Arbitrary or Unfair Termination of Employment Contract

22 Apr 2022


The United Arab Emirates (UAE), encompasses a wide range of employment relationships, as it is a central hub for commerce, trade and various other kinds of employment generating activities. One of the most dominant legal issues faced by people residing in the UAE is employment related disputes. Federal Law Number 8 of 1980 on Regulating Labor Relations (the Labor Law), is the key legislation governing all the employment related aspects. The scope of its applicability is extended to all the employees, nationals or non-nationals, working in UAE, except for employees working in:

  • governmental departments;
  • armed forces and police officers;
  • domestic servants;
  • agriculture, but not the employees working in the areas of processing products or operating machines or repairing machinery in the agriculture companies;
  • employees working for businesses based in the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), as entities operating under the DIFC and ADGM are regulated by their own set of laws and rules; and employees working in other free zone areas are regulated by their own set of rules.


The most common employment disputes that frequently occur are end of service gratuity, unlawful termination, unpaid salaries, labor ban and other such disputes arising out of the employment contract. This article will focus on the provisions of the Labor Law governing termination in general and in detail on unlawful or arbitrary termination of the employee. The Provisions of the Labor Law provides for two (2) types of employment contract, which are, limited term employment contract and unlimited term employment contract. The termination requirements and possibilities for both the employer and employee are different for limited and unlimited employment contracts. Article 113 of the Labor Law lays down the circumstances when a termination of the employment contract can take place:

  • if both the parties agree to terminate the employment contract, provided employee has given written consent of the same;
  • on expiry of the fixed term of the employment contract, unless such term has been impliedly or explicitly extended in line with provisions of the Labor Law;
  • in the case of an unlimited term employment contract, as long as the party who desires to terminate the contract has adhered to the provisions of the Labor Law and the reasons for termination are non-arbitrary.


Further, article 114 of the Labor Law provides that the death of the employer shall not result in the termination of the employment contract, unless the subject matter is connected to the person who expired. If the employee expires or is completely disabled, the employment contract can be terminated. However, if the disability of the employee is partial and such employee is in a position to carry out other works as permitted by his health conditions, then the employer shall transfer the employee to such place of work which suits the capabilities of the partially disabled employee, as long as suitable work exists. 


Termination under the Limited Term Employment Contract: 

Generally, the limited term employment contract can be up to a period of two (2) years. As a general rule, the limited term employment contract may not be terminated until the expiry of the specified term as long as it is not renewed, or unless in the cases as mentioned in article 120 of the Labor Law or by mutual agreement by the parties. However, the parties are required to adhere to the legal requisites in case of such early termination by mutual consent, such as:

  • prior notification of the intention to terminate the employment contract in writing at least one (1) month in advance but not longer than a period of three (3) months;
  • the contractual obligations must be observed during the notice period;
  • agreed compensation by both the parties shall be met; however, such compensation should not be more than the equivalent of three months’ gross wages.


Termination of the Unlimited Term Employment Contract:

Termination under this type of employment contract can occur under the following circumstances:

  • if both the parties mutually agreed to end the employment contract;
  • in case, either party to the contract wishes to terminate, the terminating party shall observe the legal requirements like prior notice as to the intention to terminate the employment contract, which shall not be less than one (1) month and longer than three (3) months and also shall observe the contractual obligations for the duration of such notice period.


Termination of the employment contract can only take place as per the circumstances and reasons provided by the provisions of Labor Law and anything contrary to that can be deemed as unlawful or arbitrary termination. One of such provisions which allows the employer to terminate the employee without any prior notice is mentioned in article 120 of the Labor Law. Likewise, the employee can terminate the employment contract before the expiry of the term of the contract as per the reasons specified in article 121 of the Labor Law. Article 120 of the Labor Law provides reasons like where the employee is found to have faked their identity, disclosed trade secrets, caused massive losses due to their negligence while carrying out their work, indulged in drugs or intoxication or assault of the co-worker during the working hours, failure to carry out their works as per the contractual obligations, among various such other reasons. Similarly, the employee can terminate the employment contract, if the employer breaches his contractual obligations towards the employee or where the employer or their legal representative is found harassing the employee.


Arbitrary Termination: 

Articles 122 and 123 of the Labor Law deals with the unfair or arbitrary termination of the employee. Article 122 of the Labor Law provides that, if the termination of the employee is based on reasons which are not connected to the work or where such termination has occurred because the employee filed a serious complaint against the employer before the relevant authorities or due to the existence of a valid claim against the employer, shall be considered as arbitrary termination of the employee. Precisely, any termination which has occurred based on unreasonable or unjustifiable reasons can be termed as arbitrary termination. As the provisions of the Labor Law are silent as to what reasons constitute unfair dismissal or termination of the employee, we will largely depend on the reasons which the UAE courts have held as arbitrary termination. 

Some of such reasons as held by the UAE courts as unlawful termination are as follows:

Forced termination by the employer: 

Where the employee was forced to terminate the employment contract for reasons like: the employer failed to execute the contractual obligations or pay the wages within the time period as specified in the contract. If the employer created such situations, either by way of breaching the contractual obligations or by using coercive actions, which left the employee with no other choice than to terminate the employment contract. 

The Coercive actions can include

  • demotion along with reducing the salary lower than their actual salary;
  • by intimidating or threatening the employee in any manner which caused the employee to forcefully terminate the employment contract. Such intimidation can be done by threatening to damage the employee’s property, or terminate them, or to unreasonably question or downgrade their performance level with an intention to coerce such employee to leave the work.


Termination based on Unjustifiable Reasons: 

Unjustifiable reasons can include circumstances like where the employee has been terminated on discriminatory reasons, false accusations, or unreasonable reasons like unfit for the office culture, among others. 


Termination on the Reason the Employee is causing Loss to the Company:

In this case, as long as the employer has submitted to the Ministry of Labor (MoL) or Ministry of Human Resources and Emiratisation (MoHRE), the report along with supportive evidence stating the loss caused to the company because of the employee, within a period of forty-eight (48) hours from the time such incident has been acknowledged by the employer, then the termination of such employee shall not amount to unfair or arbitrary dismissal. 


Redundancy Termination: 

Where the employer has been dismissed solely based on the reasons like change in the business requirements which in turn reduced the role of the employee’s service, change of business location or business closure, or to minimize the expenses or any other such reasons attributed to the employer’s part which made the employee redundant, can amount to redundancy termination. So far, the concept of redundancy dismissal has not been dealt by the provisions of the Labor Law; however, the present global pandemic led to the official introduction of the Ministerial Resolution 279 of 2020 (the Resolution), in order to extend support to the private sector employers during this phase of pandemic, which has severely affected the financial state of many private entities. Even though the concept of redundancy termination has not been recognized by the laws governing the labor related matters, the UAE courts have at several occasions in the past, approved the employee’s termination by the employer on the reasons like to reduce the cost, as long as such termination was done in line with the legal requirements specified by the provisions of Labor Law. The Resolution provides that if the employer intends to put the employee on unpaid leave, it shall be proceeded only after prior agreement by both the parties. In cases where the employee has been made redundant, the employer is required to provide certain entitlements like housing, transport, medical insurance as long as the employee finds a new job or leaves UAE. Apart from that, the employee is also required to register such employees to the virtual labor market, which intends to help the employees find new job opportunities. As long as the redundancy termination is done by observing the necessary requisites like clear communication, fair procedures, and all of the above stated requirements are met by the employer then it may not amount to unfair dismissal. 


Termination based on Economic Challenges:

As long as the employer is able to establish substantial evidence of economic challenges which forced the employer to terminate the employee, it shall not be deemed arbitrary.


The Disciplinary Code: 

Title six, articles 102 to 112 of the Labor Law allows the employer to take different kinds of disciplinary actions or penalties against the employee whenever necessary. By virtue of article 103 of the Labor Law, the employers can set their own set of disciplinary rules in line with the standard regulation issued by the MoHRE on disciplinary penalties. The Disciplinary penalties which can be imposed on the contravening employees are as follows:

  • Warning;
  • Fines;
  • Can be suspended from work for a period of not more than ten (10) days with a decrease in the wages;
  • Can be deprived of periodic bonus;
  • Deprived from being promoted;
  • Can be terminated but without effecting the end of service gratuity;
  • Where the reasons for termination is as per article 120 of the Labor Law, then can be terminated from work and also be deprived of the complete end of service gratuity.


These disciplinary penalties can be imposed only after the employee has been notified of the charges against him, followed by an opportunity for the worker to defend himself and a thorough investigation, the disciplinary penalties can be sanctioned after recording such matters in a minutes deposited in the personal file. However, the worker may not be subjected to any disciplinary actions after the lapse of thirty (30) days of discovering such actions which gave rise to initiate disciplinary actions against the employee. Likewise, no disciplinary action can be imposed after the expiry of sixty (60) days from the date when the investigation of the said charges has ended. Therefore, any termination done after adhering to rules regulating the disciplinary sanctions shall not be deemed arbitrary, unless otherwise proven by the employee. 


Compensation in cases where the Termination was Arbitral:

Article 123 of the Labor Law provides that where the employee has been terminated or removed for arbitrary reasons, the employer is liable to pay compensation to the employee. The court shall evaluate the amount of compensation based upon the following factors:

  • kind of work performed by the employee;
  • the extent of losses or damage suffered by the employee
  • the duration of the employment period;
  • investigation conducted on the work conditions.


However, the compensation shall not be more than the wage of the employee for a period of three (3) months as calculated based on the last due salary. Further, it shall also include the employee’s right to gratuity along with the compensation payable to the employee. The employer can exercise his right to termination as provided by the provisions of Labor Law and as long as it is based on valid and reasonable reasons like poor performance, long term medical conditions, and economic crisis, among others, then, the termination shall not fall under the unfair dismissal of the employee. The employee always has the right to approach the MoHRE and apply for lawsuit in a case where the employee is convinced that their termination is based on unjustifiable reasons and therefore it falls under the arbitrary dismissal of the employee. The terminated employees can avail a grace period of thirty (30) days, from the date of the cancellation of their employment visa and in this period they can either acquire a new residency visa or leave UAE.