UAE Labour Law Explained: When Termination is Not Arbitrary — Legal Grounds, Employer Rights, and Compensation Limits

Under the UAE’s Federal Labour Law, termination of employment does not automatically amount to arbitrary dismissal, even in cases where an employee has served for a long period such as eight years. The law draws a clear distinction between lawful termination based on legitimate reasons and dismissals that are considered retaliatory or unjustified under specific legal grounds.

Article (47) of the Federal Labour Law provides a narrowly defined framework for what constitutes arbitrary dismissal. An employee is entitled to compensation for arbitrary termination only in two specific situations: if the termination occurs because the employee filed a serious complaint with the Ministry of Human Resources and Emiratisation, or if the employee initiated a lawsuit against the employer and the claim is proven to be valid. Outside of these two circumstances, termination is generally not treated as arbitrary.

This means that an employer retains the right to terminate an employment contract for any legitimate reason, provided the action does not fall within the retaliatory grounds specified in the law. Correspondingly, an employee also has the right to resign for any reason. In both cases, the parties are required to adhere to the agreed notice period as stipulated in the employment contract, in line with Article (43) of the law. During this notice period, the employment relationship remains in force, and the employee is expected to continue performing their duties while the employer must fulfil contractual obligations.

Where a termination is found to be arbitrary under the limited conditions set out in Article (47), the determination of compensation is left to the discretion of the court. However, the law imposes a cap on such compensation, limiting it to a maximum of three months’ wage, calculated on the basis of the employee’s last full salary. In assessing the appropriate amount within this limit, the court considers several factors, including the nature of the employee’s work, the extent of harm suffered as a result of the dismissal, and the employee’s length of service.

In effect, the UAE’s legal framework seeks to balance employer flexibility in managing their workforce with protection against retaliatory dismissals, ensuring that only terminations linked to proven grievances or legal claims trigger compensation for arbitrary dismissal.

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