Since 2009, it has been clear that there is no statutory compensation for unfair dismissal in the Dubai International Financial Centre (DIFC). However, what has been unclear (until quite recently) is whether the right to compensation could arise through other avenues, including a breach of the implied term of mutual trust and confidence, which is an overarching common law doctrine of the law of employment. This issue has been examined in two recent decisions of the DIFC Court of First Instance and it has now become indisputable that there is in fact no compensation for unfair dismissal in the DIFC, either in statute or otherwise. This update looks at how compensation for unfair dismissal has developed in the DIFC.

The concept of compensation for unfair, wrongful or arbitrary dismissal is one that has always been clear for companies operating onshore in Dubai as it is set out in the UAE Labour Law (UAE Federal Law No.8 of 1980 governing labour relations as amended). Similarly, it has been widely accepted for some time that there is no statutory compensation for unfair dismissal in the Dubai International Financial Centre, for the following reasons:

  • in 2005, when the DIFC Employment Law (Law No. 4 of 2005) (DIFC Employment Law) was introduced, it did not make any provision for unfair dismissal. However, it provided (relevantly) that the Director of employment standards may propose Regulations regarding the maximum compensation for unfair dismissal. Such Regulations were never actually passed; therefore, the issue of compensation, if any, for unfair dismissal was never legislated; and
  • in Rasmala Investments Limited v. Various Defendants (CFI 001-006/2009), it was held that the DIFC Employment Law does not contain any specific provisions that compensate an employee for unfair or arbitrary dismissal. Therefore regardless of the reason or manner of the termination of employment, there was no entitlement to any statutory compensation for unfair dismissal in the DIFC.

Despite the absence of any statutory right to compensation, there has been some ambiguity about whether such a right could be founded elsewhere, either in contract or otherwise through the development of case law. The main reason for this was the decision of Deputy Chief Justice Hwang SC (as he then was) in Kteily Ghassan Elias v Julius Baer (Middle East) Limited (CFI 014/2009), where his Honour indicated that although there was no statutory right to compensation for unfair dismissal in the DIFC, it may nevertheless be possible to award damages for the manner of dismissal. Such damages would be based upon an argument that an employer has acted in breach of the implied term of mutual trust and confidence. In that case, the actual claim was discontinued by the claimant, therefore, Hwang DCJ gave no further indication as to how damages may be approached by the Court, however, his Honour’s comments in the Julius Baer case regarding the possibility of future claims for unfair dismissal were key, namely that the implied term of mutual trust and confidence is an overarching common law doctrine of the law of employment, in substance to the effect that the employer will not, without reasonable and proper cause, conduct himself in a manner likely to destroy or seriously damage the relationship of confidence and trust between the employer and the employee. In addition:

  • even though the Director of employment standards never actually proposed Regulations regarding the maximum compensation for unfair dismissal, the existence of the provision in the DIFC Employment Law regarding the Director’s power to do so acted as a red herring regarding the issue of compensation for unfair dismissal in the DIFC; and
  • the existence of the implied terms provision contained at Article 57 of the DIFC Contract Law (Law No. 6 of 2004), namely the implied obligations of good faith and fair dealing; and of reasonableness, also added to the ambiguity in practice as to whether that provision applied to employment contracts and more specifically the manner of dismissal, which if breached, could potentially give rise to a claim for damages.

In an effort to resolve the uncertainty, Deputy Chief Justice Sir Anthony Colman confirmed the earlier finding in the Rasmala decision in Ahmed Mohamed Abdel Aziz Saleh v Chartis Memsa Insurance Company (CFI 021/2011), stating that the DIFC Employment Law “contains no prohibition of unfair dismissal”. The Chartis decision was issued on 5 July 2012, prior to the recent amendments to the DIFC Employment Law which came into effect on 23 December 2012, some 7 years after the introduction of the original law. Relevantly, one of the amendments to the DIFC Employment Law was to abolish the role of Director of Employment Standards and remove the related provisions, including the provision stating that the Director of employment standards may propose Regulations regarding the maximum compensation for unfair dismissal. In this way any and all references to “unfair dismissal” in the DIFC Employment Law have now been removed. Following on from those amendments, Colman DCJ was afforded another opportunity to clarify any residual doubt (arising by virtue of Julius Baer case) regarding any non-statutory right to claim compensation for unfair dismissal in the DIFC. Relevantly, Colman DCJ made the following comments regarding the issue of compensation for unfair dismissal:

  • in Hana Al Herz v Dubai International Financial Centre Authority (CFI 011/2012), Colman DCJ held that the duty to act reasonably and in good faith could not be implied in relation to the manner of dismissal (as suggested in the earlier Julius Baer decision) as it would “introduce uncertainty with regard to the right of employers to terminate employment and lead to a significant increase in wrongful dismissal claims”. Colman DCJ stated that “in the DIFC there is a comprehensive legislative code applicable to contracts of employment, namely the Employment Law. If there were to be a free-standing principle that certain principles of unfairness or lack of good faith or breach of confidence restricted an employer’s power to terminate an employment contract on notice in accordance with its express terms, it is inconceivable that it would not be included in that Law”. Furthermore, Colman DCJ concluded the issue by stating that “if any such principle of unfair dismissal is to be introduced, it should therefore be by legislation and not by judicial innovation”. Therefore regardless of the reason or manner of the termination of employment, there is no entitlement to any compensation whatsoever for unfair dismissal in the DIFC. In the course of his judgment, Colman DCJ was asked to examine whether permitting employers an unfettered right to dismiss on notice could make contractual performance substantially different from that which was reasonably expected by the employee, thereby breaching the reasonableness provision of the Implied Terms in Contracts and Unfair Terms Law (DIFC Law No. 6 of 2005), namely Article 38. In this regard, Colman DCJ found the proposition that Article 38 somehow fetters the right of an employer to terminate a contract of employment to be “completely untenable” and furthermore, his Honour ruled that Article 38 could not be deployed “to mount a claim for unfair or wrongful dismissal”; and
  • in Marwan Ahmad Lutfi v Dubai International Financial Centre Authority (CFI 003/2012); Colman DCJ confirmed his findings in the related Hana Al Herz case, and stated that the employer’s express power to terminate must not be “fettered by” implied terms such as the implied obligation to act reasonably and in good faith.

In light of these recent decisions, there can be no doubt that there is no compensation for unfair dismissal in the DIFC, statutory or otherwise, regardless of the reason or manner of the termination of employment. However, as a word of caution, dismissal is only one stage of the employment relationship. Compensation may still be payable in relation to other stages of the employment relationship, and employers in the DIFC should continue to have regard to the other relevant provisions in the DIFC Employment Law, such as the anti-discrimination provisions, as well as the DIFC Contract Law in all dealings prior to dismissal, namely the implied obligations of good faith and fair dealing; and of reasonableness, breach of which could give rise to a claim for damages.