Are employers required to pay redundancy compensation for terminations due to restructuring?

Thank you for contacting us via Legal Advice Middle East!

Your question is precise and highly relevant for companies restructuring within Dubai Mainland and JAFZA.

We’ve advised corporate clients and employees in nearly identical scenarios, including mass terminations due to internal restructuring or operational realignment. The legal position is clear, but often misunderstood when it comes to “redundancy” compensation.

Under UAE Labour Law and JAFZA Employment Regulations, the employer’s obligation in restructuring-based terminations, where there is no financial distress or misconduct, is limited to:

1. End-of-service gratuity (as per the law or the JAFZA rules);

2. Notice period (or pay in lieu if waived);

3. Accrued but unused leave; and

4. Contractual entitlements (such as bonuses, commissions, or allowances).

There is no statutory provision under the UAE Labour Law or JAFZA rules requiring a separate or mandatory redundancy/severance payment beyond the items above.

However, in practice, especially among multinational or regulated companies, it is customary in some sectors (finance, media, energy) to offer ex gratia redundancy packages, either to maintain goodwill, protect reputation, or avoid litigation.

These are not legally required, but when such practices are outlined in company policy, handbooks, or consistently applied, they may become contractually enforceable or at least subject to employee claims under the doctrine of legitimate expectation.

In summary:

- No legal obligation exists to pay a separate redundancy amount under UAE or JAFZA regulations.

- Customary practice may apply in specific industries or firms, but it is voluntary unless contractually agreed.

- Employees may challenge termination terms if there’s evidence of discrimination, unfair selection, or inconsistency.

We’ve successfully defended and negotiated in cases where employees demanded enhanced compensation due to repeated company practices or handbook clauses, even when not mandated by law.

To advise precisely, we’d need to review the employment contracts, internal HR policies, and any communication provided during the restructuring. Our multilingual legal team is fully equipped to support either party in these complex transitions.

Hello,

In the context of redundancy (where a role or position is made redundant due to company restructuring), UAE Labor Law does not explicitly require a separate "redundancy payment" beyond the standard entitlements mentioned above (gratuity, accrued leave, notice period, etc.).

Companies in the mainland generally follow the UAE Federal Labor Law. As mentioned earlier, redundancy payments beyond the legal entitlements are not required unless stipulated in the contract.

If your termination is part of restructuring, any additional payments are discretionary and are typically negotiated between the employer and employee.

Companies in free zones such as JAFZA operate under their own set of regulations. While JAFZA has its own set of guidelines for employment and labor matters, these typically still align with the UAE Federal Labor Law in terms of redundancy payments.

Dear Mohamed,

Thank you for your inquiry regarding employee terminations due to company restructuring in the UAE, specifically involving Dubai Mainland and JAFZA entities.

Under UAE Labour Law (Federal Law No. 33 of 2021) and relevant JAFZA employment regulations, when an employer terminates employees for business restructuring (not linked to insolvency or financial distress), the following payments are generally mandated:

- End-of-service gratuity: Calculated according to the employee’s length of service and salary, as stipulated by UAE Labour Law and applicable JAFZA rules.

- Payment for accrued but unused leave: Employees must be compensated for any unused annual leave days.

- Notice period compensation: If the notice period is waived by the employer, payment in lieu of notice is due.

- Outstanding contractual entitlements: Any other dues or benefits owed under the employment contract must be paid.

Regarding your main question on whether there is a separate legal obligation or customary practice to pay an additional “redundancy payment” or severance beyond the above:

UAE Labour Law does not mandate a separate redundancy or severance payment beyond the end-of-service gratuity and notice period compensation for restructuring-related terminations.

No specific Ministerial Resolutions or Executive Regulations currently impose such additional redundancy payments for layoffs due to restructuring or business convenience.

JAFZA employment regulations align closely with Federal Labour Law in this respect, and no distinct redundancy payment beyond statutory entitlements is prescribed.

While some companies may choose to offer enhanced severance packages as part of their internal policies or negotiated agreements, this is discretionary and not legally required.

If you would like detailed advice tailored to your specific restructuring scenario, including a review of employment contracts, company policies, and applicable free zone regulations, we can assist you through a formal legal consultation.

Please let me know if you wish to proceed with our support.

Best regards,

Mohammad Salah

Legal Consultant

Yes, under UAE labor law, if a company terminates employees due to corporate restructuring (rather than financial insolvency), employees are often entitled to end-of-service gratuity, in addition to any other entitlements agreed upon in the employment contract, such as unused vacation time or other benefits.

The company must comply with UAE labor law and provide the employee with written notice of termination within a specified period, in addition to paying any outstanding entitlements.

Thank you for your detailed question regarding restructuring-based terminations in Dubai Mainland and JAFZA.

In practice, where employees are terminated due to company restructuring that is not tied to financial distress or liquidation, the employer is legally obligated to provide the statutory entitlements you've already listed — such as end-of-service gratuity, payment for unused leave, notice period compensation (if waived), and any outstanding dues.

However, there is no mandatory requirement under UAE Labour Law or JAFZA regulations to provide a separate “redundancy payment” or severance over and above these items.

The concept of a redundancy payment — as seen in some Western jurisdictions — does not formally exist in the UAE unless it is specifically provided for in the employment contract or internal HR policies.

That said, in some cases, companies may voluntarily offer an ex gratia amount to ease the transition or as part of negotiated settlements, but this is discretionary and not enforceable by law.

If you’d like to assess your company’s exact obligations — or negotiate terms on behalf of an employee or employer — feel free to reach out to me through WhatsApp or phone to discuss the matter in detail and determine the best course of action.