Employment termination in the UAE: notice, gratuity and unfair dismissal under the 2021 law

Federal Decree-Law No. 33 of 2021 on the Regulation of Employment Relations, in force since 2 February 2022, together with its executive regulation, governs how an employment contract in the UAE private sector comes to an end. It replaced the 1980 labour law and changed the rules on contract types, notice, gratuity and dismissal. This article sets out the position for employers and employees on the mainland; the DIFC and ADGM have their own employment laws with different rules.

Contracts are now fixed-term

Under the 2021 law every employment contract is a fixed-term contract, for a period the parties choose, which may be renewed or extended. The old unlimited contract no longer exists. Either party can still end the contract before its term by giving notice on a lawful ground, so in practice the fixed term does not lock the parties in; it mainly affects how the contract is renewed and recorded.

Lawful grounds for termination

Article 42 of the law lists the ways a contract ends, including: expiry of the term without renewal, written agreement of both parties, termination by either party with notice, the death or permanent incapacity of the employee, a final custodial sentence of at least three months, the closure of the employer's business or its bankruptcy, and the employee's failure to renew a work permit for reasons beyond the employer's control. Termination by notice must be for a legitimate reason connected with the work, and the employer must give it in writing.

Notice period

The notice period is what the contract says, within a minimum of 30 days and a maximum of 90 days. During notice the employee continues to work and is paid in full, and an employee serving notice after resigning to join another employer may take one paid day a week to look for work. A party who does not give notice pays compensation equal to the wage for the notice period not given. During probation, which may last up to six months, the employer gives 14 days' notice; an employee leaving to join another UAE employer gives one month, and one leaving the country gives 14 days.

End-of-service gratuity

A full-time employee who completes one year of service is entitled to gratuity calculated on the basic wage: 21 days' basic wage for each of the first five years and 30 days for each year after that, capped at two years' wages in total. Part-time employees receive a proportion. The gratuity is due whatever the reason for termination, including resignation and dismissal, with limited exceptions, and it must be paid, together with any unpaid wages, leave and other entitlements, within 14 days of the end of service. Unpaid leave and days of absence without pay are excluded from the calculation.

Dismissal without notice

Article 44 allows an employer to dismiss an employee without notice, after a written investigation, for serious misconduct, including: assuming a false identity or submitting forged documents, an error causing substantial material loss provided the Ministry is informed within seven days, breach of safety rules despite a written warning, repeated failure to perform basic duties after two written warnings, disclosure of trade secrets, being under the influence of alcohol or drugs at work, assault on the employer or colleagues, unexcused absence of more than 20 intermittent days or seven consecutive days in a year, and abuse of position for personal gain. Because the list is exhaustive and the procedure matters, employers should document the investigation and the warnings carefully; a dismissal that does not meet the conditions becomes an ordinary termination with notice and gratuity, and may be unfair.

Unfair dismissal

Article 47 provides that a dismissal is unlawful if the employee is terminated because of a legitimate complaint to the Ministry or a claim against the employer that is proved to be valid. In that case the court can award compensation of up to three months' wages, in addition to notice pay and gratuity. Dismissal for other improper reasons, such as pregnancy or discrimination, is prohibited by other provisions of the law. An employee dismissed for an alleged serious misconduct that the employer cannot prove may also claim compensation.

Non-compete clauses

A non-compete clause is enforceable only if it is limited in time (two years at most), place and type of work, and protects a legitimate business interest. The executive regulation excludes it in some cases, for example where the employer ends the contract in breach of the law, and courts read these clauses narrowly.

Complaints and time limits

Employment disputes go first to the Ministry of Human Resources and Emiratisation, which attempts a settlement and can now decide claims up to AED 50,000. Larger or unresolved claims are referred to the labour court, and the employee is exempt from court fees in most cases. A claim must be filed within one year of the date the entitlement fell due, so neither side should wait.

How we help

For employers we draft termination letters, warnings and investigation records that meet the law, calculate final settlements and represent the company at the Ministry and the labour court. For employees we check the calculation of what is owed, advise on whether a dismissal was lawful and file the complaint and the claim within the time limit. Contact us with the contract and the correspondence and we will tell you where you stand.