Employment issues in M&A transactions in United Arab Emirates

1. Check whether:

• the visa status of all employees transferring with the target company and check all visas are sponsored by the target company or otherwise in compliance with immigration and regulatory requirements; 
• any special rights or bonus provisions awarded to any employees, including whether any individual employees or groups of employees enjoy special rights as a result of the share deal which may be set out in an individual employment contract, internal regulation of the target, etc. Such rights may include additional entitlements in the event of a share sale etc.; 
• whether the target company has any UAE or GCC national employees and pensions liabilities and compliance in relation to them; 
• the accrued end of service gratuity amounts for all expatriate employees, how they are accounted for in the target company’s books (ensure that they are actually accrued for) and the arrangements for paying out the entitlements;  
• any risks identified during the due diligence process carried out on the target company, e.g. any pending employment-related litigation, any recently terminated employees, etc.; 
• the location from which employees operate i.e. the licensed business premises, overseas or elsewhere; 
• whether the employees will continue to work from the same office space or will be moving to different offices (e.g. existing premises of the purchaser). If the employees are to move to a different office on a permanent basis, their existing visas may require termination and a new visa taken out, sponsored by the entity that owns/leases the new office location. If so, the steps set out in Section B – Asset Deal will need to be followed in respect of such employees; 
• whether there are any consultants, freelancers, de facto employees, etc. employed by the target. 

2. Prepare the following in draft form:

• a letter to employees confirming the transfer of the target company and that their employment conditions will not be changed; OR  
• a letter to employees confirming the transfer of the target company and stating which of their employment conditions will be changed following the share sale.  
• Note there is no specific requirement to prepare these letters, unless otherwise specified in any employment contracts or where any employment terms will be amended to the detriment of the employee (see section 3. below).

3. Inform / Notify

• There is no requirement to inform or notify employees, unless expressly set out in an employment contract.  
• If any detrimental changes will be made to the terms of employment, these must be set out in writing and counter-signed by the employee prior to being implemented.  

4. Consult

• The purchaser is not obliged to consult with the employees of the target company unless expressly set out in an employment contract. 

5. Implement

• Closing formalities with regard to filing documents relating to the purchaser with the relevant authorities for the share transfer to be registered with the authorities. There are no specific employment formalities unless employees are being laid off as part of the transaction. Formalities will depend on the relevant governing authority and should be checked specifically with the authority.

1. Check whether:

• there are any employees working for the target who do not have their visas sponsored by the target or are working on a consultancy basis; 
• any individual employees or groups of employees enjoy special rights as a result of the share deal which may be set out in an individual employment contract, internal regulation of the target, etc. Such rights may include additional entitlements in the event of a share sale etc.;

2. Prepare the following in draft form:

There are no specific documents to be prepared, although the purchaser may require the target to assist in preparing the letters stated under the obligations of the purchaser section above in draft form: 

• a letter to employees confirming the transfer of the target company and that their employment conditions will not be changed; OR  
• a letter to employees stating which of their employment conditions will be changed following the share sale.

3. Inform / Notify

• There are no specific requirements to inform/notify employees unless expressly set out in an employment contract. This is at the target company’s discretion. 

4. Consult

• There are no specific requirements to inform/notify employees unless expressly set out in an employment contract..

5. Implement

• Closing formalities with regard to filing documents relating to the purchaser with the relevant authorities for the share transfer to be registered with the authorities. There are no specific employment formalities unless employees are being laid off as part of the transaction. Formalities will depend on the relevant governing authority and should be checked specifically with the authority.

1. Check whether:

• whether one or more employees will be transferred to the purchaser of the assets as a result of the contemplated transfer; 
• the visa status of all employees transferring to the purchaser; 
• whether the transferring employees include any UAE or GCC nationals; 
• the notice periods of the employees to be transferred;  
• the accrued end of service gratuity entitlements in respect of employees to be terminated or transferred as a result of the asset transfer (if lawfully possible) and whether transferring employees want to be paid their entitlement upon transfer or roll it over to the new employer; 
• there are any risks identified during the due diligence process carried out, e.g. any pending employment-related litigation, any recently terminated employees; 
• there are any requirements set out in the employee’s employment contracts in respect of their right to be informed/notified which need to be followed. 
   

2. Prepare the following in draft form:

• letters setting out the procedure for the payment of termination benefits and the process for cancelling existing visas and processing new visas for each employee, including the submission of documents and the attendance at medical examinations; 
• calculations for full termination payments due to each employee upon termination of their existing visas; 
• a timetable for the cancellation of employee visas; 

3. Inform / Notify

• The employees will need to be informed of the sale and the requirement to cancel their existing visas, process new visas and enter into new employment contracts with the purchaser. This process will need to be managed between the seller and purchaser.

4. Consult

• There are no specific consultation obligations, unless expressly set out in an employment contract. The employees will need to expressly agree in writing to the terms of their new employment contracts.

5. Implement

• There is no automatic transfer of employees in an asset sale. Therefore, each employee’s existing employment agreement and visa needs to be cancelled and new visas entered into with the purchaser as the sponsoring entity. New employment contracts will also need to be entered into with the purchaser/new sponsoring entity.  
• The cancellation of the employee’s existing employment contract and visa will also require statutory termination payments, which include pay in lieu of notice (if applicable), payment for accrued but untaken annual leave days and payment of end of service gratuity (if it cannot be transferred). End of service gratuity is payable for all employees with over one year of continuous service at a rate of 21 days’ basic pay for the first five years of employment, and 30 days’ basic pay for each year thereafter. Alternatively, the purchaser may assume these liabilities in respect of the employees – in which case both the relevant authority and the employees will have to agree to the carrying over of these liabilities to the purchaser.  
• If an employee does not wish to transfer to the purchaser and cannot be redeployed by the seller, their employment can be terminated. The employee will be entitled to the termination payments listed above and may also possibly claim for “arbitrary” dismissal (as there is no formally recognised concept of redundancy in the UAE), which is an amount of up to three months’ full pay.  
• The file and information data of every transferred employee must be handed over to the purchaser.

1. Check whether:

• whether employees are to be transferred to the purchaser of the assets as a result of the transfer. It is also important to identify the payment scheme applicable to these employees, including basic remuneration, any additional allowances, bonuses, payments and other incentives, labour regulations, holiday entitlements, etc., as well as to check whether any outstanding liabilities exist towards employees; 
•  the nationalities of transferring employees, in particular whether there are any UAE or GCC nationals and the pensions and other special arrangements in respect thereof; 
• the accrued end of service gratuity amounts for all employees transferring with the business and the amount of accrued but untaken annual leave days taken for all transferring employees for the two-year period prior to the date of cancellation of their visa; 
  the notice periods for any transferring employees;  
• any risks identified during the due diligence process of the target, e.g. any pending employment-related litigation;  
• whether there are any requirements to inform, notify or consult with employees regarding any asset sale set out in their employment contracts or other supporting documents

2. Prepare the following in draft form:

• if not prepared by the seller, letters setting out the payment of termination benefits and the process for cancelling existing visas and processing new visas for each employee, including the submission of documents; 
• new employment contracts with the purchaser for all employees;  

3. Inform / Notify

• Employees must be notified of the cancellation of their visa, and if they are to work their notice periods (rather than being paid in lieu), they should be given equivalent notice. It is preferential for this to be done in writing (and this is compulsory for certain authorities, such as the DIFC). 

• Any requirements set out in the employee’s employment contracts in respect of their right to be informed/notified should be followed. 
• Employees should be notified of the dates when their visas will be processed and asked not to book annual leave/travel outside the country during this time.  
   

4. Consult

• No formal consultation periods are required, unless set out in the employee’s employment contracts.

5. Implement

• The same rules for implementation apply as set out for the purchaser above.  
• Termination payments should be made in advance of the employee visa-cancellation process, as employees will be required to sign a form confirming they have received all sums owed to them before terminating their visas.  

1. Check whether:

If the existing trade licence which sponsors the employees remains in place, and the employees will continue to work from the same office, the steps, rules, and regulations applicable to a merger transaction are similar to Section A. - Share Deal above.  

If the existing trade licence which sponsors the employees is to be terminated, or the employees moved to a new trade licence as a result of the merger, the steps, rules and regulations applicable to a merger transaction set out in Section B – Asset Deal above apply. 

In addition, it is advisable for the buyer/merging parties to verify in advance if: 

• any outstanding liabilities exist towards employees of the merging (absorbed) entity, which will be transmitted to the new/ surviving entity; 
• employees enjoy particular status, in as much detail as possible, including the content of employment contracts, holiday and payment entitlements, any other special rights provided for in the individual employment contracts and internal regulations, as well as the extent to which these will be transferred to the new/surviving entity;  
• any changes will be made to the existing employment contracts, and whether these are beneficial or detrimental to the employees – to the extent these are detrimental, the employees will have to agree in writing to these changes; 
• if the employees are to be moved to a new trade licence, the position which should be taken in respect of any termination payments (in particular, end of service gratuity) should be agreed. 

2. Prepare the following in draft form:

• Not applicable.

3. Inform / Notify

•  Not applicable.

4. Consult

• Not applicable.

5. Implement

• Not applicable.