Severance Pay Agreement Template for the United Arab Emirates

A Severance Pay Agreement is a crucial legal document that formalizes the terms of an employee's departure and compensation package under United Arab Emirates law. This binding contract protects both employer and employee by clearly outlining end-of-service benefits, outstanding entitlements, and termination conditions in accordance with UAE Federal Decree-Law No. 33 of 2021.

When do you need this document?

You need a Severance Pay Agreement when terminating employment relationships involving complex compensation packages or senior positions. This document is essential for voluntary resignations where additional benefits are offered, mutual termination agreements, redundancy situations requiring enhanced packages, or any termination involving disputes over entitlements. Companies operating across mainland UAE, DIFC, or ADGM jurisdictions particularly benefit from this agreement to ensure compliance with varying regulatory requirements. The document becomes critical when dealing with long-serving employees entitled to substantial gratuity payments or executives with contractual severance provisions.

Key legal considerations

Your agreement must accurately calculate end-of-service gratuity based on the employee's final basic salary and length of service under UAE law. Include provisions for outstanding annual leave, notice period payments, and any contractual benefits like housing or transportation allowances. Address confidentiality obligations, non-compete restrictions where legally enforceable, and return of company property. Ensure the agreement clearly states that all payments represent full and final settlement to prevent future claims. Consider tax implications and payment methods, particularly for large sums that may require structured payments. Include dispute resolution mechanisms and specify which UAE courts or arbitration bodies have jurisdiction over any conflicts.

Legal requirements in United Arab Emirates

UAE Federal Decree-Law No. 33 of 2021 mandates specific calculations for end-of-service gratuity: 21 days' basic salary for each year of service for the first five years, then 30 days for each subsequent year. Ensure your agreement complies with minimum notice periods and prohibits deductions that violate labor law protections. For DIFC entities, follow DIFC Law No. 2 of 2019 requirements, which may differ from mainland provisions. ADGM companies must adhere to ADGM Employment Regulations 2019 for employees within the free zone. The agreement requires proper execution with authorized signatories and may need Ministry of Human Resources and Emiratisation notification depending on the circumstances. Document all calculations transparently and maintain records for potential labor inspection or dispute resolution proceedings.