‘How much will I have to pay my employer for quitting my job early?’

According to the UAE Labour Law, the Abu Dhabi resident will not receive an end-of-service gratuity

According to the UAE Labour Law, if an employee cancels an employment contract, the worker is bound to compensate the employer for the loss incurred by way of revoking the contract. Photo: The NationaShow more

I am employed on a two-year contract. I have completed more than a year of employment and have given my resignation with a notice period. I know that because I am breaking my contract, I have to compensate my employer. Will this be based on my basic salary or my salary with allowances? My basic salary accounts for 60 per cent of the total. The contract just says that the termination compensation will be "in accordance with the UAE Labour Law". MH, Abu Dhabi

As MH is aware, he has broken the terms of his contract of employment and is liable to pay a penalty to his employer in accordance with Article 116 of the UAE Labour Law, which states: “Should the contract be rescinded by the worker … the worker shall be bound to compensate the employer for the loss incurred thereto by reason of rescission of the contract, provided that the amount of compensation does not exceed the wage of half a month for the period of three months, or for the remaining period of the contract, whichever is shorter, unless otherwise stipulated in the contract.”

The Labour Law does not state whether the penalty should be calculated using basic or gross salary, but this has been clarified in Ministerial Degree (765) of 2015 on Rules and Conditions for the Termination of Employment Relations, which clearly states that the penalty is based on “gross wages”.

In this case, no end-of-service gratuity is payable because MH will forfeit this by leaving before the end of the contract term, as per Article 138, which says: “Should the worker bound by an employment contract with determined term leave his work by his own choice prior to the expiry of the contract, he shall not be entitled to an end-of-service gratuity, unless the duration of the service period exceeds five years.”

I have a property in Dubai, which is mortgaged with a local bank. I have been made redundant but have also applied for a property visa in Dubai. I have been granted my trade licence for the visa and am waiting to cancel my employment visa to get the new visa. The mortgage will be finished in three years and I intend to keep paying the mortgage monthly as agreed. My concern is that the bank will try to keep my end-of-service benefits to cover the loan and leave me with no cash flow.

My question is whether the bank has the right to hold my gratuity even if I have a property visa in Dubai and agree to keep my commitment? JA, Dubai

The term “trade licence” in relation to a property visa, also known as an investor visa, is confusing because this is not the same as the licence obtained to set up a business. It is granted by the Dubai Economic Department as part of the requirement to apply for a property-linked investor visa from the Dubai Land Department. An investor visa does not give someone the right to work in the UAE.

When an employee ends a period of service, the employer is obliged to mark the last payment to banks, which should include any end-of-service gratuity that is payable, as “final salary”. This puts the bank on notice that there may be an issue in meeting future loan repayments and that is partly why bank accounts are frozen.

Depending on the terms of the loan agreement, the bank may have the right to retain the gratuity amount and apply it against the outstanding debt in order to reduce liabilities. JA will need to check the terms of the loan agreement that he signed to confirm what he agreed to when taking out the mortgage.

If the terms state that the bank could retain monies in accounts to cover liabilities and these were signed in agreement, then the bank can use the end-of-service gratuity in this way. If JA will not be working, the bank will have concerns regarding loan repayments and want to reduce the level of risk.

As part of the investor visa process, an individual must demonstrate that they have a source of income of at least Dh10,000 per month, not from employment in the UAE.

So, I would recommend that JA contacts the bank to have a discussion with a senior member of staff to come to an agreement. The bank may be willing to consider not applying the payment to the loan if it sees that there will be no problem in payments being met in future. But as such, decisions would need to be signed off by a senior staff member. There is no guarantee that a bank will vary from its usual practice.

Keren Bobker is an independent financial adviser and senior partner with Holborn Assets in Dubai, with more than 25 years’ experience. Contact her at [e-mail]. Follow her on Twitter at @FinancialUAE

The advice provided in our columns does not constitute legal advice and is provided for information only