The closure of a company due to bankruptcy can create uncertainty and financial hardship for employees. In UAE, employees are protected under several legal provisions that safeguard their salaries, end-of-service benefits, and other employment rights even when an employer becomes insolvent. UAE has labour laws and bankruptcy laws to balance the interests of businesses and workers.
The primary laws governing employee rights in such situations are the UAE Labour Law, namely Federal Decree-Law No. 33 of 2021 on the Regulation of Employment Relations, and the Federal Decree-Law No. 51 of 2023 on Financial Restructuring and Bankruptcy.
Protection of Employee Dues
One of the most important protections granted to employees in UAE is the priority given to employee-related dues during bankruptcy proceedings. Under the Bankruptcy Law, unpaid salaries, wages, and end-of-service gratuity are treated as “preferred debts.” This means that employees’ claims are prioritized over ordinary creditors when the company’s assets are distributed.
Bankruptcy Law specifically states that unpaid wages and salaries, together with end-of-service gratuity, are payable before ordinary commercial debts. However, the law limits priority wages to a maximum of three months’ salary. Judicial fees, government dues, and certain secured claims may still take precedence in some situations.
Right to Salary and Pending Benefits
Employees remain entitled to all unpaid contractual benefits despite the bankruptcy or liquidation of the company. These include:
- Outstanding salary and overtime payments
- Payment in lieu of unused annual leave
- End-of-service gratuity
- Notice period compensation, where applicable
- Any other contractual employment benefits
The employer cannot avoid these obligations merely because the company has become insolvent. UAE Labour Courts consistently uphold employees’ entitlement to these statutory dues. Recent labour court decisions have also emphasized that employers must maintain proper payment records and prove salary payments through the Wage Protection System (WPS).
End-of-Service Gratuity
Under Article 51 of the UAE Labour Law, employees who complete one year or more of continuous service are entitled to end-of-service gratuity upon termination of employment. The gratuity is calculated based on the employee’s last basic salary.
The general calculation is as follows:
- 21 days’ basic salary for each year of service for the first five years
- 30 days’ basic salary for every additional year after five years
The total gratuity amount should not exceed two years’ salary. Even if the company closes due to bankruptcy, employees retain the right to claim gratuity from the liquidation proceeds of the company.
Employment Contracts During Bankruptcy Proceedings
The Bankruptcy Law also addresses the status of employment contracts during restructuring or bankruptcy proceedings. If the court decides that the business may continue operating during restructuring, employee contracts may remain valid and employees may continue working. However, if the court orders liquidation and cessation of business activities, employment contracts may be terminated.
In such cases, employees become creditors of the company for all outstanding employment dues. The appointed trustee or liquidator is responsible for verifying and settling employee claims according to the priority established under the law.
Right to File Labour Complaints
Employees whose dues remain unpaid may file complaints before the Ministry of Human Resources and Emiratisation (MOHRE). If settlement efforts fail, the dispute may be referred to the Labour Court. Employees may also participate in bankruptcy proceedings to register their claims against the company.
UAE legal system provides relatively employee-friendly mechanisms for labour disputes, and courts generally interpret labour laws in favour of worker protection where ambiguity exists.
Protection Against Illegal Waiver of Rights
Another important principle under UAE labour law is that employees cannot legally waive statutory employment benefits before termination of employment. Any agreement signed during employment attempting to forfeit gratuity or other mandatory rights may be considered invalid by the courts. This ensures that financially distressed employers cannot pressure employees into surrendering their legal entitlements.
Conclusion
UAE legal framework provides significant protection to employees when a company closes due to bankruptcy. Employees are entitled to claim unpaid salaries, gratuity, leave encashment, and other contractual dues, and such claims are granted priority under the Bankruptcy Law. Although bankruptcy may result in job loss and financial uncertainty, the law aims to ensure that workers are not left without legal remedies. Employees facing such situations should promptly register their claims with MOHRE and, where necessary, seek legal advice to protect their rights during bankruptcy and liquidation proceedings.
Our team at Ayesha Al Dhaheri Advocates and Legal Consultants provides expert guidance on resolving labour disputes, and ensuring compliance with UAE Bankruptcy and Labour Law. We help employers safeguard their investments and assist employees in understanding their rights with confidence.