What Impact Does an Asset Sale and Share Sale Have on Employees in the UAE?

​There are no transfer regulations in the United Arab Emirates (UAE); therefore, employees do not automatically transfer to a buyer on an asset sale.

To transfer employee(s) from the seller to the buyer upon an asset sale, employment with the seller (the outgoing employer) will need to be terminated and the employees will have to enter into a new employment contract with the buyer (the incoming employer), provided that the buyer wishes to rehire the seller's employees.

Employees who are not UAE or Gulf Cooperation Council (GCC) nationals require a residence visa and employment work permit to live and work in the UAE. (UAE and GCC nationals require only a work permit.) Both UAE residence visas and work permits are employer-specific, therefore, an employee can work only for the sponsoring employer. Accordingly, the seller will usually also need to cancel the relevant employee(s) residence visa and employment work permit (provided that the employee(s) are sponsored by the seller), and the buyer will need to apply for new residence visas and employment work permits.

Information or Consultation

Unlike in other jurisdictions, there are no information or consultation requirements under UAE labor law, therefore, there is no statutory requirement to inform and consult the affected employees about a proposed transfer before it takes effect. That said, the transferring employees will need to actively cooperate and consent to the transfer of employment, and accordingly, as best practice, the seller should discuss the proposed arrangements with the affected employees in advance to help secure the employees' cooperation and ensure a smooth implementation of the transfer.

Employee Entitlements

On termination of employment, an employee will be entitled to all accrued termination entitlements (including end of service gratuity) in accordance with the UAE labor law irrespective of whether or not an employee transfers to the buyer. That said, the parties (that is, the seller, the buyer and each affected employee) could agree to have all entitlements rolled over and assigned to the incoming employer. If this is agreed, the buyer could request that the sale price be adjusted to account for the employee-accrued entitlements that it will assume.

If the employee(s) do not consent to the transfer, their employment would terminate on the transfer date. While the concept of "redundancy" is recognized under the UAE labor law, an employer's ability to rely on a redundancy termination is limited to the following circumstances:

• Issuance of a court order confirming that the employer is bankrupt or insolvent, or
• The issuance of a decision by the applicable UAE authorities confirming that the employer is unable to continue its activity for any exceptional economic reasons beyond its control.

Accordingly, if the seller is unable to rely on redundancy as the reason for the termination and the employees do not consent to the transfer that results in their dismissal, the dismissal could be susceptible to challenge as being unfair.

Share Sale

In a share sale, the buyer acquires all liabilities of the seller and there is no change in the employer. Accordingly, in a share sale, an employee's employment contract will remain the same (unless agreed otherwise) and the transaction will not affect the employee's residence visa or employment work permit.

As with an asset sale, there is no statutory obligation to inform or consult employees on a proposed share sale.

In circumstances where the employer wishes to terminate the employment contract of an employee that it has inherited, it must implement the normal procedure in accordance with the UAE labor law.

Kristina Broci is an attorney with Taylor Wessing in Dubai, UAE. © 2022 Taylor Wessing. All rights reserved. Reposted with permission of Lexology.