Introduction
In a significant and instructive judgment, the Abu Dhabi Court of Cassation has provided much-needed clarity on the interpretation of arbitrary dismissal and employee entitlement to discretionary benefits under Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations.
This decision, issued on 15 April 2026, serves as an important precedent for employers and employees alike, particularly in relation to the strict application of Article 47 and the evidentiary burden associated with bonus claims.
Case Overview
The dispute arose from an employment relationship in which the employee claimed multiple entitlements, including:
- Unpaid wages and allowances
- Compensation for alleged arbitrary dismissal
- Annual performance bonus
- End-of-service related benefits
The employer contested these claims and filed a counterclaim alleging unjust enrichment. The matter progressed through the Court of First Instance and Court of Appeal before being finally adjudicated by the Court of Cassation.
Key Legal Issue 1: Arbitrary Dismissal under Article 47
Court’s Position
The Court adopted a strict and exhaustive interpretation of Article 47, holding that compensation for arbitrary dismissal is limited to only two scenarios:
- Dismissal for filing a serious complaint with the Ministry of Human Resources and Emiratisation (MOHRE)
- Dismissal for initiating valid legal proceedings against the employer
The Court expressly rejected broader interpretations, including:
- Termination without valid reason
- Delay in salary payments
- Absence of notice
- General unfairness
Application to the Case
The employee failed to demonstrate that the termination was linked to either statutory ground. The Court also noted that the employment relationship had effectively ended following the employee’s resignation, eliminating the basis for an arbitrary dismissal claim.
Legal Impact
- Not all unfair terminations qualify as arbitrary dismissal
- Article 47 is interpreted narrowly
- The scope for such claims is significantly limited
Key Legal Issue 2: Entitlement to Bonuses and Discretionary Benefits
Court’s Analysis
The Court reaffirmed that entitlement to bonuses or additional financial benefits must be established through:
- Express contractual provisions
- Company policies or internal regulations
- Consistent and established practice amounting to custom
Findings in the Case
Based on the expert report, the Court found that:
- No contractual entitlement to a bonus existed
- No formal company policy guaranteed bonuses
- No consistent practice created a binding obligation
- Prior payments were not proven to be performance bonuses
Legal Principle Established
Discretionary payments do not create enforceable rights unless clearly supported by contractual terms or consistent practice.
Judicial Approach: Deference to Expert Evidence
The judgment reinforces key judicial principles:
- Trial courts have discretion in evaluating evidence
- Expert reports carry significant evidentiary weight
- The Court of Cassation will not interfere absent legal error
This approach is particularly relevant in employment disputes involving financial claims.
Key Takeaways for Businesses
- Limit Liability Exposure: Article 47 provides a narrowly defined framework for arbitrary dismissal
- Ensure Contractual Clarity: Clearly define whether bonuses are discretionary or guaranteed
- Maintain Policy Consistency: Avoid inconsistent payments that may create expectations
- Document Everything: Maintain detailed records of compensation structures and policies
Key Takeaways for Employees
- Understand Legal Limits: Not all terminations qualify as arbitrary dismissal
- Provide Evidence: Bonus claims require clear contractual or factual support
- Keep Records: Retain contracts, policies, and payment documentation
Conclusion
This judgment represents a pivotal development in UAE labour law. By reaffirming a strict interpretation of Article 47 and clarifying the treatment of discretionary benefits, the Court has strengthened legal certainty in employment relationships.
The decision underscores the importance of precise contractual drafting and consistent internal practices, benefiting both employers and employees in managing expectations and legal risk.
Frequently Asked Questions (FAQ)
1. What qualifies as arbitrary dismissal under UAE Labour Law?
Arbitrary dismissal is limited to two situations: dismissal for filing a serious complaint with MOHRE or dismissal for initiating valid legal proceedings against the employer.
2. Can I claim arbitrary dismissal if I was terminated without a valid reason or notice?
No. Termination without valid reason, delayed salary, or general unfairness does not qualify as arbitrary dismissal under Article 47.
3. Am I automatically entitled to an annual performance bonus?
No. Bonus entitlement must be clearly stated in the employment contract, company policies, or proven through consistent employer practice.
4. Can a discretionary bonus become legally enforceable?
Yes, but only if it is consistently granted in a manner that creates a binding custom or contractual expectation.
How KH Legal Can Assist
At KH Legal, we advise employers and employees on all aspects of UAE labour law, including:
- Drafting and reviewing employment contracts
- Advising on termination strategies and risk mitigation
- Representing clients in labour disputes and court proceedings
- Structuring compensation frameworks and internal policies
For legal advice or assistance, please contact our team.
If you require further clarification or legal assistance concerning the matters discussed in this article, please do not hesitate to contact Kh legal Advocates & Legal Consultants LLC. Our lawyers would be happy to assist you.
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