Dismissing employees in UAE requires care with compensation scheme in mind

Michael Chattle and Lujain Assaf of Pinsent Masons were commenting at a time in which an increasing number of employees are likely to become eligible to receive benefits under the UAE’s unemployment insurance support scheme.

The unemployment insurance support scheme was introduced last year and came into effect earlier this year. Under the scheme, UAE-based employees can pay annually into an insurance scheme, and in return are eligible to receive up to 60% of their base salary up to a maximum of AED 10,000 or 20,000 per month ($2,723 or $5,446), depending on the worker’s salary, if they lose their jobs.

The scheme originally applied only to workers employed by public and private employers that are registered in the UAE’s mainland and are under the authority of the Ministry of Human Resources & Emiratisation, but the scheme was extended earlier this year and made mandatory for employees of semi-government bodies in the UAE and for companies operating in a free zone in the UAE, though not for those in the DIFC and ADGM for whom the scheme remains optional.

Employees must have paid into the scheme for 12 consecutive months to be eligible for compensation under it. Workers that resign from their position or are dismissed for misconduct are unable to claim financial support under the scheme.

Because of the relatively nascent nature of the scheme and the fact no employee has yet made enough consecutive payments into the scheme to be eligible for compensation, there remains a degree of uncertainty over how employee claims will be dealt with in practice by the UAE authorities, Assaf said. She advised UAE employers to handle employee dismissals with particular care as a result.

“The first claim that can be made before the ILOE insurance committee is on 1 January 2024 and the committee will make its assessment on a case-by-case basis,” Assaf said. “We are going to be keeping an eye out on the insurance claim committee’s decision-making process.”

Chattle said: “While employers need to take the course of action that is in the best interests of the business, they should be mindful of the scheme when dismissing employees, as many employers will be keen to provide any assistance possible to employee. This is particularly the case around timing of the dismissal and the documentation provided to the employee, for example delaying the date of an employee’s dismissal or changing the reason for the dismissal.”

“However, employers need to ensure that they are not going too far and distorting the true position around the employee’s dismissal as this could lead to accusations of fraud and potential penalties for the business,” he said.