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Common Legal Queries in the UAE

News / / Common Legal Queries in the UAE

Aside from the impact of Covid-19 and its legal implications, we have been asked several legal questions during the first three months of this year related to employment or banking operations. In these questions and answers, we will focus on the rights granted to the employer to compel the employee to take paid leave and the remuneration to be paid to the employee during such leave. On the banking side, we will tackle issues related to the termination of a credit agreement for an indefinite period, the right for the bank to refuse payment of an unconditional guarantee, and the time bar granted to a creditor in order to claim his debt and to benefit from the surety issued in his favour.

1) Is the employer entitled to “force” an employee to take his leave? 

Article 76 of the UAE Labour Law states: 

“The employer may fix the date of commencement of annual leave and, if necessary, divide such leave into no more than two periods. However, the leave division shall not apply to leaves of juvenile workers”.  

We understand from Article 76 that an employer may compel one or more of its employees to take their annual leave at a given date or to divide the annual leave into two periods. 
Therefore, unless the employment contract provides otherwise, if the employer requests that its employees take their annual leave at a certain date, then such decision should be legally valid and the employee should abide by such request.  

Due to the Covid-19 pandemic, Ministerial Resolution No. 279 of 2020 was issued on 26 March 2020 whereby employer can take certain preventive measures, including but not limited to, agreeing with the employee on the employee taking a paid leave. 

We note that this Ministerial Resolution requests that the employer obtains the approval of the employee which in a way contradicts the strict application of article 76 of the UAE labor law. 
The reason for the same, may be that it is not the best time for an employee to take his leave since he would be confined to staying home and hence his approval should be sought for such leave. 

Anyhow, the Ministerial Resolution may be valid for an interim period and may then be cancelled once the pandemic is over. It should also be noted that from a legal perspective the provisions of the labor law should supersede the provisions of the Ministerial Resolution.

2) What is the amount that the employer should pay to the employee during his paid leave?

Article 78 of the UAE Labour Law states: 

“Each worker shall receive his basic wage together with the housing allowance, if applicable, in respect of his annual leave…”. 

Based on article 78 of the UAE Labour Law, unless the employment contract states otherwise, the employer is only required to pay the basic salary and housing allowance to an employee during the employee’s annual leave. 

Therefore, any other monthly payments that the employee may receive (e.g., transport allowance, food allowance, phone allowance etc.) may not be paid by the employer when the employee is taking his annual leave. 

3) Can a bank refuse to pay an unconditional and irrevocable letter of guarantee?

Article 417 of the UAE Commercial Transactions Law states: 

“The bank may not refuse payment to the beneficiary on grounds concerning the bank’s relationship with the person making the order or the relationship of the latter with the beneficiary.

In exceptional cases, the court may at the request of the person making the order, levy seizure on the guarantee amount with the bank, provided that the person making the order relies for his claim on serious and sure grounds.”   

It appears from this article that the bank is not allowed to refrain from paying the guarantee amount. However, it may be possible for the person making the order (i.e., the person that requested the issuance of the guarantee) to file a case before the competent court requesting to seize the guarantee amount with the bank. Such request should be based on serious and sure grounds. The law does not state what constitute serious and sure grounds. The Dubai Courts have in certain instances levied seizure in certain construction matters. In our view, it may be argued that the pandemic caused by Covid- 19 may be considered a serious ground and hence the person making the order may benefit from such situation and request the court to levy seizure on the guarantee amount thereby allowing the bank not to disburse money under the guarantee.  

4) Can a contract for an opening of credit be cancelled at any time?

Paragraph 1 of Article 422 of the UAE Commercial Transactions Law states: 

“Where the credit is opened for an indefinite term, the bank may at any time cancel it, provided notice of cancellation is sent to the beneficiary at least 30 days before the date set for the cancellation. Any agreement which vests the bank with a right to cancel an indefinite term credit without need for notice or on shorter notice than that specified above shall be null and void”.  

It is standard in credit agreements for an indefinite period to include a clause vesting the bank with the power to cancel such agreement at any time, even without the need to send a notice. Such clauses should be carefully reviewed as the beneficiary may challenge them and a UAE court can declare them as void and null. Therefore, if the bank cancels such a credit agreement by not sending a notice or by sending less than 30 days’ notice, the beneficiary may challenge such termination and claim compensation accordingly. 

5) When should a creditor/beneficiary claim payment of a debt to avoid the cancellation of a surety?

Article 1092 of the UAE Civil Transactions Law states: 

“If a debt is due, the creditor must claim for it within 6 months from the day on which it fell due, otherwise the surety shall be deemed to have been discharged.”

As per Article 1092, it is very clear that the beneficiary/creditor should claim his debt within 6 months from when it is due, otherwise the surety (guarantor) will be discharged and the creditor would not be able to bring a case against the guarantor. 

There is a debate whether the time bar of 6 months also applies to debts that are secured by a commercial guarantee. The courts in Abu Dhabi and Dubai have had different views. The Abu Dhabi courts restricted the interpretation of article 1092 to civil guarantees and accordingly a creditor benefiting from a commercial guarantee can still claim payment of the same even if he claimed the original debts after 6 months from them falling due. The Dubai courts have stated that the time limitation of 6 months applies to all types of guarantees, whether civil or commercial. 

It should also be noted that the 6 months period is not a matter of public policy and the guarantor may waive such requirement. Therefore, if the surety states that the guarantor waives his right under article 1092, then the six months time bar should not apply.  

Charbel Fadel

Charbel Fadel Legal Director

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