Can employees be laid off without explanation as part of the restructuring process?

Ask: Is there a process to terminate the services of an employee? Or could you be asked to leave as part of a restructuring process without any explanation?

Answer: Your questions are assumed to refer to the provisions of Federal Law No. 33 of 2021 on the Regulation of Labor Relations and its executive regulations, as amended from time to time, on which we will base our answers.

In line with the first part of your questions, it should be noted that an employment relationship can end for any of the reasons mentioned in Article 42 of the Labor Law. The provisions of Article (42) They are self-explanatory and read as follows.

“The employment contract will terminate in any of the following cases:

1. By mutual written agreement of the parties.

2. The expiration of the term of the contract, unless it is extended or renewed in accordance with the provisions of this article.

3. At the will of any of the parties, subject to the provisions of this Decree-Law in relation to the termination of the employment contract and the notice period agreed in the contract.

4. Death of the employer, unless the object of the contract is related to his person.

5. Death or permanent total disability of the employee, accredited by a certificate from the medical institution.

6. If the worker is sentenced by final order to imprisonment for a period of not less than 3 months.

7. The definitive closure of the Establishment, in accordance with the legislation in force in the UAE.

8. If the employer is bankrupt, insolvent or unable to continue in business for economic or exceptional reasons, in accordance with the conditions, controls and procedures established by the Executive Regulations and the legislation in force in the UAE.

9. If the worker does not comply with the conditions for the renewal of the work permit for any reason beyond the control of the employer.”

In addition to article (42), clauses 1 and 3, as mentioned above, it should be noted that the employment relationship can be terminated either by

(Yo) Mutual agreement of the parties; either
(ii) either by the employer or the employee providing written notice of dismissal to the other party. In the latter case, the notice period for the termination of the employment relationship must not be less than 30 days nor more than 90 days. This follows Article (43) paragraph 1 of Employment Lawwhich says the following.

“Notice of termination of the employment contract:

Either party to an employment contract may terminate the contract for justified cause, notifying the other in writing. The employee must perform his duties during the notice period agreed in the contract, provided that the notice period is not less than 30 days nor more than 90 days.

According to the second part of your questions, asking an employee “to leave as part of a restructuring process without any explanation” is supposed to imply that the employee will be asked to resign, given that the employer “restructuring process”. This way of terminating the employment relationship will be valid if it is done pursuant to a written agreement between the employer and the employee (as provided in article (42), clause 1 of the Employment Law).

If the worker does not agree to terminate the employment relationship by mutual agreement, he or she will have the right to claim compensation for arbitrary dismissal. The termination of the employment relationship as part of a restructuring process with the employer may be considered arbitrary dismissal. In this sense, the provisions of Article (47) of the Employment Law can be referenced. Says the following:

“Arbitrary dismissal:

1. The dismissal of a worker by his employer will be arbitrary if the worker presents a serious complaint to the Ministry or files a provenly valid action against the employer.

2. The employer must pay the worker fair compensation estimated by the competent court if the dismissal is determined to be arbitrary in accordance with section 1) above.

The amount of compensation will be determined based on the type of work, the extent of the damage suffered by the employee and the length of their service. In any case, the amount of compensation will not exceed 3 months of the employee’s salary calculated on the basis of the last salary received by him.

3. The provisions of paragraph (2) above shall not prejudice the right of an employee to receive payment in lieu of notice and severance pay to which he is entitled under the provisions hereof.

Following Article (47) of the Employment Law, A mere unilateral decision by the employer to terminate an employment relationship for “restructuring” cannot be considered a valid reason or good cause for the termination of an employee’s employment.

However, if an employer faces a serious financial crisis, it may have to cease its operations by obtaining an order from a local authority or court having jurisdiction in the UAE. In such circumstances, the employer may validly terminate an employee’s employment contract. This is in accordance with Article 25 (1) (b) of Cabinet Resolution No. 1 of 2022read with Article 42 (8) of the Employment Law (noted above), which reads as follows:

“Subject to the provisions of Federal Decree-Law No. 9 of 2016 on Commercial Bankruptcy, Federal Decree-Law No. 19 of 2019 on Insolvency and the provisions of subsection (8) of article 42 of the Decree Law:

The employment contract will be terminated by:

b) Issuance of a decision by the competent authorities to the effect that the businessman cannot continue his activity for exceptional economic reasons beyond his control.”

Given the position of UAE laws, as noted above, ideally the employment relationship can be terminated by mutual written agreement between the employer and the employee. A unilateral dismissal may give rise to compensation claims by the employee, at his or her discretion. If the claim is accepted, the employer will have to pay compensation to the employee for arbitrary dismissal, in an amount of up to three months of the employee’s salary, calculated on the basis of the employee’s last salary received.

News Source: Khaleej Times