Termination and Severance: a Comprehensive Guide to Employee Rights in the UAE (2025)

The employment landscape in the United Arab Emirates is one of the most dynamic and rapidly evolving in the world. For both expatriate and local workers, understanding the nuances of the UAE Labour Law Termination provisions is not just a matter of compliance, but a fundamental aspect of securing their professional future. As of 2025, the bedrock of these rights is Federal Decree-Law No. 33 of 2021, commonly known as the New Labour Law, which has significantly modernized the relationship between employers and employees.

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This comprehensive guide delves into the critical aspects of employment termination and Severance Pay in the UAE, ensuring you are fully informed of your rights and obligations under the current legal framework. From valid grounds for dismissal to the precise calculation of your End-of-Service Gratuity (EOSG), we break down the complexities of the law to provide clarity and confidence in your employment journey.

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1. The Legal Foundation: Federal Decree-Law No. 33 of 2021

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The New Labour Law, effective since February 2022, replaced the decades-old Federal Law No. 8 of 1980, ushering in a new era of employment relations. A key change was the mandatory conversion of all contracts to fixed-term employment contracts, which fundamentally altered the mechanism of termination.

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Valid Grounds for Termination

Under Article 42 of the New Labour Law, an employment contract can be legally terminated under several circumstances. It is crucial for employees to recognize these valid grounds, as they dictate the subsequent process and entitlements.

Category: Circumstance, Key Requirement *Mutual: Mutual Agreement, Must be documented in writing by both parties. Automatic: Contract Expiry, The fixed-term contract reaches its natural end date without renewal. Involuntary: Employee Death or Permanent Disability, Requires a medical certificate to confirm inability to work. Employer-Initiated: Business Closure or Bankruptcy, Must be in accordance with UAE legislation and due to financial insolvency or exceptional economic circumstances. Employee-Initiated*: Resignation, Employee must follow the prescribed notice period, unless resigning for a valid, immediate cause (e.g., employer breach).

The shift to fixed-term contracts means that termination can occur upon the contract's expiry. However, if an employer terminates a fixed-term contract prematurely without a valid, lawful reason, it can be deemed an arbitrary dismissal, leading to significant financial penalties.

2. Navigating the Notice Period Requirements

The notice period is a mandatory timeframe designed to allow both parties to prepare for the end of the employment relationship. Article 43 of the New Labour Law establishes a clear framework for this period.

The Standard Notice Period Framework

The law mandates that the notice period must be specified in the employment contract, but it cannot be less than 30 days and cannot exceed 90 days.

• Minimum Notice Period: 30 calendar days.
• Maximum Notice Period: 90 calendar days.

The notice period applies to both the employer and the employee. An employee who wishes to resign must also serve the agreed-upon notice period.

Notice During the Probationary Period

A significant change introduced by the New Labour Law concerns the probationary period. If an employee wishes to resign during their probationary period, they must provide a minimum of 14 calendar days' notice to the employer. If the employer wishes to terminate the employee during this period, they must provide 14 calendar days' notice.

Payment in Lieu of Notice (PILON)

The law permits either party to waive the notice period in exchange for a payment equivalent to the employee's wage for the remaining notice period. This is known as Payment in Lieu of Notice (PILON). The payment is calculated based on the employee's last basic salary.

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3. Instant Dismissal: Termination Without Notice (Article 44)

While the general rule requires a notice period, Article 44 of the New Labour Law outlines specific, severe circumstances where an employer can terminate an employee immediately and without notice. These grounds are reserved for serious misconduct and must be supported by a formal, written investigation.

The key grounds for instant dismissal include:

1. Identity Fraud: Using a false identity, impersonation, or submitting forged documents/certificates.
2. Gross Negligence or Deliberate Damage: Causing serious material loss or intentional property damage to the employer. The employer must notify the Ministry of Human Resources and Emiratisation (MoHRE) within 7 working days.
3. Safety Violations: Breach of written instructions regarding workplace safety, provided the employee was aware of the instructions.
4. Persistent Duty Failure: Continued failure to perform essential job duties despite written investigation and two formal dismissal warnings.
5. Confidentiality Breaches: Unauthorized disclosure of trade secrets or intellectual property resulting in damages or personal benefit.
6. Substance Abuse: Being under the influence of alcohol or controlled substances during work hours, or engaging in immoral conduct at the workplace.
7. Workplace Violence: Physical, verbal, or other forms of assault against the employer, supervisors, managers, or colleagues.
8. Position Abuse: Unlawful exploitation of job position for personal gain.
9. Unauthorized Secondary Employment: Working for another employer without following proper UAE labour law procedures.

It is paramount that employers strictly adhere to the procedural requirements for instant dismissal. Any failure to follow the correct process, such as conducting a proper investigation, can render the dismissal arbitrary.

4. The Employee's Shield: Unlawful Termination and Arbitrary Dismissal

The New Labour Law provides robust protection against unfair or arbitrary dismissal, particularly under Article 47. An employee who believes their termination was unjust has the right to file a complaint with the MoHRE.

What Constitutes Unlawful Termination?

Termination is considered unlawful or arbitrary if it is based on reasons unrelated to the employee's work performance or the operational needs of the business. The law explicitly highlights two key scenarios:

• Retaliation-Based Dismissals: Terminating an employee because they filed a legitimate labour complaint with the MoHRE or pursued a legal action against the employer.
• Discrimination: Terminating a female employee due to pregnancy, maternity leave, or related work absences, as explicitly prohibited by Article 30(8).

Consequences of Arbitrary Dismissal

If the MoHRE or the competent court finds the dismissal to be arbitrary, the employer will be ordered to pay the employee compensation. This compensation is determined by the court, taking into account the type of contract, the extent of the damage, and the length of service.

The compensation amount can be up to three months' full salary (basic salary plus allowances) in addition to the employee's other entitlements, such as the End-of-Service Gratuity and Payment in Lieu of Notice.

5. End-of-Service Gratuity (Severance Pay) Calculation

The End-of-Service Gratuity (EOSG), or severance pay, is a mandatory entitlement for full-time employees who have completed one year or more of continuous service. The calculation is based on the employee's basic salary and the length of service, following a tiered formula.

The Gratuity Calculation Formula

The EOSG is calculated as follows:

1. For the first five years of service: The employee is entitled to the wage of 21 days for each year of service.
2. For years of service exceeding five years: The employee is entitled to the wage of 30 days for each subsequent year of service.

The calculation is based on the last basic salary received by the employee. It is a critical point of law that allowances (such as housing, transport, or utility allowances) are categorically excluded from the gratuity calculation.

Maximum Cap on Gratuity

Regardless of the length of service, the total amount of the End-of-Service Gratuity cannot exceed the equivalent of two years' basic salary.

Illustrative Example of EOSG Calculation

Consider an employee with a basic salary of AED 10,000 per month, who has completed 7 years of continuous service.

Service Period: Calculation Basis, Formula, Result *Years 1 to 5: 21 days' basic salary per year, (21 days / 30 days) x 5 years x AED 10,000, AED 35,000 Years 6 to 7: 30 days' basic salary per year, (30 days / 30 days) x 2 years x AED 10,000, AED 20,000 Total EOSG: AED 55,000*

Impact of Resignation on Gratuity

Under the New Labour Law, an employee who resigns is entitled to their full End-of-Service Gratuity, provided they have completed one year of continuous service. The previous law included reductions for resigning employees, but the current law simplifies this: resigning employees are entitled to 100% of their accumulated gratuity (subject to the one-year service minimum).

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice tailored to their specific circumstances before making any decisions or taking any action based on the content of this article.

Nour Attorneys Team

Additional Resources

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