Is it legal to delay salaries or force unpaid leave in the UAE?

Dubai: The ongoing conflict in the Middle East is having widespread repercussions across the region, and several companies, particularly in the tourism and hospitality sector are looking for ways to mitigate costs without resorting to mass layoffs.

Some have reduced salaries, others have placed staff on conditional leave. As these situations become more common, many workers in the UAE are asking - what are my rights when my company is facing financial difficulties?

As a general rule, an employer is not permitted to unilaterally reduce an employee's salary, even in the event of financial hardship. Doing so would constitute a breach of contract.

“The employment relationship is governed by an employment contract, which, among other terms, specifies the employee's salary. This is a binding agreement, and can only be amended with the mutual consent of both parties. A unilateral change by the employer is not legally permissible,” said Ludmila Yamalova, founder and managing partner of HPL Yamalova and Plewka DMCC.

That said, employee consent may be given in different forms, either express or implied. Express consent occurs when the employee explicitly agrees to the salary reduction, for example by signing a written amendment. "In such cases, as long as the consent is freely given, there is generally no prescribed legal limit on the extent of the reduction," Yamalova explained.

Consent may also be implied through conduct. “This arises where the employer begins paying a reduced salary and the employee continues to work and accept that salary without objection. Over time, a court may interpret this as acceptance of the revised terms," she said. However, courts will assess factors such as the duration of the reduced payments and whether the employee objected or reserved their rights.

“A short period of reduced salary, such as one or two months, particularly where the employee has raised objections, is unlikely to be sufficient to establish consent.”

In the event of complete non-payment of salary, this cannot be construed as implied consent. “An employee's continued work under such circumstances does not reasonably indicate acceptance of revised terms, as no employee is presumed to agree to work without compensation, particularly for extended periods and in the absence of a clear repayment obligation.”

“It is not legally permissible for a company to delay or pause salary payments, even in cases of financial hardship. Doing so constitutes a breach of the employer's obligations under the employment contract,” Yamalova explained.

Payment of salary is a fundamental obligation, and employees are generally treated as priority creditors.

“This means that, as a matter of principle, salaries should be paid before other discretionary or non-essential expenses. Where a company continues to make other payments but delays employee salaries, this may raise questions about good faith and proper prioritisation of obligations.”

Where a company genuinely lacks the funds to meet payroll, it must take the appropriate legal steps. “In such cases, the company must consider terminating employees or placing them on unpaid leave, subject to the employee's consent. The duration and terms of unpaid leave must also be agreed upon. At any point, an employee retains the right to resign if they no longer have confidence in the company's ability to meet its obligations,” Yamalova said.

There may be practical and mutually beneficial arrangements that parties can agree to during periods of financial difficulty. For example, employees may agree to defer their salaries, effectively extending a loan to the company. In such cases, the arrangement should be clearly documented in writing and address key terms, including:

"Once the company's financial position improves, it will be obligated to repay the deferred amounts in accordance with the agreed terms," Yamalova noted.

Unpaid leave is only permissible when an employee voluntarily agrees to it. Without such consent, placing someone on unpaid leave amounts to a breach of the employment contract, according to Asma Siddiqui, Senior Associate at BSA Law.

With respect to paid annual leave, employers may direct or schedule an employee's leave in line with operational requirements, provided sufficient notice is given.

“Many organisations also rely on internal leave policies that set out rules on minimum or maximum leave periods, blackout dates, or restricted periods due to business demands, so long as these remain consistent with Labour Law. The overall distinction is that annual leave can be directed by the employer within legal and policy limits, whereas unpaid leave always requires the employee's express consent,” Siddiqui, said.

There are currently no sector-specific exemptions under UAE Labour Law that allow employers in hospitality, events, tourism, or other affected industries to unilaterally reduce salaries or delay wage payments. 

"Even in difficult market conditions, companies must continue paying wages on time through the Wage Protection System (WPS). While businesses in these sectors may be under greater pressure, the law still requires employee consent for measures such as salary reductions or unpaid leave. In the absence of any special guidance like the temporary directives issued during COVID-19, companies must rely on negotiated, documented agreements with staff," Siddiqui said.