The DIFC Court of Appeal has dismissed the Appellant's appeal in Frontline Development Partners Limited v Asif Hakim Adil [2016] DIFC CA 006, a decision which could have significant implications for DIFC employers.

Background

Mr Adil, the Respondent, was employed by Frontline Development Partners Limited, the Appellant, as Managing Director in the DIFC.

Following the termination of his employment, Mr Adil alleged that Frontline had failed to pay his salary and end of service gratuity in accordance with his employment contract and the DIFC Employment Amendment Law No.3 of 2012 (the DIFC Employment Law).

Article 18 of the DIFC Employment Law

Article 18 of the DIFC Employment Law states:

18. Payment where the employment is terminated

  1. An employer shall pay all wages and any other amount owing to an employee within fourteen (14) days after the employer or employee terminates the employment.
  2. If an employer fails to pay wages or any other amount owing to an employee in accordance with Article 18(1), the employer shall pay the employee a penalty equivalent to the last daily wage for each day the employer is in arrears.

Court of First Instance decision

The Court of First Instance (CFI) found that:

  • Mr Adil's employment with Frontline had terminated on 30 June 2013 pursuant to a contractual right to terminate by way of payment in lieu of notice;
  • Mr Adil was entitled to recover US$ 359,411.12 in respect of his entitlement to:
    • a payment in lieu of notice;
    • end of service gratuity in accordance with the DIFC Employment Law; and
    • a penalty of US$ 1,643.83 per day in accordance with Article 18 of the DIFC Employment Law (the Article 18 Penalty).

The CFI did not quantify the exact amount of the Article 18 Penalty but, on the basis that it accrued from 15 July 2013 to 3 April 2016 (the date of the CFI's judgment), the total sum would be approximately US$1.63m, a sum far in excess of the amounts initially owed by Frontline to Mr Adil.

Court of Appeal decision

The Court of Appeal dismissed Frontline's appeal that the CFI had incorrectly interpreted Article 18 of the DIFC Employment Law and upheld the CFI's decision to award the Article 18 Penalty to Mr Adil.

The Court of Appeal restated the principles that:

  • The function of the Court is to determine the intention of the legislature by interpreting the law;
  • The Court is not responsible for legislating; and
  • It is not for the Court to say if the law is fair, if the legislator thinks that is what the law should be.

Justice Tun Zaki Azmi concluded that Article 18 of the DIFC Employment Law is "grammatically correct, makes sense and clearly understandable" and, irrespective of which principle of statutory interpretation it adopted, the Court was unable to exercise its discretion to apply Article 18 differently to different circumstances.

Issues for DIFC employers

Article 18 of the DIFC Employment Law could lead to some absurd scenarios for DIFC employers. For example:

  • An ex-employee could be financially rewarded for refusing to receive their outstanding entitlements (i.e. by closing their UAE bank account thereby making it impossible for their employer to process the payments);
  • An ex-employee who is owed one Dirham could potentially claim a day's wage for every day that the one Dirham is in arrears;
  • An ex-employee could be financially rewarded for failing to commence proceedings promptly (or delaying proceedings once commenced) in respect of any outstanding entitlements; and
  • An ex-employee could be financially rewarded for refusing to settle a claim relating to their outstanding entitlements.

The Court of Appeal recognised that Article 18 of the DIFC Employment Law could lead to scenarios of the type set out above which could have unfair and disproportionate implications for employers. However, the Court of Appeal confirmed that it was the responsibility of the legislator, not the Court, to change the law in order to address these issues.

The Court of Appeal has therefore put this issue firmly at the door of legislators and it seems likely that, given the conclusion of this case (and the earlier CFI cases which have addressed this issue), the DIFC Authority will review the application and effect of Article 18 and consider appropriate amendments to the DIFC Employment Law.

Take away points for DIFC employers

In light of the significant penalties which can accrue under Article 18 of the DIFC Employment Law we recommend that employers take the following steps to mitigate their risk exposure:

  • Ensure that an employee's contractual and statutory entitlements (including end of service gratuity) are correctly calculated in accordance with the DIFC Employment Law (and, if in doubt, overpay rather than underpay).
  • Ensure that an employee receives their contractual and statutory entitlements within 14 days of the termination of their employment regardless of the reason for termination.
  • Ensure that the payment of an employee's contractual and statutory entitlements is clearly documented (preferably by obtaining a copy of the relevant bank transfer).
  • Take legal advice before dismissing an employee for cause under Article 59A of the DIFC Employment Law and withholding payment of notice pay and end of service gratuity.