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Home UAE COVID-19 realities: More UAE companies opt to pay gratuity via installments

COVID-19 realities: More UAE companies opt to pay gratuity via installments

Dubai: Hit by cashflow concerns, more companies in the UAE are trying to pay off their gratuity settlements in installments for laid-off employees.

These delays are also cropping up on other end-of-service payouts such as arrears in salary and pay-in-lieu for holidays not taken.

Faced with such demands from their ex-employers, what can the affected employees do? In the current economic climate, the best option still remains engaging in negotiations with the employer.

“It is prudent to reach a compromise if necessary – for example, exploring whether payment by installments would be agreeable,” said Emily Aryeetey, Senior Associate, Stephenson Harwood M.E.. “And if a mutually acceptable agreement cannot be reached, then an employee can raise a complaint thorough formal external channels.

Emily Aryeetey  Senior Associate  Stephenson Harwood M.E..  17211d61bb5 author - COVID-19 realities: More UAE companies opt to pay gratuity via installments


Emily Aryeetey, Senior Associate, Stephenson Harwood M.E.


“Usually, an employee will need to file a complaint with the Ministry of Human Resources and Emiratisation (MOHRE). Or if they are employed by a free zone company, directly with the free zone authority.

“If the dispute cannot be resolved, employees will be granted papers permitting them to pursue the matter before the Labour Court.”

The installment way

Market sources say the majority of dismissed/retrenched employees are opting for the installment schemes offered. Their thinking is that rather have the assurance of getting all their dues at some point rather than choose the – expensive – legal option. (Or even taking a cut on their gratuity dues for the option to be paid now.)

“Given the current circumstances with courts going online and a lot of companies turning bankrupt, the trial might happen after a year of litigation,” said Michael Kortbawi, Partner, BSA Ahmad Bin Hezeem & Associates.

Michael Kortbawi  Partner  BSA Ahmad Bin Hezeem   Associates 17211d7b59a author - COVID-19 realities: More UAE companies opt to pay gratuity via installments


Michael Kortbawi, Partner, BSA Ahmad Bin Hezeem & Associates


“Employees have to be careful. If you have lost your job, you need funds to pay for rent and other expenses. If you litigate, it does not mean you will get your money immediately – it will take 12 months at least.

“If you are lucky, you get it after six months.”

Going legal

But if the laid-off employee decides to approach the Labour Court, he or she can litigate for themselves in the Labour Court and it’s free of charge. However, bear in mind that the proceedings are in Arabic.

Therefore, most applicants end up hiring a lawyer. “Lawyer fees can start from a minimum of Dh10,000 and go up to Dh200,000, depending on how big the case is,” said Kortbawi. “Besides, you have to pay translation fees, sometimes the court appoints an expert whose fee ranges from Dh5,000-Dh10,000.

“The employer can also appeal the judgement in the Court of First Instance. There’s a long process – the employee needs to budget for it.”

What’s the standard practice?

When employees get terminated in more normal circumstances, they are entitled to benefits, which can be up to three months’ salary, notice period pay, an air ticket, leave balance and gratuity (which is 30 days’ basic salary for every year you work).

“But such benefits might not apply to such terminations on the grounds of coronavirus,” said Kortbawi. “A lot of businesses are suffering, are on the verge of closure and cannot sustain their employees.

“Therefore, terminating in these circumstances is not considered “abusive”.”

The DIFC way

The DIFC (Dubai International Finance Centre) has implemented a new model to protect employees’ end-of-service payments, which makes it compulsory for employers to make a minimum contribution of 5.83 per cent of an employee’s basic salary with less than five years’ service to a fund managed by a third-party.

The minimum contribution increases to 8.33 per cent of an employee’s basic salary for five years or more of service.

“So, instead of counting on the employer to budget for the severance pay of all employees, the DIFC Authority is doing it themselves,” said Kortbawi. “This will safeguard employees’ end-of-service payments if they are terminated.

“Very few employers in the UAE budget for employees’ severance pay every year.”

Adapting to COVID-19 realities

Several employers in the UAE have resorted to temporary salary reductions and unpaid leave to reduce employee costs. This step has to be taken with the employee’s written consent.

If they don’t consent, the employee can be terminated. In case of pay cuts, it must be recorded on a MOHRE contractual addendum template.

If the employer is seeking a permanent salary reduction, it requires special approval by the Ministry of Labour.

“Under the Ministerial Resolution, temporary salary reductions [which can be renewed] will expire on the date agreed and will apply until the precautionary measures persist,” said Aryeetey. “Failure to restore salaries will open up the risk of an employee filing a complaint and ultimately a labour case before the courts.”

The DIFC has separate measures in place, which give DIFC employers greater powers to unilaterally impose pay cuts on five days’ notice.


An ‘abusive termination’
In normal circumstances, if the employer demands a salary reduction, an employee disagrees and is dismissed, they can sue the employer for “abusive termination”. However, that’s not the case today. The employee will only be eligible to get their gratuity, unpaid leave and notice pay.


Some employers are calculating end-of-service payments based on new reduced salaries. Is this legal?

“This can be contested even though it has not been tested in courts as yet,” said Michael Kortbawi of BSA Ahmad Bin Hezeem & Associates. “Theoretically, you have signed the form and therefore, your new end-of-service settlement will be calculated based on your new salary.

“But retroactively, you have been paid a higher salary and these are special circumstances. This needs to be tested in court.”

This post Covid-19 realities; More UAE companies opt to pay gratuity via installments first appeared on Gulf News.

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