UAE: Can employees ask for a severance package in their job contract?
Question: I am planning to move to the UAE this summer and have been exploring job opportunities. However, none of my potential employers I've spoken to were willing to offer a severance package. I'd like to understand if there are any laws or regulations about this. Is it possible to include a "golden handshake" clause in my job contract? And if I do, will it be legally binding?
Answer: It is assumed that you are considering an employment offer from a company based in the UAE mainland. In that case, the UAE Employment Law, along with related cabinet resolutions and the Civil Transactions Law, would apply to your situation.
In the UAE, an employee who has completed at least one year of continuous service is entitled to severance pay at the end of his or her service with an employer. The severance pay of an employee is calculated on his or her basic salary. This is in accordance with the Article 51(2) of the Federal Decree Law no. 33 of 2021 Regarding the Regulation of Employment Relationships and its amendments ('UAE Employment Law'), which states:
'The full-time foreign employee, who completed a year or more in continuous service, shall be entitled to end-of-service benefits at the end of his service, calculated according to the basic salary as per the following:
a. A salary of (21) twenty-one days for each year of the first five years of service;
b. A salary of (30) thirty days for each year exceeding such period.'
Further, the Article 8 of the UAE Employment Law read with Article 10 (1) of the Cabinet Resolution No. 1 of 2022 on the Implementation of Federal Decree-Law No. 33 of 2021 Regarding the Regulation of Employment Relations (the 'Cabinet Resolution No. 1 of 2022'), states the regular terms and conditions which needs to be included in an employment contract of an employee.
In the UAE, the parties to any contract are legally bound to carry out their respective obligations as stated in the contract, and to do so honestly, fairly, and in good faith. This is in accordance with accordance with Article 246 (1) of the Federal Law No. (5) of 1985 On the Civil Transactions Law of the United Arab Emirates, which states: '1. The contract shall be implemented, according to the provisions contained therein and, in a manner, consistent with the requirements of good faith.'
Generally, in the UAE, the Ministry of Human Resources & Emiritisation (Mohre) template of the employment offer letter and contract does not contain clause related to severance pay. However, you may request your prospective employer to include the same.
If your prospective employer does not agree to include details about severance pay in your employment offer letter, or if the offer letter and employment contract do not mention it, you will still be entitled to receive severance pay when your employment ends, as long as you have completed at least one year of service with the company.
As an employee, you are entitled to all the benefits outlined in the UAE Employment Law and its related cabinet resolutions, including severance pay as specified in Article 51(2) of the UAE Employment Law.
Additionally, while the UAE Employment Law ensures the protection of employee rights, it does not restrict employers from offering more favourable terms. This is in line with Article 65 (1) of the Employment Law, which states: 'Rights laid down in this decree-law shall consist the minimum employees' rights. The provisions of this Decree-Law shall not prejudice any of the rights prescribed for employees under any other legislation, agreement, declaration, regulation or employment contract, giving rise to rights that are more beneficial than those laid down in the provisions of this Decree-Law.'
If you're considering including a 'golden handshake' clause in your employment contract, you can discuss this with your prospective employer and mutually agree to add it to the contract.
Applicable laws:
1. Federal Decree Law no. 33 of 2021 Regarding the Regulation of Employment Relationships and its amendments
2. Cabinet Resolution No. 1 of 2022 on the Implementation of Federal Decree-Law No. 33 of 2021 Regarding the Regulation of Employment Relations
3. Federal Law No. (5) of 1985 On the Civil Transactions Law of the United Arab Emirates
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