-service payments: Employers, employees should avoid these legal pitfalls
Employers will benefit by paying termination payments ahead of final ruling
Owing to the UAE being a cosmopolitan country and the different backgrounds people have, this naturally leaves employers exposed to some misconceptions about employment disputes. We have set out some common misunderstandings.
We have seen many cases where employees, upon resignation or shortly before their resignation, unlawfully copy, print or send confidential business information to their personal email accounts.
Employees are under a statutory obligation not to use or disclose any data related to the business, which may have been acquired during the course of their employment. In many cases, misuse of confidential information constitutes a criminal offence. An employee’s duty of confidentiality has been crystallized further in the new Labour Law no. 33 of 2021.
The issue is that many companies believe that such a breach of confidentiality will automatically prevent a successful labour claim against them in court. And, therefore, do not handle any subsequent termination of employment properly in accordance with this law. This perception is not accurate.
Notwithstanding any misuse of an employer’s confidential information, in the event a court believes an employee has been unfairly dismissed, the labour court will proceed with awarding the employee full termination benefits, including end-of-service gratuity. The labour court will not dismiss the employee’s claim for termination benefit/arbitrary dismissal unless and until a conviction order is obtained from the criminal court.
Termination benefits
In the event of a dispute regarding the employee’s termination entitlements, it is common for the employer to withhold the termination payments due to the employee. The question is, Should the company wait until a final ruling is issued by the court or should the company transfer the sum believed to be owed to the employee?
On balance, our preference is that the employer should pay the amount it believes the employee is owed. Of course, this will not automatically lead to the dismissal of the labour claim or even prevent the employee from filing the labour claim (if they have not filed one).
However, settling the termination dues prior to the commencement of the litigation proceedings or even during the course of the proceedings can be beneficial on the basis that:
- Presenting payment evidence to the court that a head of claim has been paid, will result in the court dismissing this particular claim;
- A court can award interest on the awarded amount upon the claimant’s request. So the benefit of paying these sums prior to the court ruling is that the employer interest liability is lowered; and
- The optics look better where the employee has received his/her legal entitlements, rather than these being withheld. Withholding could be viewed as unfair by a court affecting the employer’s position in the claim. Worth to mention also that the new Labour Law no. 33 of 2021 imposes an explicit obligation on the employer to settle the termination benefits to the employee within 14 days following the expiry or the termination of the employment contract.
Mobility of employees
Care should be taken when drafting the employment documentation of those employees who are transferred between related entities.
We often see employees claiming enhanced end-of-service gratuity payments by attempting to add previous services with affiliated companies to their service with their current UAE employer. This is particularly prevalent with multinationals as employees tend to move internally within the business - particularly across Gulf and Middle East countries.
The starting point is that only the UAE service with the current employer counts towards the end-of-service gratuity calculation, unless there is an express agreement stating otherwise. We often see employment contracts that recognize service with other entities without making any special provision for local service-related entitlements.
The risk is that employees take advantage of such clauses and claim an increased end-of-service gratuity that they would not otherwise be entitled to. Employers must be careful when drafting employment contracts of transferred employees and with other documents shared with the employee to avoid inadvertent acceptances of past period of service with other employing entities counting towards the service with the current employer.
The labour court places weight on such documents and considers them as a binding acknowledgement from the company to include the previous service and combine it with the current employment tenure. This will result in double payment of the end-of-service gratuity if the employee has already received their previous gratuity entitlements when leaving their previous employer.