Laid Off for Cost-Cutting in the UAE? Here's What the Law Says

DUBAI: As businesses continue to streamline operations and reduce costs, many employees in the UAE are asking an important question: Can an employer legally terminate staff for financial reasons, and are workers entitled to compensation if they believe the dismissal was unfair?

Under the UAE Labour Law, employers are permitted to terminate employees for legitimate business reasons, including restructuring, downsizing and cost-cutting measures. However, the termination must comply with the provisions of Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations and the terms of the employment contract.

Is cost-cutting a valid reason for dismissal?

Yes. Employers may reduce their workforce as part of a genuine restructuring or cost-saving exercise, provided the decision is not discriminatory, retaliatory or in breach of the law.

The employer must also:

•    Provide the contractual or statutory notice period. 
•    Pay all outstanding salaries and benefits. 
•    Settle end-of-service gratuity, where applicable. 
•    Compensate employees for unused annual leave. 
•    Follow all contractual and legal obligations before the employee's final working day. 

Can employees claim arbitrary dismissal compensation?

Unlike the previous labour law, the current UAE Labour Law does not include a separate provision for "arbitrary dismissal" compensation in most private-sector employment cases.

Instead, if an employee believes the termination was unlawful, they may file a complaint if they can show that:

•    The employer violated the employment contract or labour law. 
•    The dismissal was based on discrimination or other prohibited grounds. 
•    The employer failed to pay contractual or statutory entitlements. 
•    The termination was in retaliation for exercising legal rights, such as filing a labour complaint. 

In such cases, the courts may award compensation based on the actual damages suffered if the employer is found to have acted unlawfully.

What payments should terminated employees receive?

Employees who are legally terminated are generally entitled to receive:•    Salary up to the last working day. 

•    Payment in lieu of notice if the notice period is not served. 
•    End-of-service gratuity (where eligible). 
•    Payment for accrued but unused annual leave. 
•    Any other contractual benefits due under the employment agreement. 

What should employees do if they believe the dismissal is unfair?

Employees who believe their rights have been violated should first seek clarification from their employer. If the matter cannot be resolved, they can submit a complaint to the UAE Ministry of Human Resources and Emiratisation (MoHRE), which will attempt to resolve the dispute through mediation. If no settlement is reached, the case may be referred to the competent labour court.

Key takeaway

Being dismissed due to cost-cutting does not automatically entitle an employee to additional compensation. However, if the employer fails to follow UAE labour laws, breaches the employment contract or violates the employee's legal rights, the worker may pursue legal remedies and seek compensation through the appropriate channels.

Employees are encouraged to retain copies of their employment contracts, salary records, termination letters and other relevant documents to support any future claims.