Golden Handshakes and Severance Pay Explained in the UAE: Essential Facts You Should Understand
Golden Handshakes in UAE Employment Contracts: What You Need to Know
A "golden handshake" is a negotiated severance package that offers more generous compensation than the standard severance pay. While this term may not be explicitly mentioned in UAE labor law, it is possible to include such a clause in an employment contract as long as it complies with the UAE's legal framework on employment contracts.
To be legally binding, a golden handshake clause must meet certain criteria:
- The terms of the golden handshake must be explicitly included in the employment contract or a mutually agreed supplementary agreement.
- The payment and conditions must comply with UAE Federal Decree Law No. 33 of 2021 on the regulation of labor relations (the new UAE Labour Law), which governs severance entitlements and termination procedures.
- The severance amount and conditions must not violate mandatory UAE labor provisions, such as the rules on end-of-service benefits, notice periods, or fair termination principles.
- Both parties must consent to the clause at the time of contract formation or through a formal amendment.
If these criteria are met, the golden handshake clause will be binding and can provide legally enforceable financial and other benefits upon termination. However, if the clause conflicts with UAE labor law protections for employees or was included without clear mutual agreement, its enforceability could be challenged.
It's important to note that employees in the UAE are entitled to severance pay even if it is not explicitly mentioned in their contract. According to Article 51(2) of the Federal Decree Law No. 33 of 2021, employees who complete at least one year of continuous service are entitled to severance pay upon the end of their employment. The severance pay is calculated based on the employee's basic salary: 21 days of salary for each year of service during the first five years, and 30 days of salary for each year of service after the first five years.
Employers in the UAE can offer more favorable terms beyond the statutory minimum, including a golden handshake clause, as outlined in Article 65(1) of the UAE Employment Law. However, the standard employment contract template provided by the Ministry of Human Resources & Emiratisation (MoHRE) does not typically include a "golden handshake" clause.
Given the complexities surrounding golden handshakes in UAE employment contracts, it is advisable to consult with a legal professional familiar with UAE employment laws to ensure your rights are fully protected. Both the UAE Employment Law and the Civil Transactions Law protect employee rights, including those related to severance pay.
Relevant laws regarding employment contracts in the UAE include UAE's Federal Decree Law No. 33 of 2021 Regarding the Regulation of Employment Relationships and Cabinet Resolution No. 1 of 2022 on the Implementation of Federal Decree-Law No. 33 of 2021 Regarding the Regulation of Employment Relations. Additionally, Federal Law No. (5) of 1985 On the Civil Transactions Law of the United Arab Emirates is another applicable law in the context of employment contracts.
In conclusion, while a golden handshake is not a standard inclusion in the contract template provided by MoHRE, it can be included in an employment contract in the UAE as long as it is explicitly agreed upon, complies with labor law, and is clearly drafted to avoid conflicts with statutory employee rights.
In the context of UAE employment contracts, a golden handshake, which is a more generous severance package, can be included as a clause as long as it follows the legal framework on employment contracts and does not violate any UAE labor provisions. This clause, if binding, can provide financial and other benefits upon termination.
Businesses in the UAE can offer a golden handshake as an additional term beyond the statutory minimum severance pay, but it's crucial to ensure such a clause meets the necessary criteria to be legally binding and complies with UAE employment and civil transaction laws.
