On 20 March 2017, the Dubai International Finance Centre (DIFC) Court of Appeal (Court of Appeal) handed down its decision in Frontline Development Partners Limited v Asif Hakim Adil [2016] DIFC CA 006 (Appeal Decision).

This case and the decision at first instance (First Instance Decision) are the first to give detailed consideration to the termination payments provisions in the DIFC Law No. 3 of 2012, as amended (DIFC Employment Law).

The case also highlights the potentially extreme risks to DIFC employers of failing to make accurate and timely termination payments.

Contents

The provision

The provision under consideration is Article 18 of the DIFC Employment Law. Article 18 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.

The decision at first instance

The employee, Mr Adil, was terminated on 30 June 2013 pursuant to a contractual right to terminate with pay in lieu of notice. The DIFC Court of First Instance held that the Mr Adil was entitled to recover the following payments from the employer, Frontline Development Partners Limited (Frontline):

  • End of service gratuity and payment in lieu of notice which together amounted to USD 359,411. This amount was payable on 1 July 2013 (ie on termination of Mr Adil's employment)
  • A penalty payment under Article 18 based on the employee's last daily wage of USD 1,643.84 per day (Penalty). This was payable from 15 July 2013 (ie from the expiry of the 14-day deadline) until the date the court orders payment. The amount of the Penalty was not expressed, but it would come to approximately USD 1.63 million.

The Court of First Instance held that the Penalty included end of service gratuity. It indicated that "any other amount owing" does not just mean amounts that are owing prior to termination but also includes amounts which become payable by virtue of the termination.

The decision on appeal

The Court of Appeal unanimously upheld the First Instance Decision. It repeated the lower court's comments around the drafting of Article 18, being cast in strong and mandatory terms.

Both courts referred to the predecessor to Article 18, which simply required employers to pay all wages owing to an employee within 7 days of termination. The intention of both versions was to ensure that employers do not delay paying employees their termination payments on time, while the inclusion of the penalty in the current Article 18 deliberately created a more stringent provision that penalised employers while compensating employees.

The courts referred to a number of situations where the literal application of Article 18 may have unfairly harsh or absurd consequences, including:

  • The penalty may be grossly disproportionate to the amount owed to the employee, and the full penalty would be payable even if the employee was only underpaid by a very small amount;
  • Employees are incentivised for delaying to notify the employer of the late payment or underpayment, and rewarded for delaying to bring a claim or settle a dispute;
  • There may be a genuine dispute over payment liability which, if ultimately determined against the employer, could give rise to a penalty that accrued during the period of the dispute.

Despite these scenarios, the Court of Appeal held that Article 18 was "grammatically clear from a plain reading" and the intention of drafters was clearly to protect the employee and punish the employer. It refused to depart from well-established principles of statutory interpretation and would not limit Article 18 or read in an element of discretion; to do so would be overstepping the role of a court and improperly redrafting the provision.

Difficulties for employers

The Appeal Decision indicates that Article 18 will be applied strictly by the DIFC courts. Despite the potential harsh consequences for employers, the courts are bound to apply the strict wording of the provision as it currently stands.

This will present very real difficulties for employers in the DIFC who find themselves in a dispute with an employee.

DIFC employers should therefore be vigilant when calculating termination payments and ensure the correct amounts are paid within 14 days of termination.

Employers should be mindful that a penalty can be imposed for the duration of a period of dispute if an employee is successful in claiming underpayment. It should also be noted that all payments that become due to employees on termination would be included in any calculation of a penalty under Article 18. This means that if an employer withholds a notice payment on the grounds that they consider that the dismissal is justified for "cause" the damages will no longer be limited to the amount owing for the notice period itself. Wrongful dismissal damages in the DIFC will now also include a sizeable penalty of a day's pay for each day that the payment is late.

Unless there is a very clear case for dismissal for cause an employer could conclude that for employees with short notice periods it might be commercial simply to "lawfully" dismiss by paying in lieu of notice.