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Regional tensions have sparked broader concerns across GCC states, including the UAE, about the potential economic impact.
A Gulf Business report earlier this week on how employees can navigate salary cuts in the UAE prompted a wave of responses from readers who commented via our LinkedIn page.
Read more: Salary cuts amid regional tensions? What UAE employees need to know
While the law is clear — salaries cannot be reduced without employee consent — several LinkedIn commentators pointed to the pressure employees face in practice.
“Power is not always equal,” said Rohit Bassi on Gulf Business’ LinkedIn post about the story, adding that challenging decisions is “not always practical”.
Meanwhile, another LinkedIn user, Swilem, noted that “employee awareness remains critical”. From a governance perspective, Shadi Al Shorbagy commented that salary cuts should be a “last resort”, while Dina Roshdy added that “a salary is more than just a number”.
The response highlights a clear question: the rules are defined, but how they play out depends on how both sides navigate a more uncertain environment.
To unpack what the law says, and what it means in practice, Gulf Business spoke to employment legal expert Luke Tapp, partner at Pinsent Masons. Below is the full Q&A with him, which goes deeper into the issue and outlines a key rule that employers, in particular, need to take heed of.
Q&A with Luke Tapp, partner at Pinsent Masons
What does UAE labour law say about salary reductions, and what formal steps must be followed?
An employer cannot reduce an employee’s salary without the employee’s express written consent.
Whilst the Labour Law does not directly refer to unilateral salary reduction, it states that:
- An employer must pay the employee’s salary on the due date; and
- An employment contract cannot be modified unless both parties agree to the change in writing.
The effect of these provisions is therefore that an employer must pay the employee’s salary in the contractually agreed amount, unless the employee has consented to a salary reduction in writing.
War or geopolitical tensions do not, of themselves, create any legal exception to this rule. Whilst the Ministry of Human Resources and Emiratisation (MOHRE) has the option to introduce legislation that would accommodate unilateral salary reductions in certain circumstances, at present, no such legislation has been enacted. Employers should therefore monitor the situation and, if legislation is enacted that would accommodate unilateral salary reductions, ensure that they familiarise themselves with any requirements before moving to unilaterally reduce salaries (for example, a directive issued during the COVID-19 pandemic specifically required that employers notify MHRE of salary reductions via a template contract amendment document prepared by MHRE for this purpose).
In the meantime, where salaries will be reduced with employees’ consent, there are no specific formal steps that would need to be taken save for obtaining consent in writing. Practical guidance for obtaining consent is set out below.
The other practical consideration that employers should be aware of is the Wage Protection System, which monitors the monthly payroll of employees employed by onshore UAE entities and entities established within certain free zones. If employers operating within these areas reduce salaries without notifying the WPS, this could trigger a breach of the WPS, which will then result in operational and financial penalties. Therefore, we recommend that the WPS is notified of any such changes.
Employee consent is required — how should this process be handled in practice?
Unlike in some international jurisdictions, there is no official consultation process. However, given the need to secure consent, a form of consultation is likely to be necessary in order to explain the situation to employees and provide them with the opportunity to pose any questions they may have.
Practically speaking, during historic economic downturns, many employers have opted to hold “town hall” meetings in order to relay the company’s plan and enlist employee support, and thereafter circulate a document for employees to sign and return in order to acknowledge their consent to the reduction. Whilst there is no reason why an employer could not simply issue a written communication in the first instance, many employers adopt a “human communication” approach, as this is generally perceived as being favourable from an employee relations perspective. If headcount and resources allow, some employers may also wish to consider scheduling one-on-one meetings with impacted employees in order to rationalise the request and provide employees with the opportunity to raise questions.
The written consent may be given either via wet ink or electronically. However, as above, employers should be mindful of any specific requirements that MHRE may introduce.
If employees do not agree to a salary reduction, what options do they have?
Where an employee will not agree to a salary reduction, the options available to employers are as follows:
- Apply the salary reduction anyway. This approach is not recommended due to the fact that it would constitute both a breach of contract and a breach of the employer’s obligations under the Labour Law. The potential consequences here would be:
– Employees may file complaints with MHRE. If MHRE (or, if the complaint is referred, to the courts) upholds the complaint, the employer may be ordered to release the shortfall to the employee. Employees would have two years from the date on which their employment terminates in order to claim any unpaid salary, meaning that this risk would remain “live” for a significant period;
– Employees may resign, citing breach of contract / constructive dismissal. As well as creating the risk of employees filing claims in respect of the salary shortfall, resignation would crystallise employees’ termination payment entitlements (such as end of service gratuity), thereby creating immediate financial liability for the employer;
– From an employee relations perspective, this approach may create discontent amongst the workforce and impact on performance; and
– Companies that are required to pay salaries via the UAE’s Wage Protection System (WPS) may become non-compliant with their WPS obligations. This may result in a company’s portal becoming blocked, which is likely to cause operational difficulties (for example, applying for visas). - Restructure and / or terminate employment. Whilst we would recommend that an employer considering this option obtains legal advice, in theory, termination would be relatively low risk on the strict condition that the employee has not already filed a complaint with the concerned authorities. Where a complaint has already been filed, there is a risk that the termination would be deemed unlawful by the courts and the employee awarded compensation (up to a maximum of three months’ full salary). Employers should also be mindful of additional liabilities that are likely to be created by termination (i.e. termination will trigger an employer’s obligation to pay out termination dues such as end of service gratuity). Subsequently, employers will need to weigh the long-term cost-saving objective of reducing salaries against the immediate liability that termination is likely to create.
- Consider alternate means of cost reduction. Specifically, employers may consider:
– Placing employees on a period of unpaid leave. However, given that this also requires employee consent at present, it is possible that an employer will encounter the same employee resistance; or
– Instructing employees to use their paid annual leave. Whilst this is still such that salary would remain payable in full, it would allow the employer to schedule employee absence so that leave is used during commercially quieter periods, meaning that employee availability would be guaranteed as and when business begins to recover. As per the Labour Law, employers may “fix” the dates on which employees must use their annual leave, provided that they notify the employee no less than one month in advance.
From an employer perspective, what is the correct legal process to implement such changes?
In terms of unpaid leave, the only requirement is that employees’ consent is obtained in writing. Again, there is no legal consultation process that must be followed. However, employers should ideally adopt the most employee-friendly approach possible, both from a humanitarian perspective and in order to optimise the prospect of obtaining consent.
Where employees are required to use their paid leave balance, any form of written communication will satisfy legal requirements, provided that it is issued no less than one month in advance of the leave date.
If an employer chooses to reduce headcount, again, the sole requirement is that each impacted employee is notified of their termination in writing. Where employers are considering redundancies as an option, we strongly recommend that they seek legal advice.
Do you see a real risk of salary adjustments in the current environment, and how should employees prepare?
It is inevitable that the current geopolitical situation will create economic disruption in the region due to interruption to key industries and investor uncertainty. Whilst it remains to be seen whether salary adjustments will be endorsed or supported by MHRE, many businesses are making cost-reduction contingency plans in anticipation of a downturn. In light of this, employees may wish to consider:
- upskilling in critical functions to reduce the prospect of being impacted by headcount reduction (for example, AI, cloud, cybersecurity, data);
- familiarising themselves with company benefit policies in the expectation that the company may well exercise any discretion it has in terms of paying out additional benefits and/or bonuses;
- preparing for the fact that increments may be deferred; and
- avoiding entering into long-term financial commitments during this time of economic uncertainty.
How might this situation impact the broader job market and recruitment trends, particularly given recent salary stagnation?
Hiring and recruitment trends are likely to vary sector by sector. In vulnerable industries such as tourism and hospitality, logistics, and oil and gas, we would expect hiring freezes, whereas sectors such as technology, cybersecurity, and healthcare remain relatively resilient due to ongoing digital transformation, security needs, and essential service demand. It is therefore possible that these areas will experience growth and will thus enter into a phase of increased recruitment.
That said, businesses’ manpower requirements will also be impacted by trends in workforce behaviour. Where a large number of foreign workers opt to repatriate and create high staff turnover, the need to fill vacancies may result in increased competition amongst businesses, particularly in locally stable sectors.
Whilst we would expect many industries to focus on stability rather than expansion in the current climate, we anticipate an increase in the following trends:
- “remote” roles;
- core functions being moved offshore;
- reduction in niche or non-essential roles;
- hybrid job descriptions; and
- preference for candidates with cross-disciplinary skills.
How does the current legal framework compare to the Covid period, when temporary measures were introduced — and do you expect any regulatory flexibility if conditions worsen?
During the COVID-19 pandemic, a circular was issued which authorised employers to take certain actions in order to reduce workforce-related costs during the period of economic turndown. Measures included the option of reducing salaries, placing employees on unpaid leave, and a more employer-friendly termination regime. Whilst both salary reduction and unpaid leave still required employee consent, the introduction of the legislation served to clearly communicate to employees that the authorities were mindful of the pandemic’s impact on business, and were prepared to support employers in identifying ways to reduce costs and ultimately increase the prospect of the company surviving.
Whilst it is certainly possible that the authorities will demonstrate the same commercial empathy during this particular period of economic disruption, certain evolutions within the field of employment law since the pandemic are such that temporary legislation may not be necessary. Specifically:
- The overhaul of the Labour Law in 2022 (i.e. UAE Federal Law Number 8 of 1980 being repealed in favour of UAE Federal Decree Law Number 33 of 2021 (as amended)) relaxed termination rules. Although the law still does not go so far as to include a specific redundancy framework, the removal of the concept of arbitrary dismissal from the law is such that termination with notice is now far lower risk than it was during the pandemic. Given that employers now have greater flexibility to rely on the Labour Law’s termination provisions in order to restructure their workforce or reduce headcount, MHRE may take the view that supplementary legislation is not necessary; and
- Given that the pandemic was unprecedented, businesses were poorly equipped to adapt. Now, however, the prevalence of remote working both regionally and internationally is such that employers are better placed to transition to remote working at short notice. Whilst this would not necessarily be an effective means of cost saving in light of the economic impact of the geopolitical situation, it certainly puts businesses in a stronger operational position when factors such as government-issued security alerts disrupt physical workplace attendance.