Basic salary decides unused annual leave compensation in UAE

Q: I am employed on a limited duration employment contract by a company, which is established in the Dubai Multi Commodities Centre (DMCC). The duration of my job contract was for a three-year period, beginning on June 18, 2017 and ending on June 17, 2020. However, I received a termination letter with a two-month notice period from my employer wherein it stated that my employment contract was being terminated due to organisational restructuring. The date of termination was December 19, 2019. As per my employment contract, I am eligible to receive a compensation (remuneration of up to 60 days) if I am terminated without a notice of termination. I am also eligible to receive a compensation (remuneration of up to 90 days) in the event of my employment contract being terminated prior to its completion. However, the compensation and final settlement clause in my termination agreement does not mention any compensation if my employment contract is terminated prior to its completion. Further, only my basic salary has been taken into account for calculating my annual leave balance as per the termination agreement. Am I eligible to receive compensation for the termination of my employment contract prior to its completion? Is the total salary (including allowances) or only the basic salary taken into account for calculating the amount to be paid to an employee for accrued annual leaves that have not been availed by the employee?

A: While you have mentioned that your employer is established in the Dubai Multi Commodities Centre (DMCC), it may be noted that he is subject to the provisions of Federal Law No. (8) of 1980 regulating employment relations in the UAE (Employment Law) and DMCC free zone rules and regulations that are implemented by the DMCC Authority.

Pursuant to the first part of your query, as per the provisions of the Employment Law, an employment contract of limited duration between an employer and an employee may be terminated by the employer. However, if the termination is based on grounds other than those mentioned under Article 120 of the Employment Law, then the employer shall compensate the employee. This is in accordance with Article 115 of the Employment Law, which states: "Where an employment contract is for a definite term and the employer revokes it for reasons other than those specified in Article (120), he shall be required to compensate the employee for any damage the latter sustains, provided that the amount of compensation shall in no case exceed the aggregate salary due for a period of three months or the remaining period of the contract, whichever is shorter, unless otherwise stipulated in the contract."

Pursuant to the above, as you have mentioned that your employment contract provides for compensation in the event of it being terminated prior to its completion, you are eligible for the same.

In response to the second part of your query, it may be noted that an employee is entitled to payment for the annual leave period not availed by him if the employment is terminated either by way of resignation or termination. This is in accordance with Article 79 of the Employment Law, which states:

"An employee who is dismissed or who leaves his job after the period of notice prescribed by law shall be paid for any accrued annual leave days. Such payment shall be calculated on the basis of the employee's salary as on the date when the leave became due."

The amount to be paid for accrued annual leaves not availed by the employee shall be calculated based on the employee's basic salary.

You may claim compensation from your employer for the early termination of your contract. And in the event of any dispute regarding your compensation and entitlements, you may choose to approach the competent authority at the DMCCA with your grievances.

Know the law

An employee who is dismissed or who leaves his job after the period of notice prescribed by law shall be paid for any accrued annual leave days.

Ashish Mehta is the founder and Managing Partner of Ashish Mehta & Associates. He is qualified to practise law in Dubai, the United Kingdom and India. Full details of his firm on: www.amalawyers.com. Readers may e-mail their questions to: news@khaleejtimes.com or send them to Legal View, Khaleej Times, PO Box 11243, Dubai.