Font Size

- Aa +

Tue 28 Jun 2011 12:59 PM

Font Size

- Aa +

Court rules full salary is basis for employee gratuity

Lawyers say ruling on end-of-service payoffs could open floodgates for future claims

Court rules full salary is basis for employee gratuity
In the absence of pension schemes in the Gulf, firms are required to provide an end-of-service payout to employees

UAE lawyers predict a surge in disputes over end-of-service employee payoffs after a Dubai court this week ruled commission should be used in the calculation of gratuities.

The Dubai Court of Cassation on Monday overturned a verdict upheld by two Dubai courts after ruling an employee’s gratuity should be calculated on his total salary, and not his basic wage.

The man had sought more than AED150,000 from his former employer, and the court supported his claim that his monthly commission should be included in his payout.

“[This ruling] will open people’s eyes to what’s happening. I’m sure if they are asking for end of service, they will make sure to ask their lawyer…to claim for this,” said Walid Azzam from Dubai-based legal firm, Hadef & Partners.

“More people will be able to take it further to substantial that they were actually paid [more than their contract states],” added Mazen Boustany from law firm Habib Al Mulla.

In the absence of mandatory pension schemes in the Gulf, firms are required to provide an end-of-service payout to employees, calculated on the length of the employment and basic salary.

Saudi Arabia has no cap on the total amount employees can receive while the UAE and Kuwait cap payouts at equivalent to two years’ pay.

In its ruling, the Court of Cassation said “all that a worker receives as emolument, whether in cash or in kind… including his monthly commission,” should be used to calculate gratuities, Emirates 24/7 reported.

Lawyers saw a rise in disputes between staff and their former employers in the wake of the financial crisis, which sparked widespread redundancies across the Gulf.

Dubai courts have been ruling in favour of employees who received regular commission for some time, said Azzam.

“There are several courts…that consider if you are getting a regular commission on a monthly basis, this is part of your salary. A lot of construction companies, for example, give employees a small basic salary as well as a bonus that gets divided over twelve months,” he said.   

Ahmed Mahdi 8 years ago

I am not convinced that the ruling is parallel with UAE Law and may not be supported by the Higher Court of Appeal. I would therefore, expect that the employer will appeal against the verdict, simply because the UAE Labour Law is clear (ref. article 134 of Labour Law) that the basis of calculating end of service (gratuity) is based only on basic salary. The article 134 states and I quote "The remuneration used as a basis for the purpose of calculating severance pay shall not include what is given to the worker in kind, and housing allowance and transport and traveling allowance, overtime pay, representation allowance, cashier's allowance, children education allowance, allowances for recreational and social facil.ities and any other ollowance or increments"Unquote.

Chris 8 years ago

Surely it is time that housing allowances and transport allowances were included also rather employers than hiding sums of money here to avoid EOS payments. In Saudi, they are included!

Muhammad Nadeem Sheikh 8 years ago

In Saudi Arabia, simply we add basic salary + housing allowance only.

julie 8 years ago

i agree that they must compute to the full salary, like me im working more than 4 years in the company and my basic salary is 1500 only, i renew my visa but they dont change my salary and i dont have also housing and trasportation allowance. What will happen to us as small salary like that?

GB 8 years ago

yes but it does not exclude the comission as payable.

Beside this we have the fact that most employers are unscrupulous in that they escaape paying gratuaty as previously stated through ensuring it appears as housing and transport allowances and the like that are exempt from inclusion. Come on people - be relaistic you pay peanuts for salaries at least pay end of service on what is paid every month and not the least amount you can get. If the boot were on the other foot I am sure u would demand payment in full.

Jezinho 8 years ago

@Ahmed

Article 134 does not specifically exclude commission (which is not "given...in kind") or bonuses. In a number of professions, the payment of commission is clearly an integral component of a worker's wage, hence the basic portion is so low. It should therefore be included in the calculation of the leaving indemnity. This is the case here in Bahrain.

Arab Ahwaz 8 years ago

Again with the complaints!! This is unbelievable!!!

Listen, the law does NOT force an employer to pay you a salary that is divided into basic + housing + transport + tuition + blablabla.

Negotiate your contracts well, ask to get a salary that is 100% basic, and then figure things out on your own. If your companies gives you a one year advance for housing, then opt to get a salary comprised of basic + housing, otherwise the choice is up to YOU and your employer, the law has nothing to do with this.

Rainegade 8 years ago

Look at it from the perspective of a company that is paying decent salaries to its employees. A person who gets AED 25,000 salary a month, which is split 70/30 into basic and allowances. The gratuity in this case is still a very good one especially if the employee has stayed 5 years. However, if this company now has to pay on FULL salaries, it may very well go bankrupt!

This has definitely not been thought through!

Preethi 8 years ago

You are right there, but in most cases they keep the basic at entry level and never changes during renewals and increments never reflect in new contracts, Hence even if your current salary is 25000, your basic may be at 3 or 4 k and your service period more than 10 0r 15 years. If they calculate EOS on those basics , they will get peanuts after long service.For such people the new ruling is a great blessing!

KK 8 years ago

What are the concequences if the Employer is still stick on old gratuity rules that is basic salary?

How a low paid Employee convince his/her employer on end of service benefit calculation on last drawn monthly salary, as he/she cannot hire a lawyer on this gratuity issue !!!

Why can't Government Ammend the Gratuity / end of service benefit rule which will really a blessing to all workers in UAE.