It has been reported that the Dubai Court of Cassation has ruled that an employer is entitled to terminate the employment contract of a fixed term employee in the circumstance where the company is to close down its business, by deciding that the lawful reasons for termination of a fixed term contract set out in Article 120 of the Labour Law are not exhaustive.
Under the UAE Labour Law, there are two types of employment contract: a fixed term contract and a contract of indefinite duration. An employer is not entitled to terminate a fixed-term agreement before its expiry without paying the employee's salary for the remainder of the contract period, capped at three months' salary, unless if the termination is for a reason provided for by Article 120 of the Labour Law. All of these reasons to the performance or actions of the employee.
This latest decision creates a precedent by which companies can make staff on fixed term contracts redundant without the need to "buy them out" when the business is being closed down. Many employers will welcome this development in the law. It follows previous judgments relating to contracts of indefinite duration where the courts have held that redundancy does not constitute an "arbitrary" termination of employment under the Labour Law for which a maximum of three months' salary is also due as compensation.