Redundancies and restructures in the UAE

Whenever there is a challenging economy, companies and employers have to consider making difficult decisions around the company costs and the impact on the workforce.

One exercise that businesses have to consider during times of economic stress is around implementing a redundancy or restructuring process within the workforce. These types of procedures were particularly prevalent around the world during the 2008/2009 crash.

Redundancy within the UAE

There is often a lot of uncertainty and misunderstanding around the legal approach to redundancy within the UAE. A redundancy dismissal is typically a situation where an employee is dismissed pursuant to a reduction in the requirement for that person’s role. Redundancy dismissals are terminations that should never be the fault of the employee because the decision has not been taken because of their poor performance or misconduct. It is a dismissal that has arisen pursuant to a change in business requirements, a change in workplace location or the closing down of an employing entity in its entirety.

Although there is no statutory concept of redundancy, the courts have in the past acknowledged that where businesses dismiss an employee for a cost saving reason this can amount to a legally fair and valid reason for dismissal under Article 117 of the UAE Labour Law.

The labour law provides that a company may terminate an unlimited term employment contract for a valid reason at any time by providing at least 30 calendar days’ notice of termination to the employee (or longer if the employment contract provides for a longer notice period). It is important to note that different rules apply to the termination of a fixed term employment contract.

Provided a company is able to set out a clear rationale for a redundancy dismissal, which is supported by evidence and a fair and thorough process is undertaken, an employer will be in a good position to defend any subsequent labour claims. However, it is essential that the grounds for dismissal and the process are supported by clear documentary evidence.

There is no requirement to pay any redundancy payment to employees. The standard statutory termination payments apply only, which include notice pay, end of service gratuity and accrued and untaken annual leave. There may also be an obligation to provide a one-way flight to the employee’s home country if the individual is unable to obtain alternative employment within the UAE. In addition to the above payments, the Labour Courts may also award employees with compensation for ‘arbitrary dismissal’ if the redundancy is held to be unfair and/or unlawful.

Restructures within the UAE

Redundancy dismissals within the UAE are particularly challenging decisions to take in light of the majority of expats’ residence status being linked to their employment and visa sponsorship. For this reason, we regularly assist clients in considering legal alternatives to redundancy procedures where those clients can retain their skilled workforce but also save on costs during difficult financial times.

Examples of restructures that clients often consider before entering into redundancy procedures are transferring staff into different roles within the business, moving staff around their regional or global offices where capacity is required, reducing working hours for a temporary period, removing non-essential benefits from employment terms for a temporary period or asking staff to take leave during periods where the business is quieter.

We have certainly seen clients benefit from adopting temporary restructures during quiet business, which helps to retain their talented staff and also instil greater trust and connectivity between the company and its workforce.

Whatever the desired approach for employers, wherever there are financial challenges and the business needs to cut costs the main objective should be to avoid a dispute or litigation with current or exiting staff. Therefore, we always recommend that clients understand their legal obligations and undertake thorough and open consultation procedures with their workforce before implementing any such changes.

Luke Tapp is a senior associate at Pinsent Masons