Termination And End-Of-Service Benefits In The UAE : Employee And Employer Rights

In a global employment hub like the UAE, both employees and employers have significant labour rights granted by the UAE laws. The Federal Decree Law No. 33 of 2021 Regarding the Regulation of Employment Relationships, the ‘UAE Labour Law’, is the key legislation in the UAE governing labour law.

Ensuring its compliance at all stages of the recruitment process and especially in cases like termination and end-of-service benefits, is crucial for both parties, as misunderstanding these termination procedures or end-of-service benefits calculations can lead not only to financial liabilities and legal challenges for the employers, but also undermine employee rights to fair treatment and timely payment upon the contract’s end.

When Can an Employment Contract Be Terminated?

Termination of employment constitutes an employee’s departure from a job. Article 42 of the UAE Labour Law envisages the situations or the modes in which an employment contract may be terminated. They are:

• Mutual Agreement: An employment contract can be terminated by a written agreement wherein both the employer and the employee mutually agree to end it.  
• Completion of Contract: An employee can be terminated upon the expiry of the specified term of employment, unless such term is extended or renewed.
• Termination at the Will of Either Party: An employee can be terminated based on either the will of the employer or the employee. An employee can effect this by submitting a resignation letter. However, such termination shall mandatorily comply with the legal provisions regarding termination of the employment contract as envisaged in the UAE Labour laws, and shall also be done by duly following the mandates, such as the notice period as agreed upon in the contract.
• Employer’s Death: In cases wherein the subject of the contract is related to its entity or the employer personally, the employment contract can be terminated in the event of the employer’s death.
• Employee’s Death: In the event of an employee’s death, the employment comes to termination.
• Employee’s Disablement: In cases wherein, the employee entails full permanent inability to work, the contract can be validly terminated, provided such employee proves such inability by a medical certificate issued by a medical entity.
• Termination Due to Criminal Conviction: An employer can terminate an employee’s contract if such employee has been convicted by a final court judgment imposing an imprisonment of not less than three (3) months.
• Closure of Business: Employment contracts of employees can be terminated in situations wherein the establishment or the business is closed permanently, in accordance with the legislation in force in the UAE.
• Grounds of insolvency or other reasons: In situations wherein, the employer becomes bankrupt or insolvent, and where economic or exceptional reasons obstruct the continuation or operation of the establishment, the employment contracts can be terminated in accordance with the conditions and procedures as specified by the Implementing Regulation and the legislations in force in the UAE.
• Non-Renewal of Work Permit: In cases where the employee fails to fulfil the conditions for renewing the work permit for any reason beyond the control of the employer, then such employer may terminate the employee’s contract.

Employment Contract Termination Notice

In accordance with Article 43 of the UAE Labour Law, the party terminating the employment contract for any legitimate reason shall notify the other party in writing, while the employment contract shall continue to be executed during the notice period. Such notice period must not be less than 30 days and shall not exceed 90 days.

Employee shall be entitled to his full Remuneration for that period according to the last salary he was receiving, and he shall work during that period if the Employer asks him to do so. It shall be permissible to agree on an exemption from the notice condition or reduce this period while preserving all the rights of the employee for the Notice Period agreed upon in the Employment Contract.

If the Work is terminated by the Employer, the Employee shall have the right to be absent during the Notice Period for one unpaid Working Day per week, in order to search for another job. The Employee may specify the day of absence provided that he informs the Employer of the same at least (3) days prior to the day of absence.

Employee Rights Relating to Termination and End of Service Benefits

• The employee shall be entitled to receive his full wage during the notice period based on their most recent salary.
• If the employer fails to serve the notice period regarding the termination, then the employee shall be compensated with a ‘notice period’ allowance calculated according to the last wage received by such employee, even if no harm was caused.

The End Of Service benefits are the financial compensations paid to employees by the employer upon their resignation or termination of employment. These benefits are envisaged under Articles 51 and 52 of the UAE Labour Law.

The UAE nationals or Emiratis shall be entitled to end of service benefits upon the end of his/her service, in accordance with the Federal Law by Decree No. (57) of 2023 Concerning Pension and Social Security.

A full-time foreign worker shall be entitled to end of service benefits at the end of his service, provided that such worker has completed a year or more in continuous service, which shall be calculated according to their basic wage.

For workers working in other work patterns other than full time work, shall be covered by the Executive Regulation of the Decree Law, which is the Cabinet Resolution No. 1 of 2022.

The employees have the right to receive their wages and all other end of service entitlements within 14 days from the end date of the contract term.

The key components of end-of-service benefits are:

• Gratuity: Gratuity is a financial reward paid by an employer to an employee as a mark of gratitude and recognition of the employee’s service and contributions to the organisation during his/her employment period. It assures employees’ financial security when they leave an organisation. 
• Unpaid Salaries and other Allowances: Employees are entitled to receive their unpaid salaries, wages, bonuses, commissions or other allowances as specified in their employment contract and envisaged by the UAE laws.
• Provident Fund Contributions: Most entities entail provident fund schemes contributed by both the employer and the employee during their employment period. Upon terminating the contract, such employees can withdraw these amounts.
• Severance Pay: Some companies may even incorporate provisions in the employment contract entitling the employees to severance pay which is a compensation provided when an employee is terminated without fault.
• Other Compensations: The employees can be entitled to other compensations as provided in their contract agreements.

Employer Rights Relating to Termination

The employer has the right to dismiss a worker without notice on grounds such as forgery, gross physical losses or damages to the employer or the employer’s properties, safety violations, failure to perform basic duties, disclosure of secrets related to industrial or intellectual property, or unlawful absence from work etc However, the employer shall conduct a written investigation and the dismissal decision shall be made after such grounds are proved against the employee.

An employer also has a limited right to withhold or deduct amounts from a worker’s end of service benefits, under specific and legally provided circumstances.

Understanding termination rules and end of service benefits under UAE law safeguards both employers and employees, ensuring compliance, fairness, and workplace stability. By seeking the assistance of a legal expert, businesses can effectively adhere to Federal Decree-Law No. 33 of 2021 and related regulations, thereby avoiding disputes and upholding their respective rights and obligations.