UAE: Landmark ruling on Article 18 penalty payments

The DIFC Court of First Instance has ordered an employer to pay a penalty in excess of USD 1.5 million to a former employee for failing to comply with Article 18 of the DIFC Employment Law (as amended) (CFI 015/2015 Asif Hakim Adil v Frontline Development Partners Limited).

The claimant was a managing director whose employment was orally terminated on 30 June 2013. The claimant brought proceedings against the defendant employer, claiming that he was entitled to unpaid salary and other employment benefits (including end-of-service gratuity) from 1 July 2013 in lieu of his notice entitlement. The employer claimed that he had dismissed the MD without notice, alleging that the MD had committed "numerous and serious breaches" of the employment contract and denied any payments were due on the basis that the claimant had been absent from work and had not performed any duties from this date. The employer also brought a number of counterclaims against the claimant including damages for breach of contract and of fiduciary duty. The employer's defence and counterclaims were rejected and the Court determined that termination had not been for cause, but pursuant to a contractual right to terminate without notice on payment in lieu of the notice entitlement.

Article 18 states that an employer must pay all wages and other amounts owing to its employee within 14 days of termination of employment. Failure to do so will result in the employer being liable to pay the employee a penalty equivalent to the last daily wage for each day the employer is in arrears.

Acknowledging that this was the first case in which the Court was asked to consider Article 18 in detail, the judge ordered the defendant employer to pay the claimant unpaid sums, as well as a penalty of USD 1,643.84 per day. The Court rejected the employer's argument that the language of Article 18 should be modified to imply a judicial discretion as to whether a penalty should be ordered (for example, to take into account circumstances where a large penalty could become payable for failure to pay a small amount or where failure to pay was due to honest mistake).

Actions for employers

Employers should ensure that end-of service gratuity entitlements are paid within 14 days of termination of the employee's employment in order to avoid penalties becoming payable.