Unfair Dismissal in the UAE: Employee Rights and Compensation under the Labour Law

Executive Summary

Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations governs the termination of employment in the UAE private sector and establishes clear safeguards to protect the rights of both employees and employers.

The term ‘unfair dismissal’ is commonly used to describe the termination of an employee without justification. However, the current UAE law refers more precisely to ‘unlawful termination of an employee’s service’.

Under Article 47, termination is unlawful if it results from the employee submitting a serious complaint to the Ministry of Human Resources and Emiratisation, or bringing a claim against the employer that is proven to be valid. In such cases, the employee may be awarded compensation of up to three months’ wages, in addition to other entitlements that may include payment in lieu of notice, end-of-service gratuity and any outstanding amounts.

What Is Unfair Dismissal or Unlawful Termination in the UAE

It is important to distinguish between the termination of an employment contract and unlawful termination.

UAE law allows either party to terminate an employment contract for a legitimate reason, provided that written notice is given to the other party and the agreed notice period is observed. As a general rule, that period must be at least 30 days and no more than 90 days.

An employer’s decision to terminate an employee therefore does not automatically amount to unfair dismissal entitling the employee to additional compensation.

Article 47 of the Labour Relations Law identifies a specific case of unlawful termination: where an employee’s dismissal is connected to either of the following:

• Submitting a serious complaint to the Ministry of Human Resources and Emiratisation.
• Bringing a claim against the employer that is proven to be valid.

If it is established that the dismissal resulted from either action, the termination may be considered unlawful and may give rise to legal consequences and compensation for the employee.

When Can Termination Be Considered Unlawful

The key factor is the reason for termination.

For example, if an employee submits a serious complaint about unpaid wages or a breach of their employment rights, and the business then dismisses them because they submitted that complaint, the dismissal may fall within the legal definition of unlawful termination.

The same applies where an employee brings a claim against the employer, the grounds of that claim are proven to be valid, and the employee is dismissed because of it.

However, an earlier dispute between the employee and the company does not, by itself, make every subsequent termination unlawful. The reason for termination, the circumstances, the facts and the supporting evidence must be assessed in each case.

Can an Employer Terminate an Employment Contract

Yes.

The Labour Law allows an employment contract to be terminated for a legitimate reason, provided that the prescribed legal procedures are followed.

Article 43 requires written notice to be given to the other party and the contractual notice period to be observed. As a general rule, this period ranges from 30 to 90 days.

The law also specifies circumstances in which an employer may dismiss an employee without notice, provided that the relevant legal grounds and conditions are met.

In a dispute, the relevant question is therefore not simply ‘Did the employer dismiss the employee?’ It is also:

What was the reason for dismissal? Were the legal procedures followed? Are any financial entitlements still unpaid?

How Much Compensation Is Payable for Unlawful Termination in the UAE

If the competent authority finds that an employee’s termination was unlawful under Article 47, the employer must pay the employee fair compensation.

The law does not prescribe a fixed amount for every employee.

Instead, compensation is assessed by reference to several factors, including:

• The nature of the employee’s work.
• Their length of service.
• The extent of the harm suffered.
• The circumstances in which the employment relationship ended.

The law caps compensation at three months’ wages, calculated on the basis of the employee’s last wage.

Does an Employee Automatically Receive Three Months of Salary

No.

Three months’ wages is the maximum compensation available, rather than a fixed or guaranteed award in every case.

The amount is assessed according to the facts of each dispute, the harm established, the employee’s length of service and other factors considered by the competent authority.

Does Unlawful Termination Compensation Replace Other Employee Entitlements

No.

Compensation for unlawful termination is a separate entitlement from certain other amounts that may be due to the employee.

Article 47 confirms that compensation for unlawful termination does not affect the employee’s right to payment in lieu of notice or end-of-service gratuity, where these are due under the law.

Depending on the circumstances, an employee’s claim may therefore include several different entitlements.

1 Payment in Lieu of Notice

If the employer terminates the employment contract without observing the required notice period, the employee may be entitled to payment in lieu of notice.

This payment is equivalent to the employee’s wages for the entire unserved notice period, or the remaining part of it.

Article 43 provides that compensation for failure to observe the notice period is payable even if no harm is shown to have resulted from the failure to give notice.

2 End of Service Gratuity

A foreign employee working full-time may be entitled to end-of-service gratuity after completing at least one year of continuous service, unless they are covered by an alternative end-of-service benefits scheme.

Under the general rules, an eligible employee’s gratuity is calculated on the basis of their basic wage as follows:

• 21 days’ basic wage for each of the first five years of service.
• 30 days’ basic wage for each additional year of service beyond five years.

The calculation remains subject to the legal provisions and conditions applicable to each case.

3 Unused Annual Leave

If the employment relationship ends while the employee has accrued annual leave that they have not taken, they are entitled to a cash payment for the eligible unused days, subject to the applicable legal rules.

The Labour Law provides that payment for unused annual leave on termination is calculated on the basis of the employee’s basic wage.

4 Wages and Other Outstanding Entitlements

Any unpaid salary or other amounts due to the employee must also be settled.

The law requires the employer to pay the employee’s wages and all statutory and contractual entitlements within 14 days of the employment contract ending.

A Simple Example of Entitlements Following Termination

Suppose an employee earns a total monthly wage of AED 15,000 and is dismissed after submitting a serious complaint against the employer. It is established that the dismissal was connected to that complaint.

If unlawful termination is established, the competent authority may award compensation based on the harm suffered and the circumstances of the case, subject to the following maximum:

AED 15,000 × 3 = AED 45,000.

This does not mean that the employee will necessarily receive AED 45,000. It is simply the maximum potential compensation under Article 47.

Other amounts may be payable in addition, where the employee is entitled to them, including:

• Payment in lieu of notice.
• Unpaid wages.
• Payment for unused leave.
• End-of-service gratuity.
• Any other rights provided by the contract or the law.

What Should an Employee Do if They Believe They Have Been Unlawfully Dismissed

It is best to handle the dispute in an organised manner and keep a clear record from the outset.

1 Keep the Termination Notice

Retain the dismissal letter, email or any other document showing the termination date and the reasons given.

2 Keep Documents Relating to the Dispute

These may include:

• The employment contract.
• Salary statements.
• Correspondence with the company.
• The complaint previously submitted.
• Emails or other correspondence relating to the cause of the dispute.
• Any previous warnings or administrative decisions.

These documents may be important in establishing a connection between the earlier complaint and the decision to terminate employment.

3 Identify All Outstanding Entitlements

The claim should not be limited to compensation for dismissal.

Check whether any of the following are due:

• Payment in lieu of notice.
• Salary arrears.
• Payment for unused leave.
• End-of-service gratuity.
• Commissions or other contractual entitlements.

4 File a Labour Complaint

Labour disputes governed by federal law usually begin with an application to the Ministry of Human Resources and Emiratisation, which first examines the dispute and attempts to resolve it through the prescribed legal procedures.

Under the amendments effective from January 2024, the Ministry issues a final decision in disputes where the claim does not exceed AED 50,000. The aggrieved party may refer the matter to the competent Court of Appeal within 15 working days of being notified of the decision. Claims exceeding this amount are referred to the courts if an amicable settlement cannot be reached, subject to the prescribed rules.

Why Is Evidence Important in Unlawful Termination Claims

A dismissal notice alone is not always sufficient to establish unlawful termination.

One of the key issues usually examined is the connection between:

The employee’s complaint or legal claim

and:

The employer’s decision to terminate their employment.

Internal correspondence, the timing of the complaint, the stated reason for dismissal, previous warnings, performance reviews and other documents may therefore be important in assessing the dispute.

The outcome consequently varies from case to case, depending on the available facts and evidence.

What Should Employers Consider Before Terminating an Employee

Termination rules protect employees and also help employers reduce legal risks.

Before deciding to terminate an employee, it is important to:

• Document the reasons for the decision.
• Review the employment contract.
• Confirm the applicable notice period.
• Review any ongoing labour complaints or claims.
• Ensure that the dismissal is not connected to the employee’s exercise of a legally protected right.
• Calculate all financial entitlements correctly.
• Follow the disciplinary procedures if the termination relates to alleged misconduct by the employee.

A legal review before a dismissal decision can significantly reduce the likelihood of a subsequent labour dispute.

The Role of Bin Nakhira and Partners

Termination disputes require an individual assessment of each case. Rights and obligations may vary according to the employment contract, the reason for termination, the length of service and the available documents.

Bin Nakhira & Partners Advocates and Legal Consultants provides legal support to employees and employers in labour disputes. This includes reviewing employment contracts, assessing the reasons for termination, examining employment entitlements, and providing legal advice and representation before the competent authorities in accordance with the laws and regulations applicable in the UAE.

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