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UAE: Employment Termination Amidst Restructuring6 min read

Author: Derya Bandak
Managing Partner Attorney at German Law

Business operations and the economic environment are constantly changing, and restructuring is often necessary for companies to adapt and succeed. However, when employment is terminated during this process, there are significant legal considerations to remember, especially in the UAE, where labor laws are strict. In this newsletter article, we look at the specifics of employment termination in the context of restructuring.

Employment Termination in Restructuring: Legal Framework

Following the guidelines outlined in UAE Labor Law is essential regarding termination during restructuring. According to this, employment contracts may be terminated for various reasons, such as mutual agreement or specific circumstances like the closing of the establishment or the employer’s insolvency.

Validity of Termination: Mutual Agreement vs. Unilateral Decision

The validity of termination during the restructuring process depends on whether it is done through mutual agreement or as a unilateral decision by the employer. Termination by mutual agreement is allowed as long as it is documented in writing. However, if the employer makes a unilateral decision to terminate an employee without a valid reason, it may lead to legal implications for the employer.

Arbitrary Dismissal Concerns

It may be considered arbitrary dismissal if an employee is asked to leave as part of the restructuring process without sufficient reason. Arbitrary dismissal occurs when an employee files a legitimate complaint against the employer, and the termination is seen as a retaliatory measure. In such cases, employees can seek compensation through legal channels.

Employer Obligations and Risks

For employers dealing with restructuring, it’s crucial to follow legal obligations and mitigate risks related to employment termination. Unilateral decisions to terminate contracts without valid reasons may result in legal liabilities, including compensation payments to affected employees. Therefore, it’s essential to maintain transparency, communication, and adherence to labor laws to protect employee rights and business interests.

 

Although the UAE Labor Law doesn’t explicitly state what constitutes a legitimate reason, it emphasizes the importance of justifiable circumstances for termination. Employers must ensure that any terminations made during the restructuring process are based on reasons directly related to the process itself, such as organizational realignment, operational efficiency, or financial difficulties.

How TME Services and TME Legal Consultants Can Support Your Business

In summary, employment termination during restructuring requires careful navigation of UAE labor laws to ensure compliance and minimize risks. By following legal provisions, being transparent, and treating employees fairly, businesses can manage restructuring processes while promoting justice and equity in the workplace.

At TME Services, our team of 45 experts is ready to help your business make the most of these opportunities. With over 18 years of experience in the UAE and the Middle East, we specialize in legal, tax, accounting, and compliance matters. Visit our services page to learn more about everything we do.

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