Insolvent Company in UAE: What Can Employees Do About Unpaid Salaries and Benefits?

All you HR bigwigs and Payroll Administrators out there! Roll up your sleeves and let's have a discussion. If an insolvent business cannot afford to pay employees their arrears of salary, redundancy payments, leave encashments, etc., what is the next step for the employee to take, and to whom should he be looking for help in this regard? And we are talking about companies based in the UAE!

Waiting to hear from you.

Umm, interesting post, Sajid.

Businesses are failing. It can be a very rough and unfair world.

Right now, there is a domino effect in play, and I'm afraid there are going to be more stories like these. Lots of businesses are going to shut down.

I'm seeing some big wheeler-dealers who are going to be lucky to get out of this situation. Generally, one could amicably talk to the company and try to ensure that basic amounts are paid. Apart from this, they could go to the labor office (which, then again, takes quite a while) and complain about the non-fairness of the company to comply with payment of salaries to staff... Here again, I don't know whether they will get paid.

Some companies today are giving their employees floating holidays where they go for a period from 1-6 months and are given one month's salary for that.

Others are paying them only for the current month, giving them a ticket to go back to their home country, or giving them 2 months to change jobs and get a NOC.

In these times, the lawyers are the ones that are doing excellent business, with companies either going into liquidation, filing cases of bankruptcy, or filing cases on others for payment of their dues.

Either of the alternatives, people are going to get worried and frustrated if none of the above works... Even if it does, what about most of the people here with loans, commitments, other mortgages... What will they do, and how will they survive?

Families now, even middle-class, are approaching charity or welfare organizations for help... Sometimes even going to the consulate... But then again, it's only moral support they receive out there... They cannot be helped in monetary terms...

It's going to take another 2-3 quarters more for things to start brightening once again. Until then, I fear that things are going to worsen.

Sandeep

The redundancy payment due to each employee under the statutory redundancy payment scheme depends on his or her age and length of service (up to twenty years). This determines the number of weeks' pay due, which is then subject to a limit on weekly pay. The statutory redundancy payment is a lump-sum payment based on the pay of the employee. All eligible employees are entitled to:

- Two weeks' pay (subject to a maximum of €600 per week or €31,200 per year) for every year of service over the age of 16 and
- One further week's pay

Pay refers to your current normal weekly pay including average regular overtime and benefits-in-kind, but before tax and PRSI deductions, that is your gross pay.

With regard to the first post, the same is happening in our company. We started a pizza outlet and takeaway shop. We took over the business from a failing owner. Then, six to seven months into the business, we had to borrow money from other sources to cover the payroll burdens. Eventually, the company accumulated outstanding salaries that were not paid, compounded with current payroll burdens.

Workforce Reduction and Redundancy Packages

However, the general manager decided to reduce the workforce and made six (6) workers redundant, each of whom had worked in the company for less than a year. Their redundancy packages included one advance salary based on basic pay, leave days, and whatever remained from back pays. However, these payments were not made simultaneously due to the economic reasons the company was facing. Some workers immediately and amicably approached the company to ensure that the basic amounts were paid. For those who needed money to address other immediate commitments at home, payments were made as per demand, of course, on an equitable basis.

Company's Handling of Payroll Issues

Is it acceptable for the company to have handled the above matters as described? The company eventually cleared all the payroll burdens for both the workers who left and those who were made redundant.

Dear members,

Originally, the thread was raised in 2009 by a member who worked in the UAE. With the latest reply from the member from Zambia, it has been revived.

Notice Period and Redundancy Pay in India

In India, at the time of issuing the appointment letter, the terms of separation are defined. In case an employee is required to be removed, he/she is given a notice for 1-2 months. Sometimes, employers pay in lieu of the notice period. Therefore, what is referred to in the thread as "redundancy pay" is referred to as "notice period pay" in India.

Retrenchment and the Industrial Dispute Act

If the workers are required to be removed en masse, then it is called retrenchment. The Industrial Dispute Act of 1947 has defined what retrenchment is and the procedure to execute it.

Management Science Perspective on Insolvency

However, the above discussion was only with respect to the law. From a management science point of view, insolvency in business is a failure of the business strategy, business planning, etc. An enterprise has to pass through rough weather; however, what have the owners done to anticipate the risks? Certain risks can be averted, some risks cannot be averted but mitigated, and going further, some risks can neither be averted nor mitigated, but we have to just respond to the risks.

Most of the time, corporate decline is a result of strategic failure. If the strategic plan is well in place, if the tools of the strategy are used properly, then it is possible to avoid workers' redundancy and payment to them!

Thanks,

Dinesh Divekar