As the year comes to an end, many employees will be expecting
payment of a 13th cheque or Christmas bonus from their employer.
Contracts of employment specifically provide conditions under which
employees will be entitled to the payment of bonuses. However,
where an employment agreement is silent on the payment of a bonus
then the issue is subject to the discretion of the employer or
negotiation between the employer and employee, whether or not a
bonus is to be paid. There is no legal obligation for an employer
to pay bonuses to its employees. However, the position is different
where the employer has previously paid bonuses to its employees, as
the employees have a reasonable expectation that the employer will
continue paying the bonuses as it has done in the past.
An employer may pay bonuses based on an employee's
performance or simply as gratuity for loyal service throughout the
year. Some employers will pay an amount that is equivalent to an
employee's full month's salary or the bonus may be a
pro rata share of the employee's monthly salary. Bonuses are
therefore amounts which are additional to employees'
salaries and are classified as benefits of the employment contract.
Benefits do not create statutory rights or entitlement, and
employees may not strike over the non-payment of bonuses or other
benefits, unless a right to such benefit has been created in the
There may exist exceptional circumstances where the right to
payment of a bonus has been created by agreement between the
employer and employee, but the employer decides that it cannot make
such payment to its employees. This may happen where the employer
cannot afford to pay the employees' bonuses due to the
operational requirements of its business, or where employees have
been transferred to a new employer in terms of section 197 of the
Labour Relations Act, 1995 and the new employer wishes to
discontinue payment of the bonuses.
The employer must consult with the affected employees or their
representative trade union once the decision not to pay bonuses has
been made. The failure of an employer to consult with its employees
will amount to a unilateral variation of the employment contract.
This could lead to claims of unfair labour practices from the
affected employees against the employer.
The Labour Court has previously decided that it is not
sufficient for an employer to inform its employees two weeks before
Christmas that they will not be getting end of year bonuses, as
some employees plan their holiday budgets on the expectation of
receiving such bonuses. An employer is expected to plan its
finances in a way that enables it to know in advance that it will
not be able to pay its employees their expected bonuses in order to
advise them of its situation and to engage them on the issue to
avoid unfair labour practice disputes.
The courts have summarised the position regarding bonuses as
Where an employer has never paid bonuses to employees then such
employer is under no obligation to do so and there is no law which
compels it to make such payment. Accordingly, an employee has no
right to payment of a bonus where none has ever been paid.
However, where an employer has paid bonuses in the past and
wishes to discontinue such payment or make any other change
regarding the payment of bonuses, such as new conditions for the
payment of bonuses or the timing of such payments, then the
employer must inform the employees well in advance to allow them to
engage it on the proposed changes. Failure to provide adequate
notice and to engage employees on this issue will amount to an
unfair labour practice.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Employment relationships in the United Arab Emirates are governed by Federal Law No.8 of 1980 Regulating Labour Relations as amended by Federal Laws No.24 of 1981, No.15 of 1985 and No.12 of 1986 (the Labour Law).
As the name implies, end of service gratuity is an amount of money that every employee is entitled to receive, and every employer is liable to pay, upon termination of an employment relationship in the UAE, provided that the employee meets the conditions set out in the Labour Law (UAE Federal Law No.8 of 1980).
One of the most debated issues in an employment agreement is the legality of restrictive covenant provisions, such as a non-compete clause which prevents employees from working for a competitor upon termination of their employment agreement.