Business transfers and protected employees in the United Arab Emirates
Reviewed by Mellow Editorial Team, HR & payroll content team
When a business transfers to a new owner in the UAE, employees do not automatically lose their jobs or accumulated entitlements — but the rules depend on how the transfer is structured and what the parties agree. This article explains the core framework so you can plan a transfer without leaving yourself or your staff exposed.
What counts as a business transfer
A business transfer — sometimes called a business sale or an asset deal — happens when ownership of a going concern moves from one legal entity to another. This is distinct from a share transfer, where the company itself changes hands but the employing entity remains the same.
In a share transfer, employment contracts are technically unaffected: the employer of record does not change. In an asset or business transfer, the employing entity does change, and that triggers specific obligations under UAE labour law, primarily Federal Decree-Law No. 33/2021 (the Labour Law).
Continuity of employment and the Labour Law
The UAE Labour Law recognises the concept of business succession. Article 9 of Federal Decree-Law No. 33/2021 provides that when a business is transferred — whether by sale, merger, inheritance or any other reason — employment contracts transfer with it. The new employer steps into the shoes of the former employer for all purposes under those contracts.
Critically, the period of service with the original employer counts towards the employee's total service. This matters most for two entitlements:
End-of-service gratuity. Gratuity accrues throughout continuous service. The employee is entitled to 21 days' basic wage per year of service for the first five years, and 30 days' per year for each year beyond that, capped at two years' total pay. If service is genuinely continuous across the transfer, that continuity is preserved — the clock does not reset.
Annual leave. Employees become entitled to 30 calendar days' annual leave per year after completing one year of service. Again, years of service carry over.
What "protected" means in practice
In most common-law jurisdictions, "protected employees" is a term of art describing workers who cannot be dismissed by reason of the transfer alone. UAE law takes a similar position in substance, even if the terminology differs.
Dismissing an employee solely because a business transfer is taking place is not a legitimate ground for termination under the Labour Law. If an employer — old or new — terminates an employee in connection with a transfer without a valid reason under Article 42 (lawful termination grounds), the employee may be entitled to arbitrary dismissal compensation of up to three months' basic wage, in addition to their full gratuity and any other outstanding entitlements.
This means buyers need to be careful. Taking on a business with the intention of immediately replacing its workforce to avoid inherited obligations is not a clean strategy. The liabilities travel with the people.
GPSSA and pension obligations
For UAE and GCC national employees, pension enrolment under the General Pension and Social Security Authority (GPSSA) must continue uninterrupted. Both employer and employee make contributions. A business transfer does not suspend this obligation — the new employer must continue contributions from the date the transfer takes effect and register accordingly.
Expatriate employees are not enrolled in GPSSA. Their protection on transfer is the gratuity accrual described above, plus whatever contractual terms they hold.
Wage Protection System compliance
Salary payments must continue through the Wage Protection System (WPS) without a break. A transfer does not excuse delayed or missed WPS payments. If the new employer is not yet registered on WPS, that registration needs to happen before the transfer completes — not after. Payroll continuity gaps attract Ministry of Human Resources and Emiratisation (MOHRE) penalties and can trigger automatic suspension of work permit services.
Practical steps before a transfer completes
Before you sign, carry out a thorough employment due diligence review. Map every employee's start date, current basic wage, accrued leave balance and approximate gratuity liability. These figures form part of your acquisition cost.
Agree in the sale agreement who bears gratuity accrued up to the transfer date — the seller, the buyer, or a split arrangement. If the buyer assumes the liability, the price should reflect it. Some deals are structured so the seller settles gratuity at the transfer date and the buyer starts fresh; that approach is permissible if the employee formally agrees, receives their settlement and signs a new contract.
Employees should be notified of the transfer and provided with new contracts or written confirmation that their existing terms are preserved. While UAE law does not prescribe a specific consultation period analogous to the UK's TUPE process, failing to communicate clearly creates disputes that cost more to resolve than they cost to prevent.
Finally, update MOHRE records, WPS registrations and — where applicable — free zone authority registrations to reflect the new employing entity before day one of operations under new ownership.
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