Managing director awarded $1.63mn in unpaid salary and end of service gratuity by DIFC Court of Appeal
Clyde and Co’s legal experts explain why the ruling was made, and the implications for DIFC employers
A managing director has been awarded an estimated $1.63mn by the Dubai International Financial Centre (DIFC) Court of Appeal.
Following the termination of his contract, Mr Asif Hakim Adil alleged that his former employer, Frontline Development Partners Limited, had failed to pay his salary and end of service gratuity.
He argued this should have been paid in accordance with his employment contract and the DIFC Employment Amendment Law No.3 of 2012 (the DIFC Employment Law).
Ben Brown and Rebecca Ford of legal experts Clyde and Co explain the details of the case and why it could have big repercussions for DIFC employers.
Article 18 of the DIFC Employment Law
Article 18 of the DIFC Employment Law states:
‘An employer shall pay all wages and any other amount owing to an employee within fourteen (14) days after the employer or employee terminates the employment.’
‘If an employer fails to pay wages or any other amount owing to an employee in accordance with Article 18(1), the employer shall pay the employee a penalty equivalent to the last daily wage for each day the employer is in arrears.’
Court of First Instance (CFI) decision
Mr Adil's employment with Frontline had terminated on 30 June 2013, pursuant to a contractual right to terminate by way of payment in lieu of notice.
Mr Adil was entitled to recover US$359,411.12 in respect of his entitlement to: a payment in lieu of notice; end of service gratuity in accordance with the DIFC Employment Law; and a penalty of US$1,643.83 per day in accordance with Article 18 of the DIFC Employment Law (the Article 18 Penalty).
The CFI did not quantify the exact amount of the Article 18 Penalty but, on the basis that it accrued from 15 July 2013 to 3 April 2016 (the date of the CFI's judgment), the total sum would be approximately US$1.63mn – a sum far in excess of the amounts initially owed by Frontline to Mr Adil.
Court of Appeal decision
The Court of Appeal dismissed Frontline's appeal that the CFI had incorrectly interpreted Article 18 of the DIFC Employment Law and upheld the CFI's decision to award the Article 18 Penalty to Mr Adil.
The Court of Appeal restated the principles that:
- The function of the Court is to determine the intention of the legislature by interpreting the law
- The Court is not responsible for legislating and it is not for the Court to say if the law is fair, if the legislator thinks that is what the law should be
Justice Tun Zaki Azmi concluded that Article 18 of the DIFC Employment Law is “grammatically correct, makes sense and clearly understandable" and, irrespective of which principle of statutory interpretation it adopted, the Court was unable to exercise its discretion to apply Article 18 differently to different circumstances.
Issues for DIFC employers
Article 18 of the DIFC Employment Law could lead to some absurd scenarios for DIFC employers. For example:
- An ex-employee could be financially rewarded for refusing to receive their outstanding entitlements (ie by closing their UAE bank account, making it impossible for their employer to process the payments)
- An ex-employee who is owed one Dirham could potentially claim a day's wage for every day that the one Dirham is in arrears
- An ex-employee could be financially rewarded for failing to commence proceedings promptly (or delaying proceedings once commenced) in respect of any outstanding entitlements
- An ex-employee could be financially rewarded for refusing to settle a claim relating to their outstanding entitlements
The Court of Appeal recognised that Article 18 of the DIFC Employment Law could lead to scenarios of the type set out above, which could have unfair and disproportionate implications for employers. However, the Court of Appeal confirmed that it was the responsibility of the legislator, not the Court, to change the law in order to address these issues.
The Court of Appeal has therefore put this issue firmly at the door of legislators and it seems likely that, given the conclusion of this case (and the earlier CFI cases which have addressed this issue), the DIFC Authority will review the application and effect of Article 18 and consider appropriate amendments to the DIFC Employment Law.
Considerations for DIFC employers
In light of the significant penalties, which can accrue under Article 18 of the DIFC Employment Law, we recommend that employers take the following steps to mitigate their risk exposure:
- Ensure that an employee's contractual and statutory entitlements (including end of service gratuity) are correctly calculated in accordance with the DIFC Employment Law (and, if in doubt, overpay rather than underpay)
- Ensure that an employee receives their contractual and statutory entitlements within 14 days of the termination of their employment, regardless of the reason for termination
- Ensure that the payment of an employee's contractual and statutory entitlements is clearly documented (preferably by obtaining a copy of the relevant bank transfer)
- Take legal advice before dismissing an employee for cause under Article 59A of the DIFC Employment Law and withholding payment of notice pay and end of service gratuity.