0097142500251     sales@farahatco.com
Company Liquidation

Compensation for Employees When Businesses in UAE Close

If you have been let go or laid off due to reasons which don’t have to do anything with regards to your performance, you’re likely to wonder if you’ll get any compensation. Or, more importantly, when you will get it. However, who receives compensation as well as how much will be given by the company that will close down is not always black and white. As a matter of fact, there are rules that surround compensation for employees that worked for a business closing down. In this article, we advise you to read on so you get a better understanding as to how it all works.

Find out: Liquidation Process for A Company with No Assets

Compensation for Employees of Closing Companies in UAE

In the United Arab Emirates, if the employee has signed a contract of limited-term, there are specific conditions which apply if they’re made redundant. As per UAE labor law, which is applicable to every single private mainland business and flowed by nearly all free zone companies, Article 115 applies. It states that should the employment agreement be of a term that was determined in the contract and the employer rescinds, the employee is bound to get compensation for- the damage he or she incurred.

The amount of compensation the employee will get will not exceed the total wage that is due for three months or for the remaining duration of the employment contract, whichever is the shorter duration. This is going to apply unless it is stipulated otherwise in the contract.

Take note: the period of service of an employee will only make a little difference with respect to the amount that is due for early employee contract termination. If there is gratuity pay entitled to the employee, then he or she will get it along with the compensation given for employer terminating the employment contract of the employee.

As for when the compensation will be given, it will depend on a lot of factors. To hasten the release of what is due to you, it is recommended that you talk to an expert in liquidation in UAE.

What are the entitlements of rights of Employees of an Insolvent company in UAE?

If you are owed money by your employer which is now insolvent, it is best if you claim it through a liquidation expert in UAE as mentioned earlier. The professional may also be the one that administers the insolvency of the business that employed you. In some instances, for example, if a business rescue’s being looked into or if the company is being bought by a new owner, you might be requested to continue providing service.

This will not have an impact on your rights for compensation if the businesses will close later on. If the business will be sold to third parties, your rights in terms of employment will be protected as well as the money that is owed to you.

Read More: Company Liquidation – Procedure with Dubai Development Authority

What are the different kinds of insolvency in UAE?

If you are working for a business in the UAE that has, unfortunately, become insolvent, it can only mean any of five things; each of them has a slight difference with regards to its implication to employees.

  • Company voluntary arrangement – for this insolvency, this is simply a restructuring mechanism. The business arranges a plan for payment that will be agreed by all creditors.
  • Administration – It usually occurs when employers ask administrators to come and take over the company in order to keep it afloat.
  • Receivership – This is similar to liquidation; however, it is usually instigated by creditors that have been owed by the business money through a secure medium e.g. a bank. The assets of the business will be sold in order to pay the creditors that are owed.
  • Company liquidation – This is where the business is closed down and all of its assets will be sold in order to pay all of the creditors as well as the employees.
  • Creditor voluntary liquidation – For this type of insolvency, it involves a process which is designed in allowing a business that has become insolvent to close voluntarily. This decision in liquidating the business will be made official through a board resolution. It’s instigated by company directors.

How will employees be able to claim compensation which they are entitled to when the company has become insolvent?

This is a topic that requires an in-depth discussion. The insolvency or liquidation expert in UAE that will be handling the insolvency of the company you’re employed with will send you a set of claim forms which you need. When you find that the expert has not given you claim forms, you are to contact the professional and request the forms in writing.

You may not be sure who you should write to. If that is the case, then we suggest you talk to Farahat & Co’s liquidators in Dubai.

Mohamed Ali Farahat has worked on various forensic accounting assignments, which include operational and financial audits, reconstruction of accounting statements, financial information analysis, and investigation of fraud and financial distress. Read more