Golden Parachutes and Exit Bonuses in the UAE: Crucial Information You Should Be Aware Of
Golden Handshakes in UAE Employment Contracts: What You Need to Know
In the United Arab Emirates (UAE), employees and employers have the option to include a "golden handshake" clause in their employment contracts. This clause refers to a negotiated severance package offering more generous compensation than the standard severance pay.
The UAE Employment Law, specifically Federal Decree-Law No. 33 of 2021 on the Regulation of Labor Relations, governs such provisions. According to the law, employment contracts can include mutually agreed terms on end-of-service or termination benefits, often negotiated to go beyond the statutory minimum severance pay (gratuity) prescribed by labor law.
For a "golden handshake" clause to be legally binding, it must be clearly stipulated in the employment contract and agreed upon by both parties at the time of signing. The clause must not contravene mandatory provisions of UAE law, such as those related to statutory gratuity or employee rights.
Disputes regarding termination and compensation, including the interpretation of "golden handshake" clauses, are generally resolved per labor law procedures and can be subject to mediation or labor dispute committees as defined by UAE law.
It is important to note that while the UAE Employment Law guarantees employees their entitlement to severance pay, the specifics of the severance pay (including the possibility of a "golden handshake") may be negotiated with the employer.
For the first five years of service, the severance pay is 21 days of salary for each year of service. After the first five years, the severance pay is 30 days of salary for each year of service. Employees who have completed at least one year of continuous service are entitled to severance pay upon the end of their employment.
The standard employment contract template provided by the Ministry of Human Resources & Emiratisation (MoHRE) does not typically include a clause about severance pay. However, employers can offer benefits beyond the statutory minimum, including a "golden handshake" clause, under Article 65(1) of the UAE Employment Law.
Employers' contracts must be executed in good faith and in line with the law, according to the UAE's legal framework on employment contracts. Federal Law No. (5) of 1985 On the Civil Transactions Law of the United Arab Emirates is also a relevant law in the UAE's legal framework on employment contracts.
Given the complexity of employment law in the UAE, it is advisable to consult with a legal professional familiar with UAE employment laws when discussing a "golden handshake" clause or any other employment-related matters. This will ensure compliance with current regulatory requirements and labor law provisions.
[1] Federal Decree Law No. 33 of 2021 Regarding the Regulation of Employment Relationships [2] Cabinet Resolution No. 1 of 2022 on the Implementation of Federal Decree-Law No. 33 of 2021 Regarding the Regulation of Employment Relations
In conclusion, while it is legal and binding to include a "golden handshake" clause in an employment contract in the UAE, it is crucial to ensure compliance with the UAE Labor Law and consult with a legal professional to avoid any potential disputes.
In the context of UAE employment contracts, a "golden handshake" clause can be included to negotiate severance packages that exceed the statutory minimum. However, these clauses must adhere to the provisions of the UAE Employment Law, such as not contradicting mandatory statutory gratuity or employee rights.
The potential financial implications of a "golden handshake" make it essential for both parties to fully understand the clause and potentially seek legal advice to ensure compliance with UAE labor laws.
