Termination of Employment in the UAE: Essential Guide for Employers

Termination of employment in UAE is a process governed by specific regulations aimed at ensuring smooth transitions and protecting the rights of everyone involved. These regulations vary based on the type of employment contract, the reason for termination, and the circumstances surrounding it.

In this article, we provide an in-depth overview of termination of employment in the UAE, covering different contract types, valid termination grounds, notice periods, compensation, and dispute resolution options. By understanding these regulations, employers and employees can better navigate employment termination and avoid potential legal consequences.

Understanding Termination in the UAE

Termination of employment in the UAE refers to the lawful ending of a job contract, which may involve notice periods, severance payments, and a systematic transition process. The UAE’s Federal Decree-Law No. 33 of 2021 on labor relations outlines specific grounds for termination and establishes the rules governing different types of contracts, including fixed-term and indefinite contracts. Whether initiated by the employer, the employee, or mutually agreed upon, employment termination must comply with legal requirements to prevent disputes and potential penalties.

Legal Grounds for Termination

Article 42 of the UAE’s Federal Decree-Law No. 33 of 2021 lists specific legal grounds under which employment may be terminated. These are situations where termination is deemed lawful and both parties can avoid disputes and penalties:

1. Non-Renewal of Contract: Employment ends when an employer decides not to renew an expiring contract.
2. Mutual Agreement: Both parties may mutually agree to terminate employment. This mutual agreement must include a clear understanding of the notice period and other conditions.
3. Expiration of Employment Contract: Contracts may naturally expire without renewal. Any extensions must comply with UAE labor laws.
4. Employee’s Death: In cases of the employee’s death, the contract ends, and the employer must provide a final settlement to the employee’s family.
5. Employer’s Death: If the employer dies and the employment contract is intrinsically linked to them, the contract may end.
6. Court Rulings: An employee’s employment may be terminated if a court decision prevents them from fulfilling their role within a three-month period.
7. Closure of Business: If the employer’s business is permanently closed, all employment contracts related to that entity may be terminated.
8. Bankruptcy or Insolvency: An employer’s financial insolvency may lead to the termination of contracts.
9. Economic Challenges: The law allows termination if the business faces economic challenges, subject to legal procedures.

Other Legitimate Grounds for Termination

Apart from the above scenarios, additional legitimate grounds may lead to termination without any associated penalties for either party:

1. Mutual Agreement: Employers and employees can terminate employment through mutual consent documented in writing.
2. Fixed-term Contract Completion: A fixed-term contract concludes automatically at the end of its term unless both parties agree to extend it.
3. Termination of Indefinite Contracts: Either party can terminate an indefinite contract by giving proper notice and providing valid reasons for the termination.

Health and Death Circumstances

Health-related issues and death also play a crucial role in employment termination. Labor laws protect the rights of workers facing health challenges and set out specific guidelines:

1. Employer’s Death: If an employer dies but the contract is independent of them, the contract continues unless there is a clause stating otherwise.
2. Employee’s Death or Incapacity: An employee’s death or total incapacitation results in automatic termination. A medical certificate confirming complete incapacity is necessary.
3. Partial Incapacity: If a worker is partially incapacitated but can still work in another role, the employer must reassign them if a suitable position is available.
4. Medical Leave Protection: Employers cannot terminate employees on medical leave until the leave period is completed. Employees are entitled to up to 90 days of sick leave annually, with varying levels of paid leave based on duration.

Notice Period Requirements

According to Article 43 of the UAE Labor Law, employment termination requires a formal notice period, which may vary depending on the mutual agreement between the employer and employee. Key points include:

1. Formal Written Notice: Notice of termination must be provided in writing to the other party.
2. Standard Notice Period: The notice period is generally between 30 and 90 days, based on mutual agreement.
3. Job Duties During Notice: During the notice period, employees must continue fulfilling their contractual duties.
4. Compensation During Notice: Wages during the notice period must reflect the employee’s full pay.
5. Uncompleted Notice: If an employee does not complete their notice period, the employer may deduct the corresponding notice period allowance based on the employee’s last wage.
6. Job Search Leave: Employees dismissed by the employer are entitled to one day of unpaid leave per week to search for a new job during the notice period.

Contract Termination Without Prior Notice by the Employer

Article 44 of the UAE Labor Law outlines circumstances in which an employer may terminate an employee’s contract without prior notice:

1. Fraudulent Documents: Termination is lawful if an employee submits forged or fraudulent documents.
2. Breach of Confidentiality: Employees disclosing sensitive company information may face immediate termination.
3. Neglect of Obligations: Employers can terminate an employee who repeatedly fails to fulfill contractual obligations after receiving warnings.
4. Safety Violations: If an employee jeopardizes workplace safety, termination is permissible.
5. Disclosure of Trade Secrets: Unauthorized sharing of trade secrets for personal gain is grounds for termination.

Contract Termination Without Prior Notice by the Employee

Under Article 45, employees may also terminate employment without prior notice in specific scenarios:

1. Employer’s Breach of Obligations: Employees may terminate employment if the employer fails to meet legal obligations, but they must notify the Ministry of Human Resources and Emiratisation (MoHRE) at least 14 working days before leaving.
2. Workplace Harassment: Employees can leave if they experience harassment, provided they notify MoHRE within five days.
3. Workplace Hazards: If employers fail to address serious workplace hazards, employees may lawfully terminate their contracts.

Arbitrary Termination

Arbitrary termination occurs when an employer ends a contract for reasons unrelated to the job. Examples include personal conflicts or non-performance-related dismissals. In such cases, employees can file complaints with labor authorities or competent courts. If a court finds the termination arbitrary, it may direct the employer to reinstate the employee or compensate them for damages, capped at three months’ wages. Additional compensation for notices, gratuities, and other benefits may also apply.

Raising a Complaint for Wrongful Termination

Employees who believe they were wrongfully terminated can file a complaint with MoHRE, the official labor authority. The process involves several steps:

1. Complaint Registration: Employees can lodge complaints online through the MoHRE website, via the MoHRE mobile app, or by visiting a MoHRE office.
2. Emirates ID Requirement: Employees need an Emirates ID to create an account for complaint filing.
3. Resolution Process: MoHRE investigates the complaint and may mediate between the employer and employee to find a solution. If mediation fails, the case may be referred to the courts.

Termination of employment in the UAE involves a range of legal requirements that safeguard both employers and employees. Understanding the nuances of termination—whether related to contract completion, mutual agreement, health issues, or arbitrary dismissal—is crucial. Employers must follow legal protocols to avoid potential disputes, while employees should be aware of their rights to navigate the termination process effectively.

With a solid grasp of the UAE’s employment termination laws, both parties can ensure compliance, fairness, and professionalism during job transitions.

Severance Pay and End-of-Service Benefits

One of the key aspects of employment termination in the UAE is the provision of severance pay, also known as end-of-service gratuity. This benefit applies to employees who have completed at least one year of service and is calculated based on the duration of employment. UAE law mandates that employees receive this financial compensation upon termination, provided the termination was not due to misconduct or serious breach of contract.

1. Calculation of Severance Pay:
   For employees with one to five years of service, the severance pay amounts to 21 days of basic wage for each year of service. Employees with more than five years of service receive 30 days of basic wage for each additional year beyond the initial five. The total severance pay, however, cannot exceed two years’ worth of wages.
2. Pro Rata Gratuity:
   Employees who have completed at least one year but less than five years are entitled to a proportionate gratuity based on the actual duration of their service. This rule allows employees to receive some end-of-service benefits even if they have not completed a full year or significant tenure.
3. Severance in Cases of Serious Misconduct:
   If an employee is terminated for misconduct—such as dishonesty, breach of trust, or workplace violence—they may forfeit their right to end-of-service gratuity. Article 120 of the previous UAE Labor Law, which still informs some cases under the updated legislation, specifies these conditions.

Probation Periods and Termination

Probation periods in the UAE are governed by specific regulations to ensure fair treatment of employees during the initial stages of employment. Under UAE law, the probation period cannot exceed six months, and during this time, either the employer or employee may terminate the contract with immediate effect.

1. Termination During Probation by Employer:
   Employers can terminate an employee during probation without providing severance pay. However, if the employer decides to terminate the employee after the probation period ends, standard termination rules—including notice periods and severance pay—apply.
2. Termination During Probation by Employee:
   Employees who wish to leave during the probation period must provide a notice period, generally between one and three months, depending on the contract terms. If the employee fails to provide notice, the employer may seek compensation for the notice period not served.
3. Transitioning Out of Probation:
   Once the probation period is over, the employee is considered a permanent employee, and termination requires adherence to the full set of labor law protections.

Employee Rights During Termination Process

The UAE labor law emphasizes employee rights and well-being during the termination process to maintain professional and legal standards:

1. Right to Full Pay During Notice Period:
   Employees are entitled to their full wages during the notice period, regardless of whether they actively work the entire duration or are placed on garden leave (paid leave of absence). This protects employees from sudden loss of income.
2. Right to Unpaid Leave for Job Hunting:
   Employees terminated by their employers are entitled to unpaid leave to search for new employment opportunities. Employers must accommodate these unpaid leave days during the notice period.
3. Right to Contest Unfair Termination:
   Employees who believe their termination was unjust can contest the decision by filing a complaint with the MoHRE or taking the matter to court.
4. Legal Representation:
   In cases where termination disputes escalate to court, employees have the right to seek legal representation and advice. The court may appoint legal aid in certain circumstances, especially if the employee lacks the financial resources for private counsel.

Arbitrary Dismissal and Protection Against Unfair Practices

The UAE labor law strongly discourages arbitrary dismissal, which is termination without a justified reason related to job performance or behavior. Arbitrary dismissal is grounds for compensation, and the employee can claim damages through legal proceedings.

1. Definition of Arbitrary Dismissal:
   Arbitrary dismissal includes any termination rooted in personal issues, discrimination, or non-performance-related concerns. For instance, termination due to personal conflicts, race, gender, religion, or nationality is considered arbitrary.
2. Compensation for Arbitrary Dismissal:
   If a court determines that the termination was arbitrary, the employer may be required to compensate the employee with up to three months’ wages. This compensation is separate from severance pay and is designed to offset damages due to unjustified job loss.
3. Right to Reinstatement:
   In some cases, the court may order the employer to reinstate the employee, particularly if the dismissal was grossly unjust and the employee requests reinstatement.

Termination for Economic Reasons and Restructuring

As the UAE economy and labor market evolve, companies may face financial challenges or undergo restructuring that requires workforce adjustments. UAE labor law provides guidelines for lawful termination under such circumstances to protect both employees and employers.

1. Economic Hardship:
   Employers facing financial distress may be allowed to terminate employment contracts. However, they must provide evidence of economic hardship and comply with notice requirements.
2. Restructuring and Downsizing:
   Termination due to business restructuring, mergers, or downsizing must follow the legal guidelines for notice periods and severance. The employer must demonstrate that the termination is due to genuine business needs, not arbitrary decisions.
3. Collective Redundancies:
   In cases of collective layoffs, employers must provide severance pay and ensure compliance with UAE labor law to minimize the negative impact on the workforce.

Non-Competition Clauses and Post-Employment Restrictions

Non-competition clauses are standard in the UAE to prevent employees from joining competing firms or starting similar businesses within a specified period after leaving their current employer. These clauses aim to protect the employer’s business interests, but they must adhere to UAE legal standards to be enforceable.

1. Scope and Duration of Non-Competition Clauses:
   Non-competition clauses must be reasonable in terms of duration, geographic location, and scope. UAE courts typically uphold clauses limited to six months or a year and confined to the industry or region relevant to the employer’s business.
2. Enforceability:
   Courts consider non-competition clauses enforceable only if they are fair and do not excessively restrict the employee’s career options. If deemed too restrictive, courts may invalidate the clause.
3. Exemptions for Certain Professionals:
   Certain professionals, especially those in high-demand fields, may be exempt from non-competition clauses to support labor mobility and economic growth. However, these exemptions are determined on a case-by-case basis.

Employee Benefits Upon Termination

In addition to severance pay, terminated employees may be entitled to other benefits, depending on the contract and company policies:

1. Unused Leave Entitlement:
   Employees are entitled to compensation for any unused leave days accrued during their employment. This benefit is often included in the final settlement.
2. End-of-Service Gratuity:
   This is a significant benefit for employees who have completed at least one year of service, calculated based on years of employment and monthly wages.
3. Other Compensations:
   Some employers may provide additional compensation in the form of health insurance continuation, relocation expenses, or other benefits to support the employee’s transition.

Filing a Claim with the Ministry of Human Resources and Emiratisation (MoHRE)

Employees who believe they have been wrongfully terminated can file a claim with MoHRE, which oversees labor relations in the UAE. MoHRE provides multiple avenues for employees to seek justice and ensures fair treatment in termination cases.

1. Filing Process:
   Employees can file a complaint via the MoHRE website, app, or customer service centers. They must provide documentation of the employment contract, termination letter, and any relevant communications.
2. Resolution and Mediation:
   MoHRE attempts to resolve disputes through mediation. If mediation is unsuccessful, the case may be escalated to labor court.
3. Labor Court Proceedings:
   In labor court, both the employer and employee present evidence, and a judge makes a final ruling. Employees can request compensation for wrongful termination, unpaid wages, and any other grievances.

Recent Amendments to UAE Labor Law on Termination

The UAE has made several recent amendments to its labor laws to adapt to a changing work environment and protect workers’ rights. Notably, these amendments impact the rules for termination, probation, leave policies, and arbitrary dismissal.

1. Fixed-Term Contracts:
   The transition to mandatory fixed-term contracts has standardized employment relations. Employers are encouraged to renew contracts regularly and provide clear notice for terminations.
2. Flexible Work Models:
   The UAE now recognizes freelance, part-time, and temporary work arrangements, affecting termination rules and providing new flexibility for employers and employees alike.
3. Protection Against Workplace Harassment:
   Enhanced protections against workplace harassment empower employees to terminate employment if they experience harassment or abuse.
4. Stronger Anti-Discrimination Measures:
   The UAE’s labor laws emphasize fair treatment, with prohibitions against discrimination based on gender, nationality, or race. This also influences wrongful termination claims, as employees can contest terminations that stem from discriminatory practices.

Termination of employment in the UAE is a structured process governed by Federal Decree-Law No. 33 of 2021, designed to protect the rights of both employers and employees. By adhering to notice periods, severance pay regulations, and valid termination grounds, employers can conduct terminations fairly and legally. At the same time, employees are protected against arbitrary dismissal, have the right to compensation, and can file claims if they experience wrongful termination.

Understanding these regulations allows both employers and employees to navigate the termination process with confidence, fairness, and respect for each party’s rights.

FAQ: Termination of Employment UAE

What are the legal grounds for termination of employment UAE?
In the UAE, termination of employment can occur under several lawful grounds, including contract expiration, mutual agreement, economic reasons, or serious misconduct. Employment may also end due to the employee’s or employer’s death, a company’s closure, or an employee’s permanent incapacity. Employers may also terminate employees for poor performance, but these actions must align with UAE labor laws.

What qualifies as arbitrary termination of employment UAE?
Arbitrary termination occurs when an employee is dismissed without valid job-related reasons. For example, if an employee is terminated for personal reasons, discrimination, or without performance-related justification, this may be considered arbitrary. If the court finds the termination unjust, the employer might be required to compensate the employee with up to three months’ salary as well as any other owed benefits.

What notice period is required for termination of employment UAE?
The notice period typically varies between 30 and 90 days, based on mutual agreement and the contract. During probation, termination often doesn’t require notice, although some contracts may specify otherwise. Failing to observe the agreed-upon notice period can lead to compensation requirements or legal disputes.

Are there any circumstances where an employer can terminate an employee without prior notice in the UAE?
Yes, under Article 44, certain conditions allow termination of employment UAE without notice. These include cases of employee misconduct, such as providing false documents, breaching confidentiality, jeopardizing workplace safety, or failing to meet contractual obligations after warnings. These situations enable immediate termination if the employer can substantiate the grounds.

Under what conditions can an employee terminate employment without prior notice in the UAE?
Employees may terminate their contract without notice if the employer violates legal obligations, such as unpaid wages, unsafe working conditions, or harassment. The employee must notify the Ministry of Human Resources and Emiratisation (MoHRE) within 14 working days of quitting due to these issues.

What severance pay is an employee entitled to upon termination of employment UAE?
End-of-service gratuity is calculated based on the duration of employment. Employees with one to five years of service receive 21 days of basic pay per year, while those with more than five years receive 30 days for each additional year. Severance pay cannot exceed two years’ total wages. However, employees terminated for serious misconduct may forfeit severance benefits.

What are the entitlements regarding unused leave during termination of employment UAE?
Employees are entitled to payment for any unused leave upon termination. This payment is calculated based on the employee’s wage and should be settled with the final payment. It ensures employees are compensated fairly for any accrued but unutilized leave days.

Are there special rules regarding termination of employment UAE for employees with health issues?
Employees on medical leave are protected from termination until they complete their 90-day sick leave entitlement, which includes 15 fully paid days, 45 half-paid days, and 30 unpaid days. If an employee suffers a partial incapacity but can work in another capacity, the employer must consider reassigning them to a suitable position. Termination due to complete incapacity requires a medical certificate.

How can an employee contest wrongful termination of employment UAE?
Employees can file a complaint with MoHRE if they believe their termination was unfair or arbitrary. Complaints can be filed online, through MoHRE’s app, or at an office. MoHRE mediates between the employee and employer; if mediation fails, the case may be escalated to labor court, where a judge reviews the case and issues a final ruling.

What constitutes severance pay in cases of termination of employment UAE for employees on indefinite contracts?
Employees on indefinite contracts are eligible for end-of-service gratuity if they have completed at least one year of continuous service. The calculation is similar to fixed-term contracts: 21 days’ pay for each year up to five years, and 30 days for each additional year. This benefit compensates employees for their service and supports them in the transition after termination.

Can an employer include a non-competition clause in the contract upon termination of employment UAE?
Yes, many contracts in the UAE include non-competition clauses. These clauses restrict the employee from working for competitors or starting a similar business within a specific time and region after termination. However, the clause must be reasonable; courts often enforce clauses limited to six months or one year, depending on the industry and geographic scope. If the clause excessively restricts the employee, it may be invalidated.

What benefits are employees entitled to upon termination of employment UAE due to company restructuring or economic hardship?
When employment is terminated due to restructuring or economic hardship, the employer must comply with standard notice and severance pay requirements. Employees are eligible for end-of-service benefits based on their service period and any accrued entitlements, such as unused leave. Employers must demonstrate genuine business needs for restructuring or downsizing to ensure the termination is lawful.

Are probationary employees entitled to severance pay upon termination of employment UAE?
No, employees terminated during their probationary period are generally not entitled to severance pay. The UAE law states that probation cannot exceed six months. Employers and employees can terminate employment without notice during this period, depending on contract terms, without severance pay obligations. However, standard severance entitlements apply if termination occurs after probation.

Is there a difference between firing and termination of employment UAE?
In the UAE, the term “termination” is a broad concept that includes both voluntary and involuntary ending of employment, whether due to resignation, contract completion, or other reasons. “Firing” usually refers to termination due to the employee’s conduct or performance, such as poor performance or disciplinary issues, while “layoffs” or “redundancies” typically relate to economic or structural reasons within the company.

How is end-of-service gratuity calculated upon termination of employment UAE if an employee resigns?
If an employee resigns, they may still be eligible for end-of-service gratuity, provided they have completed at least one year of service. The calculation remains the same, but the amount may vary based on the terms of resignation, particularly if it occurs before five years of service.

What happens if an employee does not complete the notice period in termination of employment UAE?
If an employee fails to complete the notice period, they may be liable to pay an amount equivalent to the unserved period. Employers can deduct this from the employee’s final settlement. However, if both parties agree to waive the notice period, no compensation is required.

What is the process for terminating an employment contract in cases of business closure in UAE?
If a business permanently closes, employees may be terminated with standard notice and severance pay. Employers must provide documentation to MoHRE confirming the business closure. Employees should receive their entitlements, including final wages, unused leave compensation, and end-of-service gratuity.

What steps can employers take to avoid wrongful termination disputes in termination of employment UAE?
Employers can avoid disputes by ensuring terminations follow UAE labor laws, documenting reasons for termination, and respecting notice and severance entitlements. Conducting terminations professionally and offering support during the transition period also reduces conflict. Adherence to employment contract terms and clear communication help maintain legal compliance.

Are employees protected against workplace harassment in termination of employment UAE?
Yes, UAE labor laws protect employees from harassment and unsafe work conditions. If an employee is terminated after reporting harassment, they can file a complaint with MoHRE. Employers must take harassment claims seriously and implement policies to prevent it. Employees can terminate their contracts if harassment issues are not resolved.

Can employees return to the UAE for work after termination of employment UAE?
UAE law does not restrict employees from returning to work in the UAE after termination. However, if an employee had a non-competition clause, they must honor the restrictions to avoid potential legal issues with their previous employer.