Termination of Employment in the UAE: Common Pitfalls for US Employers

U.S. employers operating in the UAE frequently approach employment terminations with the same instincts they apply domestically. The assumption is often that an underperforming or redundant employee can be terminated quickly with minimum financial exposure, provided there is no discriminatory motive.

However, this is not quite the story in the UAE. The concept of at-will employment that governs most employment relationships in the U.S. does not apply, therefore care needs to be taken prior to considering dismissal. This alert sets out where, in our experience, U.S. employers most consistently get into difficulties:

Which UAE employment law applies?

Different employment law regimes apply, depending on where the employing entity is registered. For example, the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) are financial free zones with their own separate employment legislation, courts and dispute resolution mechanisms. DIFC and ADGM have their own employment regimes. Most other private-sector employment in the UAE, including employment in free zones (excluding the DIFC and the ADGM), is governed by UAE Federal Decree Law No.33 of 2021 (as amended) (UAE Labor Law) and Cabinet Decision No.1/2022 on Implementing Regulations, although additional free-zone requirements may apply.

Before taking any termination steps, employers should confirm which employment law applies, as this will materially impact the termination process and potential liabilities. This alert addresses the position under the UAE Labor Law.

What are the costs of termination?

On termination of employment, employees are entitled to receive the following statutory and contractual entitlements as a minimum:

End of service gratuity

This is the most significant cost in relation to expatriate employees (GCC nationals receive pension contributions). Expatriate employees who complete one or more years of service are entitled to a lump sum gratuity payment on termination, calculated as follows:

1. 1. 21 days’ basic salary for each of the first five years of service.
   2. 30 days’ basic salary for each additional complete year of service.

The end of service gratuity calculation is capped at two years’ pay.

Notice pay

In mainland UAE, a minimum 30 day notice period applies. It is also possible to pay employees in lieu of notice, although expatriate employees may push back on this as this provides less time to find an alternative role or alternative residency visa sponsorship.

Accrued untaken annual leave

This must be paid out on termination, calculated on employees’ basic salary and fixed allowances.

Repatriation costs

If an expatriate employee is unable to secure alternative employment or residency visa sponsorship following dismissal by the employer, the employer will be under an obligation to repatriate the employee to their home country. The minimum obligation extends to providing a single economy air fare ticket to the employee’s home country, however relocation/ repatriation policies should be checked to see if they provide a more beneficial entitlement, which would apply. More broadly, visa cancellation is likely to be a sensitive topic for the individual if they have a spouse and children, who may all need to relocate if the employee cannot regularize their visa status.

In addition, any bonus or commission arrangements should be carefully reviewed to assess if any amounts are due. This is the most common area of dispute, often leading to lengthy litigation in the local courts.

Arbitrary Dismissal Compensation

The UAE Labour Law contains a relatively narrow statutory unlawful-termination protection. Under Article 47 of the UAE Labor Law a termination may be unlawful where it results from an employee having submitted a serious complaint to the Ministry of Human Resources and Emiratisation or brought a claim against the employer whose validity is established. In such circumstances, a court may award compensation of up to three months’ remuneration, in addition to the employee’s other statutory and contractual entitlements. Employers should separately consider other potential claims, including discrimination or breach-of-contract claims, when documenting the reason for termination.

Severance Agreements

Although it is common practice for employers to enter into settlement agreements with employees in exchange for employees agreeing not to litigate their dismissal, U.S. employers should be aware that settlement agreements in the UAE do not operate as an automatic bar to filing claims as they do in the U.S.. This means that despite employees signing agreements, U.S. employers could still find themselves having to defend a claim. Specific arrangements should be incorporated in severance agreements to mitigate these risks, for example including an obligation on employees to repay any ex-gratia sums if a claim is filed.  

Timing

Statutory final wages and termination entitlements generally must be paid within 14 days after employment ends.  

Checklist before your next UAE termination

We recommend U.S. employers carry out the following workforce audit before October 2026, should they be considering a restructuring of arrangements by year end:

1. Identify all UAE based employees and determine whether they are employed in mainland UAE, a free zone, DIFC or ADGM.
2. Map visa sponsorship arrangements.
3. Review template employment contracts to identify potential risk areas.
4. Confirm notice periods, gratuity arrangements and bonus plans.
5. Review settlement agreement templates.

About the Author

Yannick is a Senior Associate in the International Employment Law practice at Seyfarth Shaw (UK) LLP, based in London. Yannick is UK qualified and specializes in advising international employers on UK and UAE employment law, with a particular focus on terminations, restructurings and workforce compliance in these jurisdictions. Prior to joining Seyfarth, Yannick spent seven years practicing employment law in the UAE. Yannick works closely with international employers to deliver advice for clients with operations spanning the US, UK, and Gulf region. If you have any further questions regarding this alert or would like any support with your workforce issues please feel free to contact Yannick directly at yramsamy@seyfarth.com.

Dan is a Partner and Vice Chair of Seyfarth’s International Employment Law practice, based in New York. Drawing on more than two decades of experience in international employment law, strategic human resource management, and international relations, Dan advises multinational employers on their most complex cross-border workforce challenges. He works closely with organizations navigating global restructurings, workforce transformations, mergers and acquisitions, outsourcing arrangements, compliance initiatives, and strategic human capital matters across multiple jurisdictions. Dan is particularly focused on helping employers align business strategy with workforce objectives, delivering practical, commercial, and country-specific solutions through Seyfarth’s global network of labor and employment attorneys. If you have any further questions regarding this alert or would like support with your international workforce issues, please feel free to contact Dan directly at dwaldman@seyfarth.com.