The Consequences of Job Loss and Defaulting on Financial Liabilities

There comes a point when we wonder why we took that decision, sometimes we do it out of ambition, sometimes we want to help, sometimes we see a big benefit, sometimes we don’t even have an idea what is going on but still we want to do it.

Every decision has consequences which we realize with time, most of the times we have to face something that is not what we expected. We all must understand that the legal structure of the UAE is developing rapidly.

That is for the betterment and ease of the people, but the lack of knowledge and understanding of the laws is one of the reasons why residents of the UAE are attracting so many unwanted problems including but not limited to credit cards, bank loans, employment contracts, rent agreements and many other problems.

Without prejudice to the provisions of certain laws, there are few major issues related to employment that I come across every day, I will try to briefly explain:

1. Employment Contracts

The Ministry of Labor has provided guidelines for all non-UAE nationals who are required to enter into a short, standard-form employment contract. This contract contains salary, date of employment contract, the commencement date of employment, nature of the employment contract, job description, term of contract and location of employment.

All employment contracts must be registered with the Ministry of Labor in the Arabic language, and every person has the right and access to contact the Labor Department to inquire about his/her contact. There are mainly two types of labour contracts issued by the Ministry of Labor, the fixed-term contract (limited contract) and the open-ended contract (Unlimited Contract).

a. The Fixed-Term Contract (Limited Contract)

It is generally for two years, subject to renewal for the same duration and with up to 6 months’ probation period. This contact, if terminated within the provision of Article 120 of Federal Law No. 8 of 1980 Regulating Employment Relations by an employer, there is not a penalty imposed on the employer.

However, if these requirements are not fulfilled, an employer may have to pay the end of service benefits, pending holidays, and compensate the employee for damages which shall not exceed three months’ salary or for the remaining period of the contract whichever is shorter.

If the employee terminates the fixed-term contract before it ends, he may have to pay the penalty for breach of contract and face a labour ban for the term not exceeding 1 year, which will be imposed on an employee on the request of the employer or may be automatically applied.

b. The Open-Ended Contract (Unlimited Contract)

It is generally for the same period of 2 years as a fixed term contract that is subject to renewal. However, In this type of contract, the employer and employee both have the right to terminate the contract at will by serving a 1-month notice as agreed in the MOL employment contract.

This notice period may be affixed for up to 3 months with mutual consent of the employee and employer, that may also depend on the nature of the job. There is no labour ban if the employee meets the guideline as prescribed by the Federal Law No. 8 of 1980 Regulating Employment Relations for termination of the contract.

The end of service benefits will be calculated as per the provisions of Employment laws of the UAE.

2. Credit Cards and Bank Loans

Generally, when anyone applies for a credit card or bank loan, these financial institutions ask for a blank cheque as a security deposit and we happily give it to them. A higher limit for credit availability is offered to the individual and he happily accepts it.

This individual is at the time earning a good salary, hence they offered him a loan with very easy payment for the term of 5+ years from the bank that is again happily accepted by this very individual.

With time this person starts to realize that his income is almost equal to total monthly expense or even less than what he has to pay/spend every month, so to meet the expenses, he/she tends towards the credit cards and consume almost full credit limit without even considering the fact that this has to be returned.

The same individual starts to struggle with instalments and eventually misses a few payments, while the default amount has increased from the originally owed amount because the late payment fees, interest and fines have been applied to the principal amount.

In the worst scenario, this individual has lost his current job due to whatever reason and now he has a loan, credit card bills and there might be a pending rent for which he has given the cheques. Unfortunately, this individual is surrounded by a financial crisis; without any delays, financial institutions initiate action to exercise their right for the recovery of money and protect themselves from loss.

At the first stage, credit cards are blocked and the collection department contacts the individual for settlement of debts. The second stage is where the cheques will be presented at the bank for recovery, eventually will be bounced, and there is a criminal liability on the individual now. The third step is seeking a travel ban imposed on the individual while exiting the country.

Now, the options he is left with are either to pay the full amount or face criminal prosecution. This is to be noted that even after paying the fine or imprisonment, there is still a civil liability that needs to be fulfilled. The after effects of criminal liability are not getting a job, prohibition to exit the UAE, the expiry of visa and/or passport with an overstay for several months or even years.

These may be the consequences which we should consider but we do not while making such decisions.

3. The Ban

The ban is a legal restriction imposed by the government of the UAE to restrict or prohibit any person from practising a right or duty. Now, in order to understand this, you must know that there are two types of bans.

The first type is the labour ban that is imposed by the MOHRE as a result of a violation of employment laws laid down in the Federal Law No. 8 of 1980. This ban may be imposed for six months up to one year or for life in case of severe violation of the law. There are no restrictions on entering or exiting the country.

However, the second type of ban is a travel ban, which generally restricts an individual from entering or re-entering the country freely via land, air and sea borders. If there is a travel ban, an individual may be detained by the police at the airport. This ban is imposed by the UAE Immigration Department who notifies the border control of the country.

This ban may be imposed on individuals residing in the UAE, who have unpaid debts (minimum of AED 10,000) or have any criminal/civil case(s) registered against them. Such individuals may be banned from exiting the country for a limited or unlimited period of time until the matter is resolved. This ban is imposed to protect the public and private rights of everyone.

Written by:

Khubaib Bin Naeem | Jassim Ali Al Haddad Lawyers & Legal Consultants