Ask the Law: How much can UAE employer deduct from my salary towards loan repayment?

Question: I have been working in a private company for two years. Six months ago, I borrowed Dh100,000 from the company. The company is now asking me to return Dh130,000, including interest on the principal loan amount. Is the employer legally entitled to claim interest on the loan amount? Also, how much is the employer legally entitled to deduct from an employee’s monthly salary for loan repayment?

Answer: Regarding your first question, according to Article (710) of the Civil Transactions Law, a loan is considered as commercial if it is between merchants and for purposes related to the trade, and personal if it is between non-traders and for purposes not related to trade.

Receiving interest is prohibited between a natural person with another natural person who deals in interest in any kind of civil and commercial transactions and this includes every condition that involves an explicit or hidden interest. However, it is permissible for companies to agree with other companies or natural persons to receive the agreed benefits. This is stipulated in Article (409) of UAE penal code, according to Cassation No 2012/480 Commercial that punishment shall be inflicted upon any natural person who deals with another natural person by way usury interest in any kind of civil or commercial transaction, including any express or latent condition that involves usury interest. Latent interest shall include any commission or benefit stipulated by a creditor, if such a commission or benefit has no corresponding real legal benefit or service provided by the creditor as a consideration. A principal debt and implied interest may be proved by all means available.

UAE Labour Law does not oblige the employer or the company to give you a loan. This matter is personal and managed by your mutual consent. This means that if the loan agreement was between you and the employer personally, then he is not allowed to take interest and if such condition is stated in the loan agreement or is stated in a way that does not show it as interest, then you have to prove that the condition contains a usury interest. If the agreement was between you and the company, then the company has the right to receive agreed benefits.

Regarding your second question, the employer is entitled to deduct only 10 per cent of your monthly remuneration to recover this loan, according to Article 60 of UAE Labour Law, which states that money cannot be deducted from an employee’s remuneration to recover particular rights, except repayment of advances or amounts paid to the employee in excess of his or her entitlement, provided that such deduction must not exceed 10 per cent of the employee’s periodic pay.

Dissolution of partnership firm

Question: I am a partner in a limited liability company. For two years, the company is incurring huge losses, but the manager is still insisting on running the company and is telling the partners to increase their capital. I refused to increase my capital and have told the other partners to close the company in order to prevent the losses. My question is: Am I legally entitled, as a partner in the company with 60 per cent capital investment, to file a lawsuit and demand closure of the company or can I legally withdraw from the company?

Answer: Article (295) of Federal Law No (2) of 2015 on Commercial Companies under the General Reasons for expiry states that (without prejudice to the provisions governing the expiry of each company) a company shall be dissolved upon loss of all or most of its funds in a way that makes the investment of the other funds unprofitable.

Article (301) of the same law and under the ‘Losses Sustained by the Limited Liability Company’ states:

1. If a limited liability company sustains losses amounting to one half of its capital, the directors shall seek dissolution of the company in the General Body Meeting. It is a requirement that a valid resolution for dissolution must be adopted by the same majority required for the amendment of the company’s Memorandum of Association.

2. If the loss amounts to three quarters of the capital, then partners holding one quarter of the capital may request its dissolution.

Article (677) of federal law No 5 of 1985 on the Civil Transactions Law of the UAE states:

1. The majority of the partners may apply to the court for the exclusion of any partner, whenever their request is based on serious grounds, justifying such exclusion.

2. A partner may also, if the duration of the partnership is fixed, apply to the court to authorise his or her retirement from the partnership if he or she gives adequate reasons for such request.

3. In both the above instances, the discharged or retired partner’s share shall be governed by the provisions of Article 675, paragraph 2, and such share shall be estimated according to its value as at the date of introducing the case in court.

Finally, it is stipulated from the above articles that you can request to withdraw from the company because your reason is based on serious and justified grounds. You also have the right to seek dissolution of the company since you own 60 per cent of the share, taking into consideration that you should prove, in this case, that the losses are huge and that there is no point in continuing with the business.