Work Permit Cancellation and Employment Termination: Managing a Critical Compliance Risk under UAE Labour Law

Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations (the “UAE Labour Law”) provides a consolidated framework governing employment relationships in the United Arab Emirates. Despite this, a recurring and legally significant compliance gap persists in practice, namely the assumption that cancellation of a work permit automatically terminates the employment relationship. This misconception exposes employers to avoidable financial and enforcement risks under the UAE Labour Law.

Distinction between the Work Permit and the Employment Contract

The compliance gap primarily arises from a failure to distinguish between the administrative nature of a work permit and the legal nature of an employment contract. A work permit is an authorisation issued by the Ministry of Human Resources and Emiratisation (“MoHRE”) allowing a natural person to work in the UAE, whereas the employment contract constitutes the binding legal agreement governing service and remuneration.

While non-renewal or cancellation of a work permit may constitute a lawful ground for termination under Article 42 of the UAE Labour Law, the two processes are not interchangeable. Unless the employment contract is lawfully terminated in accordance with the Decree-Law, the employer’s contractual obligations continue, notwithstanding permit cancellation.

Enforcement Exposure under Article 54


MoHRE’s expanded powers under Article 54 of the UAE Labour Law significantly increase the cost of this compliance gap. Where a dispute arises, such as when a permit is cancelled but the contract remains legally effective, the Ministry may intervene directly.

For claims not exceeding Dh50,000, MoHRE may issue a final decision carrying the force of a writ of execution, enforceable unless appealed within fifteen working days. Critically, the Ministry may require the employer to continue paying the employee’s salary for up to two months while the dispute is pending, creating immediate financial exposure.

The Fourteen-Day Settlement Obligation


A further compliance failure arises where employers delay final settlements pending completion of visa or permit procedures. Article 53 of the UAE Labour Law mandates payment of all remuneration and entitlements within fourteen days from the date of contract termination. Failure to comply may trigger a labour dispute and invoke the enforcement mechanisms under Article 54, even where termination itself was otherwise lawful.

Exposure to Penalties for Fictitious or Unauthorised Employment

The compliance gap may also arise where a work permit remains active despite the absence of actual employment. Article 60 of the UAE Labour Law imposes severe penalties for fictitious employment or employing workers without valid permits. Fines range from Dh100,000 to Dh1,000,000 per violation, multiplied by the number of workers involved, subject to a cap of Dh10 million.

Where such arrangements are used to obtain government incentives, employers are required to return the benefits received and are prohibited from recovering such amounts from the employee.

Limitation Period for Employment Claims


Claims arising under the UAE Labour Law are subject to a strict limitation period. Any legal action relating to employment rights will not be heard after two years from the date the employment relationship ended. Misalignment between permit cancellation and lawful contract termination may therefore give rise to prolonged and latent legal exposure.

Conclusion


The compliance gap between work permit cancellation and employment termination constitutes a material legal risk under the UAE Labour Law. The enhanced enforcement powers of MoHRE, the executive force of Ministry decisions, mandatory salary continuation, and substantial financial penalties require employers to treat permit cancellation and contract termination as coordinated but legally distinct processes. Proper alignment is no longer optional; it is a legal necessity.

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