What Happens to Employees When a Company Closes in UAE

What Happens to Employees When a Company Closes in UAE — Rights, Compensation & Entitlements

Being told your employer is shutting down is one of the most stressful situations any employee can face. If you are asking yourself “my company is closing — what are my rights?” you are not alone. Every year, hundreds of employees across Dubai and the UAE find themselves in this exact position, uncertain about their entitlements, their compensation, and what comes next.

The good news is that UAE Labour Law provides clear protections for employees when a company closes. Whether the business is being liquidated, declared insolvent, or has entered voluntary closure, your employee rights when a company closes down are legally protected — and understanding them puts you in the strongest possible position to claim everything you are owed.

At Farahat & Co., our licensed insolvency and liquidation experts have guided thousands of employees and business owners through the company closure process in the UAE. This comprehensive guide explains exactly what happens to employees when a company closes, what compensation you are entitled to, and how to protect your rights under UAE law.

Must Check: Company Liquidation in Dubai & UAE

Employee Rights When a Company Closes Down in UAE

Under UAE Labour Law — which applies to all private mainland businesses and is followed by the majority of free zone companies — employees have clearly defined rights when their employer closes or becomes insolvent. These rights exist regardless of how long you have worked for the company or the reason for its closure.

Your fundamental employee rights when a company closes down in the UAE include:

• Compensation for early termination of a limited-term employment contract
• End-of-service gratuity (if you have completed at least one year of continuous service)
• Outstanding unpaid wages owed up to the date of termination
• Unused annual leave encashment — payment for accrued leave not taken
• Notice period payment where applicable under your contract
• Repatriation costs — in some cases, the employer is required to cover the cost of returning you to your home country

These entitlements apply whether the company is closing due to financial difficulty, voluntary dissolution, insolvency, or any other reason — provided the termination is not related to employee misconduct.

My Company is Closing — What Are My Rights Under UAE Labour Law?

If you are asking “my company is closing, what are my rights?” the answer depends primarily on the type of employment contract you hold.

Limited-Term (Fixed-Term) Contracts

For employees on a limited-term employment contract, Article 115 of the UAE Labour Law is the governing provision. It states that if the employer terminates the employment agreement early — including as a result of business closure — the employee is entitled to compensation for the loss incurred.

Compensation amount: The employee is entitled to receive either:

• The total wages due for the remaining period of the employment contract, or
• Three months’ total wages (whichever is the shorter period)

This compensation is payable in addition to any end-of-service gratuity the employee is entitled to.

Unlimited-Term (Open-Ended) Contracts

For employees on unlimited-term contracts, early termination due to company closure constitutes termination without cause from the employer’s side. The employee is entitled to:

• Notice period wages (typically 30 days’ notice or payment in lieu)
• End-of-service gratuity calculated on the full period of service
• All outstanding wages and benefits owed at the date of termination

Gratuity Pay on Company Closure

End-of-service gratuity is payable to all employees who have completed at least one year of continuous service, regardless of the reason for termination. The standard UAE gratuity calculation is:

• 21 days’ basic salary per year of service for the first 5 years
• 30 days’ basic salary per year of service for each year beyond 5 years

Gratuity is calculated on the basic salary only — not total salary including allowances.

Important: The period of service has relatively limited impact on the compensation amount for early termination of a fixed-term contract. However, it has a direct and significant effect on the end-of-service gratuity calculation, which is paid separately and in addition to any termination compensation.

Also Check: Liquidation Audit Services in UAE

Layoff in UAE — What Employees Need to Know

A layoff in UAE — where an employee is made redundant due to business closure, downsizing, or restructuring rather than poor performance — carries specific legal protections for the employee.

Key Points About Layoffs in UAE

Redundancy is not a disciplinary matter. Being laid off due to company closure has no negative bearing on your employment record, your ability to seek new employment, or your visa status in the UAE — subject to standard transition timelines.

You are entitled to full end-of-service benefits. A layoff in UAE due to company closure does not reduce or eliminate your gratuity entitlement. You receive all benefits as if your contract was terminated by the employer without cause.

You must be given notice. Unless the closure is immediate and involuntary (e.g., court-ordered liquidation), the employer is required to provide the notice period stipulated in your contract. If notice is not given, you are entitled to payment in lieu.

The Ministry of Human Resources and Emiratisation (MOHRE) provides a complaints and dispute resolution channel for employees who are not paid their dues following a layoff in UAE. Employees can file a labour complaint online through the MOHRE portal if their employer fails to settle outstanding entitlements.

Types of Company Insolvency in UAE and How They Affect Employees

If your company is closing due to financial difficulty, the specific type of insolvency will affect the timeline and process for receiving your entitlements. Understanding these distinctions is important for every employee navigating a layoff in UAE due to business closure.

1. Company Voluntary Arrangement (CVA)

A CVA is a restructuring mechanism rather than a full closure. The company negotiates a structured payment plan with its creditors, which is formally agreed upon. Employees may continue to receive salaries and benefits during this period. If the CVA fails and the company later closes, employee rights to outstanding entitlements remain fully intact.

2. Administration

Administration occurs when the company appoints an external administrator to take operational control — typically to attempt a business rescue or managed wind-down. During administration, employee rights when the company closes down are protected. The administrator assumes responsibility for managing employee claims and may continue employment if a buyer is found.

3. Receivership

Receivership is typically initiated by a secured creditor (such as a bank) that is owed money by the business. The receiver’s primary duty is to recover funds for the secured creditor by selling the company’s assets. Employee claims — including unpaid wages and gratuity — are treated as priority creditor claims in the asset distribution process.

4. Company Liquidation (Compulsory)

Compulsory liquidation results in the complete closure of the business and the sale of all assets to settle outstanding debts. This is the most common scenario employees encounter when asking “my company is closing — what are my rights?” Employee entitlements — including unpaid wages, gratuity, and compensation — are priority claims in the liquidation proceedings.

5. Creditor Voluntary Liquidation (CVL)

In a CVL, the company directors voluntarily initiate the closure of the business after it becomes insolvent. The decision is formalised through a board resolution. A licensed liquidation expert is appointed to administer the process, settle creditor claims (including employee entitlements), and distribute any remaining assets. Employees file claims directly with the liquidation expert.

Also Check: Audit Services in UAE

What If the Company is Sold to a New Owner?

In some cases — particularly during administration or restructuring — the business may be sold to a new owner rather than closed entirely. If this happens:

• You may be asked to continue working under the new ownership
• Your outstanding entitlements from the previous employer are fully protected and are not affected by the change in ownership
• Your employment rights when the company closes down under the previous owner remain claimable, even if you continue with the new entity
• The acquiring party typically assumes responsibility for outstanding employee liabilities as part of the transaction

How to Claim Your Compensation When Your Company Closes in UAE

If your company is closing and you have not yet received your entitlements, here is the step-by-step process for claiming what you are owed:

Step 1 — Gather Your Documents

Prepare the following documentation before filing any claim:

Step 2 — Contact the Liquidation or Insolvency Expert

The licensed liquidation expert appointed to administer the company’s closure is responsible for managing employee claims. They will:

• Send you the required claim forms
• Advise you on the documentation required
• Process your claim within the insolvency or liquidation proceedings

If you have not received claim forms, contact the liquidation expert in writing and formally request them. Keep a record of all correspondence.

Step 3 — File a MOHRE Labour Complaint (If Unpaid)

If your employer has not engaged a liquidation expert, or if your dues are not being addressed, you can file a formal labour complaint through:

• MOHRE online portal at mohre.gov.ae
• MOHRE call centre on 800 60
• In-person at the nearest MOHRE service centre

MOHRE will attempt to mediate a resolution between you and your employer. If unsuccessful, the case is referred to the UAE Labour Court for adjudication.

Step 4 — Seek Legal or Expert Advice

For complex cases — particularly those involving insolvency, unpaid wages across multiple months, or disputes over gratuity calculations — consulting a licensed UAE insolvency expert or labour law specialist is strongly recommended. A qualified professional can:

• Calculate your full entitlements accurately
• Represent your claim in insolvency proceedings
• Escalate the matter to court if necessary
• Ensure your rights are fully protected throughout the process

Employee Rights in Free Zone Companies When Closing

Employee rights when a company closes down in a UAE free zone follow broadly similar principles to mainland provisions, though there are some differences:

• Most free zones have their own employment regulations which typically mirror or align closely with UAE Federal Labour Law
• Employees in free zones should also file claims through the relevant free zone authority (e.g., DIFC, ADGM, JAFZA, DMCC) in addition to any insolvency proceedings
• DIFC and ADGM operate under independent employment laws and have their own employment tribunals for resolving disputes
• Unpaid wages and gratuity from free zone employers are claimable through the free zone’s designated dispute resolution mechanism or through a licensed liquidation expert

Wage Protection System (WPS) and Company Closure in UAE

The UAE’s Wage Protection System (WPS) — administered by MOHRE — requires mainland private sector employers to pay employee salaries through an approved electronic system. If an employer begins failing to meet WPS obligations in the lead-up to closure, this can be an early warning sign.

Under WPS rules:

• Employers who fail to pay salaries within 10 days of the due date face immediate regulatory action
• MOHRE may ban the company from issuing new work permits until the wage arrears are resolved
• Persistent non-compliance can trigger formal investigation and legal proceedings against the employer

If your employer is breaching WPS obligations, report this to MOHRE immediately — early action significantly improves your chances of recovering unpaid wages.

How Farahat & Co. Can Help Employees and Businesses Navigate Company Closure in UAE

Whether you are an employee seeking to recover your full entitlements or a business owner managing a voluntary or compulsory closure, Farahat & Co.’s licensed liquidation and insolvency specialists provide expert, end-to-end support.

For employees, our team can:

• Calculate all outstanding entitlements — compensation, gratuity, unpaid wages, and leave pay
• Advise on the most effective route for claiming your dues
• Represent your claim in insolvency or liquidation proceedings
• File MOHRE complaints and provide legal support where required

For business owners and directors, our team can:

• Advise on the most appropriate form of insolvency or voluntary liquidation
• Manage the complete liquidation process in compliance with UAE law
• Administer employee claims fairly and in line with UAE Labour Law obligations
• Coordinate with regulatory authorities, courts, and creditors throughout the process

Contact Farahat & Co. today for a confidential consultation. Our experts are available to assist you promptly.

Frequently Asked Questions (FAQs)

What are my rights if my company is closing down in the UAE?

Your employee rights when a company closes down in the UAE include compensation for early contract termination, end-of-service gratuity, all outstanding unpaid wages, unused annual leave encashment, and notice period payment. These rights apply under UAE Labour Law regardless of the reason for the company’s closure.

My company is closing — what are my rights if I am on a fixed-term contract?

Under Article 115 of UAE Labour Law, if your employer terminates a fixed-term contract early due to business closure, you are entitled to compensation equal to either the remaining contract wages or three months’ total wages — whichever is shorter. This is payable in addition to your end-of-service gratuity.

What happens to my visa if my company closes in the UAE?

When a company closes, your employment visa is typically cancelled as part of the process. You are generally given a grace period of 30 days (for standard employment visas) to find new employment, transfer your visa sponsorship, or depart the country. Your employer is responsible for the visa cancellation process and, in some cases, repatriation costs.

What is a layoff in UAE and am I entitled to compensation?

A layoff in UAE refers to termination of employment due to redundancy, downsizing, or business closure — where the reason is entirely unrelated to the employee’s performance or conduct. Employees who are laid off are fully entitled to all end-of-service benefits, including gratuity, notice period payment, and any applicable contract compensation.

Can I claim my dues if my employer is insolvent or has disappeared?

Yes. If your employer is insolvent, you can file a claim through the company’s appointed liquidation expert. If no expert has been engaged, you can file a labour complaint with MOHRE (mohre.gov.ae) or seek court intervention. Employee wage claims are treated as priority debts in UAE insolvency proceedings.

How is end-of-service gratuity calculated when a company closes?

End-of-service gratuity is calculated based on your basic salary and length of service: 21 days’ basic salary per year for the first 5 years, and 30 days’ basic salary per year thereafter. It is payable to any employee who has completed at least one year of continuous service, regardless of the reason for termination.

How long do I have to claim my rights after my company closes in UAE?

UAE Labour Law provides a one-year limitation period from the date of termination within which to file a labour claim. If the company is in liquidation, you should submit your claim to the liquidation expert as early as possible to ensure it is registered in the creditor claims process.

Do free zone employees have the same rights when a company closes?

Most UAE free zone employees have equivalent or very similar rights. Free zone employees should file claims through both the relevant free zone authority and the company’s liquidation expert. Employees in DIFC and ADGM fall under independent employment laws with their own dispute resolution tribunals.