In response to an inquiry about the possibility of filing a lawsuit for unjustified dismissal after termination due to cost reduction, it is assumed that the employee works in mainland Dubai. It is also assumed that the employer notified the dismissal in accordance with the contract terms and the employee is currently serving the notice period.
The applicable provisions are Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations (Labour Law) and Cabinet Resolution No. 1 of 2022 on the Implementation of Federal Decree-Law No. 33 of 2021. In the UAE, an employer has the right to terminate an employment contract by notifying the employee within the stipulated period, as stated in the employment contract. This corresponds to Article 43 (1) of the Labour Law, which states: 'Either party to the employment contract may terminate the contract for a valid reason by notifying the other party in writing. The employee must perform their duties during the agreed notice period, provided that the notice period is not less than 30 days and not more than 90 days.'
However, an employer cannot dismiss an employee without a valid reason. If the dismissal occurs without legal grounds, it may be considered an unjustified dismissal. According to Article 47 of the Labour Law:
'1. The employee's dismissal by the employer shall be considered unjustified if the employee files a serious complaint with the Ministry or initiates legitimate legal proceedings against the employer. 2. The employer must pay the employee fair compensation, assessed by a competent court, if it is established that the dismissal is unjustified according to paragraph (1) above. The amount of compensation is determined based on the type of work, the extent of damage caused to the employee, and the duration of their service. In any case, the compensation amount must not exceed three months' salary of the employee, calculated based on the last salary received by them. 3. The provisions of paragraph (2) above do not prejudice the employee's right to receive compensation in lieu of notice and end-of-service gratuity due under these provisions.'
Based on the aforementioned legal provisions, dismissal due to cost reduction may be recognized as an unjustified dismissal. However, if the employer faces a serious financial crisis, they may be forced to cease operations upon receiving a corresponding resolution from a local authority or court with jurisdiction in the UAE, thereby terminating the employment contract.
This is stipulated in Article 25 (1) (b) of Cabinet Resolution No. 1 of 2022, which states: 'Taking into account the provisions of Federal Decree-Law No. (9) of 2016 on Bankruptcy and Federal Decree-Law No. (19) of 2019 on Insolvency, as well as the provisions of paragraph (8) of Article (42) of the Decree-Law: 1. The employment contract is terminated in the following cases: (b) Issuance of a decision by the relevant authorities stating that the employer cannot continue its operations for exceptional economic reasons beyond its control.'
Consequently, if an employee believes they were dismissed without legal grounds, they can file a complaint with the Ministry of Human Resources and Emiratisation (MOHRE) seeking compensation for unjustified dismissal, as well as for other end-of-service payments. After filing a complaint with MOHRE, the authority may attempt to settle the dispute between the employee and the employer amicably. If an amicable settlement is not reached through MOHRE, the employee may file a labour lawsuit against the employer in a court having jurisdiction in the Emirate of Dubai.
The judicial body in Abu Dhabi rejected the employee's demand for compensation of AED 100,000 from their employer. The lawsuit was filed after the company allegedly terminated the employment relationship illegally, which resulted in financial damage.
According to the applicant, he signed a two-year contract with the company that began on July 11, 2024. In August 2025, he received the UAE Golden Visa. As part of the process of obtaining long-term status, he had to temporarily cancel his existing employment contract, residency permit, and work permit. The employee claimed that he had agreed with the employer to issue a new employment contract and work permit after receiving the Golden Visa.
When the employee approached his insurer for payments under the UAE Insurance Scheme for Unintended Job Loss (ILOE), he was informed that his employment contract officially ceased on August 11, 2025, and a new contract had not been registered. Despite the employee's claims of a prior agreement with the employer regarding a new contract, the insurance company rejected his claim according to the policy rules because more than a month had passed since the official termination of employment.
In his lawsuit, the employee stated that due to the 'unlawful' termination of the employment contract, he lost unemployment benefits and missed an opportunity to find employment in Saudi Arabia with a salary of AED 45,975. He insisted that the company violated the terms of the original two-year contract and ended it without legal grounds, leading to his unemployment. Therefore, he asked the court to compel the company to pay him AED 100,000 in compensation.
The company, in turn, denied any allegations of wrongdoing, stating that the dismissal was lawful and that the employee had been given written notice. It was also noted that the employee served his notice period in accordance with UAE labor law. The company added that the employee lacked evidence of any financial losses or missed employment opportunities in Saudi Arabia.
In its final decision, the Abu Dhabi Court of Family, Civil and Administrative Cases dismissed the lawsuit. The court ruled that although the employee claimed the company caused him harm by not issuing a new contract after receiving the Golden Visa, he failed to prove the existence of this agreement or any actual damage, so the compensation claim could not be accepted.
The court dismissed the suit because there was no proof that the company committed an unlawful act or caused damage. The judge noted that the employee did not provide evidence of the alleged agreement or the company's obligation to issue a new employment contract after receiving the Golden Visa. Furthermore, the court pointed out that, according to the employee's own statements, the cancellation of the contract and work permit was agreed upon by both parties to obtain the Golden Visa, which, in the court's view, constitutes a mutual agreement rather than an act of wrongdoing by the company. Additionally, the court found that the employee did not provide sufficient evidence to substantiate the claimed losses, including the assertion of a missed opportunity in Saudi Arabia, nor did he prove that the company was responsible for the loss of unemployment benefits. In addition to dismissing the AED 100,000 claim, the court ordered the employee to pay the legal costs.
