Dubai: If a company undergoes a change in its name and legal entity, how does it affect the employees? A Gulf News reader raised a question on how his end-of-service benefits would be calculated if he continues to work for the same employer under the newly formed company.
He asked: “My company is changing its legal entity name from one to another one. I was given two options for my end-of-service [settlement], either to get it now or carry it forward with [the new] legal entity. I chose the option to get the settlement now. I have full annual leave balance from the previous year, is the company supposed to include previous year’s annual leave in gratuity calculation? My employment date has also been changed with new legal entity’s contract, so now I am like a new employee with new legal entity.”
Gulf News raised the query with Mohamed Elmasry, Associate at Alsuwaidi and company Advocates and Legal Consultants, who spoke about what the UAE Labour Law – Federal Decree Law No. 33 of 2021 – says about gratuity calculation.
He said: “As per the UAE Labour Law, end-of-service gratuity is calculated based on the length of service and the last basic salary, and it is not related to your leave balance. Therefore, the company is not required to include your previous year's annual leave in the gratuity calculation.
“Additionally, regarding your new legal entity contract, your employment date is considered to be the date of your new contract with the new legal entity, and you are considered to be a new employee with the new legal entity. In this regard, I suggest the reader to ask the new company to provide you with the 30 days leave balance to be used by him or to be compensated in cash with his annual leave balance from previous year.”
I suggest the reader to ask the new company to provide you with the 30 days leave balance to be used by him or to be compensated in cash with his annual leave balance from previous year.
Elmasry also highlighted how the law requires a company to settle all its dues when it changes to a new legal entity.
“Please be informed that changing the entity name without changing the licence number may make the new company liable for any dues on the old company. Therefore, it is important to ensure that all legal formalities are completed properly and that the new company has taken over all obligations of the old company in order to avoid any liabilities,” he said.
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