UAE Labour Law: Preventing Pitfalls In Termination, Gratuity And Notice Periods

Introduction

The United Arab Emirates has undergone immense changes in its employment sector, from the decade-old tough regime to the current employee-oriented regime; the laws and related provisions have come a long way. This paradigm shift was to harmonise the domestic laws with the international standards and fuel its tussle as a major hub for international talent.

Among the changing laws, employment contracts are the foundational legal documents that outline the relationship between parties. Nevertheless, termination, gratuity, and notice periods remain the most conventionally litigated areas under UAE labour law because they directly interfere with the residency and financial status of the employees.

Legal framework for employment contracts

The Federal Decree Law No. 33 of 2021(New Labour Law) is the heart of the UAE’s private sector job regulator. Passed on 16th November and in action since 2nd February 2022, consequently amended by Federal Decree Law 14/2022, Federal Decree Law 20/2023 and Federal Decree Law 9/2024, this framework replaced the Federal Decree Law No. 8 of 1980, mirroring the growth and determination that the UAE shows in competing with the global labour market. This being a social legislation, always undergoes notable amendments to maintain its supreme position in the private sector market.

Key legal principles of termination of employment

The new provisions have bifurcated the modes into termination by cause and termination by notice. Article 44 of the new labour law lays down grounds for dismissal without notice, and they include gross misdemeanour, intoxication at work, forgery, disclosing confidential information or repeating a misdemeanour even after fair warnings. Notwithstanding this, Article 42 allows for the termination for lawful reasons, given that proper notice is served. Article 43 states that if any of the parties fails to provide for a legal notice, then the other party must recompensate with full salary for the notice period. If an employee is dismissed on unreasonable grounds, then the action would be arbitrary, which can trigger compensation.

Frequent employer mistakes in termination clauses

Frequently the employers use arbitrary and vague grounds of termination in contracts, which will not stand in court as they are not in consonance with the specifics enlisted in Article 44. Other than this, another common practise is termination of fixed contracts ‘at will’.  Without a legitimate cause, terminating an employee before expiry makes the employee eligible for compensation equivalent to their remaining wages, capped at 3 months’ salary. Also, employers are negligent in documenting the warnings and are mandated to carryout fair internal investigation process, including notifying the employees of the allegations, providing them with an opportunity to respond and later rendering a final decision.

Notice period: Drafting error and Statutory requirements

The law prescribes that for most employment contracts; minimum notice period is 30 days. However, it cannot go more than 90 days if the employer and employee agree upon a lengthier notice period in the contract. Any contract that intends to cut short the notice period below 30 days is invalid. If the employer terminates during the probation period, they must provide at least 14 days’ notice. A common drafting error included specifying periods such as “one-week” notice; such clauses are void and replaced with “30-day statutory minimum”.

Gratuity – a mandatory legal entitlement

Otherwise known as the End-of-service-gratuity (ESOG), a mandatory lump-sum payment for employees who complete at least one year of continuous service. Article 51 prescribes conditions for the grant of gratuity. This entitlement follows a formula which is 21 days of basic salary for each of the first five years and 30 days for subsequent years, but with a total ceiling of two years’ salary.

Frequent Employee errors in the provisions of gratuity

A common error is the incorrect calculation of gratuity by neglecting to prorate partial years, including allowance. Some employers intentionally exclude gratuity through a contractual clause or bury it with the final salary settlement, but the law clearly prohibits such actions. The new labour law modifies the earlier position by prohibiting employers from forfeiting an employee’s ESOG, even in immediate termination under Article 44. Under the Federal Decree Law No. 8 of 1980 (old federal law), employees terminated for misdemeanour were denied gratuity. The new law bails out of this approach and assures that employees retain their gratuity.

Statutory compliance vs. contract drafting

 Employers who engage with generic international templates such as the US, UK, or Australia with “at -will” terms in the clause or notice period are violative of UAE laws. The UAE strictly adheres to the provisions of the labour law, and in bilingual contracts, the Arabic language rules are to be followed. Employers must conform their HR policies and other staff handbooks are following the MOHRE to avoid unnecessary confusion, which could be abused during disputes.

Outstanding practises for employers

Employers should harness clear and legally valid termination clauses that are in line with the new labour laws. It is of paramount importance to balance the scales notice period in accordance to law and also to ensure that gratuity is calculated accurately using basic salary. Frequent legal audits and training for HR personnel are significant to stay updated on MOHRE regulations.

Conclusion

Termination, gratuity, and notice period are highly litigated areas where non-compliance can lead to hefty penalties or work permit freezes. Compliance and contract drafting are not just administrative responsibilities but a strategic essential. This would ensure stable workplace relationships and eliminate the pitfalls in the UAE’s increasingly regulated labour market.