Employees face the possibility of losing priority over their entitlements

Employee welfare and rights have always been a top priority for UAE legislators. This has been the case since the implementation of the UAE Labour Law, which has seen several amendments and finally a repeal. Specifically, legislators have consistently ensured that the employees’ entitlements and benefits sought from the employer, take priority over other creditors of the employer. 

This added layer of protection afforded to employees almost always guarantees that employees receive their full rights and entitlements through executing a judgment against their employer. Article 65(7) of Law No. 32 for the year 2021 also known as the Employment Law states the following:

“The amounts due to the Worker or his family members under the provisions of this Decree-Law shall have a priority over all the funds of the Employer, and they shall be collected directly after the amounts due to the public treasury and the legal alimony awarded to the wife and children.”

Movables Law
While employees had this special protection in relation to obtaining their entitlements prior to any other creditors, we have seen this additional layer of protection being subject to compromise by Law No. 4 for the year 2020 also known as Guaranteeing Rights Related to Movables (hereinafter referred to as “Movables Law”). The Movables Law makes it clear that in the event a debtor provided a movable security to a third party, that third party takes priority over the debtor’s employees and any other debtors. Article 17(2) states the following:

“The Enforceability of the Security Interest Against Third Parties shall entail priority of the Obligee's right and their right of precedence over unsecured debts and privileged debts including the outstanding debts to the Guarantor's employees and workers and any other outstanding debts to the Treasury such as unpaid taxes.”

In essence, an employee will be unable to execute their rights against the registered movable until the creditor satisfies this debt from the movable in question. Upon the creditor’s debt being satisfied, any remaining amount shall be distributed in accordance with Article 37 of the Movables Law.

In our opinion, this compromise decreases the protection afforded to employees. It has become clear that while employees always had priority, this may be no longer the case when there is a registered movable in favour of another creditor. 

However, it is essential to monitor whether the High Courts of the UAE shall provide greater clarity regarding the applicability of Article 17 of the Movables Law. Alternatively, we should wait to see whether an employee creditor may be able to select to enforce their judgment against unregistered movables after obtaining a response to their inquiry from the Registry, in turn setting a precedent for others to follow suit. 

To date, we have yet to witness an instance where an inquiry has been sent to the Registry in order to determine the assets suitable for execution for the employee to avoid losing their order of priority because of Article 17 of the Movables Law. In our opinion, this is seemingly becoming a common problem before the court, which may lead to the Registry being willing to assist by providing responses in relation to the status of a movable.