OUTLINE
Notice periods in the UAE
Employment termination law in the UAE
Post-termination restraints in the UAE
Employment waivers in the UAE
Transfer of undertakings in the UAE
Mitigate risk with CXC’s end-to-end employment solutions
End of employment contract in the UAE
Managing the end of employment contracts in the UAE requires employers to navigate various legal obligations, including notice periods, severance pay, and post-termination restrictions. Properly managing these processes ensures smooth transitions while protecting both businesses and employees from potential legal disputes.
End of contract law in the UAE
The UAE labour laws outline specific requirements for termination, including minimum notice periods and severance entitlements based on an employee’s length of service.
Other key legislation around end of employment includes:
- Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations: This law applies to private sector employees in the UAE (excluding the DIFC and ADGM free zones). It outlines termination procedures, notice periods, severance pay, and post-termination restrictions.
- Cabinet Resolution No. 1 of 2022: This resolution provides additional regulations and clarifications on employment contracts, termination conditions, and end-of-service benefits.
- DIFC Employment Law No. 2 of 2019 (as amended): Governs employment matters within the Dubai International Financial Centre (DIFC) and has different termination and end-of-service benefit rules.
- ADGM Employment Regulations 2019 (as amended): Applies to employees working in the Abu Dhabi Global Market (ADGM) and includes distinct provisions on termination and benefits.
Employers also need to navigate non-compete clauses, employee waivers, and business transfers, where compliance with legal frameworks is crucial to avoid risks.
In this guide, we will explore the key aspects of the end of employment processes in the UAE, providing businesses with insights into legal obligations and best practices for handling workforce transitions effectively.
Notice periods in the UAE
Employers in the UAE must comply with legal requirements regarding notice periods when an employee resigns or is terminated. The UAE Labour Law sets clear guidelines on notice durations, ensuring a fair transition for both parties. Understanding these rules can help businesses manage workforce changes effectively while maintaining compliance.
Resignation notice period in the UAE
Employees who wish to resign must provide a mandatory notice period in the UAE of at least 30 days, as per the UAE Labour Law. However, for employees under DIFC employment regulations, the required notice period varies depending on their length of service:
- 1–5 months of employment: 2 weeks’ notice.
- Up to 5 years of employment: 1 months’ notice.
- More than 5 years of employment: 90 days’ notice.
Employees serving a resignation notice period in the UAE are expected to fulfil their duties unless an agreement is reached for early release. Failure to provide the required notice could result in financial penalties or loss of benefits.
Termination notice period in the UAE
Employers terminating an employee must also provide at least 30 days’ notice, unless the contract specifies a longer period. In cases of termination without cause, failing to meet the required notice can lead to legal claims or additional compensation. Employees dismissed for gross misconduct are not entitled to notice or end-of-service benefits.
Probationary and notice periods in the UAE
During probation, the minimum notice period in the UAE is reduced:
- Employers terminating an employee: 14 days’ notice.
- Employees resigning to join another UAE-based company: 30 days’ notice.
- Employees resigning to leave the UAE: 14 days’ notice.
Additionally, employers can request the new hiring company to cover recruitment costs if an employee switches jobs during probation.
Severance pay in the UAE
Employees who have completed at least one year of service are entitled to severance pay. The compensation is calculated as follows:
- First five years: 21 days’ wage per year of service.
- Beyond five years: 30 days’ wage per additional year.
Severance pay is based on the employee’s final basic salary and is capped at two years’ total wages for foreign employees. Importantly, severance pay and notice period compensation in the UAE are separate, and notice pay does not affect end-of-service benefits.
Employers should ensure compliance with these regulations to avoid disputes and financial penalties. By adhering to fair worker protection programs in the UAE, businesses can maintain positive employee relations and uphold labour law requirements.
Employment termination law in the UAE
Managing employee exits in compliance with UAE labour regulations is essential for businesses operating in the region. Employers must be aware of the legal grounds for termination, required notice periods, and entitlements to avoid disputes and ensure fair treatment of employees.
Grounds for termination in the UAE
Under employment termination law in the UAE, an employment contract may be terminated by either the employer or the employee for legitimate reasons, provided proper notice is given in writing. Grounds for termination include:
- Performance or behavioural issues.
- Redundancy due to restructuring.
- Bankruptcy or insolvency of the employer.
- Failure of the employee to renew their work permit.
Employers must document and communicate these reasons clearly to protect against potential legal claims.
Termination process in the UAE
When terminating employment, employers must issue a formal employment termination letter in the UAE, outlining the reason for termination, the notice period, and any benefits or entitlements owed to the employee. It is important to comply with the labour law during termination of employment to prevent disputes and ensure a smooth transition.
Resignation in the UAE
Employees also have the right to resign by providing written notice as per their contract. During probation, an employee must provide 14 days’ notice, or 30 days if they are moving to another employer within the UAE. Employers may not coerce or retaliate against an employee for resigning.
Termination pay in the UAE
Employees who have completed at least one year of service are entitled to benefits on termination of employment in the UAE, including severance pay. Severance pay is calculated as:
- 21 days’ wage per year for the first 5 years of service.
- 30 days’ wage per year for service beyond 5 years.
Severance pay for foreign employees is capped at two years’ salary. Additionally, employees terminated unlawfully may claim up to three months’ compensation.
Staying up to date with new UAE labour rules for terminating employees is crucial for businesses to mitigate risks and ensure compliance with employment laws.
Post-termination restraints in the UAE
Employers in the UAE often seek to protect their business interests by including restrictive covenants in employment contracts. These post-termination restrictions help safeguard confidential information, client relationships, and workforce stability. However, their enforceability depends on compliance with UAE labour laws, ensuring that restrictions are reasonable in scope, duration, and geographical reach.
Non-compete clause in the UAE
A non-compete clause in the UAE is designed to prevent an employee from joining a competitor or starting a competing business after leaving their job. Under UAE labour law, these clauses are enforceable if they are limited to a reasonable duration, geographic area, and scope of work. Typically, in the UAE, a non-compete clause in an employment contract should not exceed 6 to 12 months and should only apply within the emirate where the employee worked.
However, enforcing a non-compete clause in the UAE can be challenging. Unlike some jurisdictions where injunctive relief is available, UAE law does not provide for court-ordered restrictions on employees working for competitors. Instead, employers may seek damages for breaches, provided the restriction is clearly outlined in the employment contract and does not impose excessive penalties.
Non-solicitation of clients’ clause in the UAE
A non-solicitation clause prevents former employees from approaching their previous employer’s clients to offer competing services. While non-solicitation clauses are permitted, they must align with reasonable timeframes and business needs. In the UAE, a typical customer non-solicitation clause lasts 6 to 12 months and applies only to clients with whom the employee had direct contact.
Similar to non-compete clauses, enforcing non-solicitation agreements can be complex. Courts may assess whether the restriction is proportionate and justified to protect the employer’s legitimate business interests.
Non-solicitation of employees’ clause in the UAE
A non-solicitation of employees’ clause prevents former employees from poaching colleagues from their previous employer. This type of restriction is generally permissible in the UAE, provided it is not overly broad or excessive in duration. While courts are less likely to scrutinise employee non-solicitation clauses, they may still rule them unenforceable if they are deemed unreasonable.
Employers may include a liquidated damages clause in the employment contract, setting a pre-agreed penalty for violating post-termination restrictions. However, UAE courts have the authority to reduce penalties they consider excessive under the Civil Code.
While post-termination restraints are common in UAE employment contracts, enforcing them requires careful drafting. Employers should ensure that restrictions are clear, justified, and proportionate to avoid potential legal disputes. Seeking legal advice when drafting restrictive covenants can help businesses protect their interests while staying compliant with UAE employment laws.
Employment waivers in the UAE
Employment waivers play a role in managing employer-employee relationships, particularly in matters of dispute resolution and contractual obligations. While waivers in the UAE are commonly used, their enforceability remains a complex issue. Employers should carefully consider the legal implications before relying on waiver agreements to settle employment disputes or financial obligations.
Types of employment waivers in the UAE
In the UAE, employment waivers are often included in settlement agreements to resolve disputes, waive claims, or relinquish certain employee rights. The most common types of waivers include:
- End-of-service settlements: Employees may be asked to sign a waiver confirming receipt of all due payments, such as gratuity, outstanding salaries, and benefits.
- Non-compete and confidentiality waivers: Employees may agree to waive certain rights related to post-employment restrictions in exchange for financial compensation or other considerations.
- Compensation or benefit waivers: In some cases, employees may voluntarily waive their right to bonuses or specific financial entitlements.
- Fines waivers: In certain situations, employers may seek to have administrative fines waived in the UAE when resolving disputes with government authorities related to employment violations.
Waiver enforcement in the UAE
The enforceability of employment waivers under UAE law has not been extensively tested in court. While the concept of estoppel may apply—preventing an employee from bringing up an issue again after settling it—there is no explicit legal framework governing employment waivers.
Employers should note that:
- Courts may scrutinise waivers, especially if they are deemed unfair or forced upon employees.
- UAE labour law prioritises employee rights, making it difficult to waive statutory entitlements, such as gratuity or unpaid wages.
- Liquidated damages clauses within waiver agreements are subject to review, and excessive penalties may be reduced under the Civil Code.
Given the uncertainty surrounding the enforceability of waivers in the UAE, employers should draft them carefully and seek legal advice to ensure compliance with UAE labour laws. Properly structured waivers can provide clarity and reduce legal risks while maintaining fair employment practices.
Transfer of undertakings in the UAE
In the UAE, there are no automatic transfer principles governing business transfers. Unlike in some other jurisdictions where employees may transfer seamlessly in a corporate transaction, UAE law does not provide for an automatic continuation of employment when a business changes ownership. Instead, employees must go through a termination and rehire process, making it essential for employers to handle transitions carefully to remain compliant with labour laws and protect workforce stability.
Since the transfer of undertakings in the UAE is not covered under specific legislation, businesses must ensure that employment contracts, residence visas, and work permits are properly addressed during a transfer. In an asset sale, employees are not automatically transferred to the new employer; instead, their existing employment is terminated, and they must be rehired under new contracts. This process involves settling all employee rights, including end-of-service gratuity and any other contractual entitlements before they commence employment under the new entity.
For a smooth transition, employers should consider the following:
- Notifying employees: Clear communication with employees about their termination and rehire terms is crucial to avoid legal complications and maintain morale.
- Settling employee dues: Employees must receive their full end-of-service benefits, including gratuity, before termination, ensuring compliance with UAE labour laws.
- Processing visas and work permits: Employees require new residence visas and work permits under the new employer, which may involve administrative processing times that need to be factored into transition planning.
- Drafting new employment contracts: Ensuring that new contracts align with UAE labour law and reflect agreed terms is essential to avoid disputes.
Given these complexities, employers handling a business transfer should seek expert legal and HR guidance to manage risks and ensure compliance with UAE regulations.
Mitigate risk with CXC’s end-to-end employment solutions
There are many different ways an employment contract can come to an end. But whatever the situation, you need to understand the rules that cover the end of employment in the UAE — or you could end up facing legal issues.
Our solutions ensure your business is protected from risk when a relationship with a worker comes to an end — whatever the reason. We can also help you to avoid missed opportunities by re-deploying talent where possible.
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