Old & new owners responsible for staff

Published Tuesday, November 01, 2011

By Mohammed Al Sadafy

Dubai Court of Cassation has established three new legal principles on the rights of employees and obligations of employers when the ownership of the company changes.

In the first principle, the Court of Cassation confirmed that if the ownership of the enterprise changes, both the old and new owners are jointly accountable for six months from the date of transfer of ownership of the company for obligations arising from employment contracts signed before the company changed hands.

The court said that after six months, the responsibility of the previous owner of the company will end on the implementation of these commitments, after which the new employer will be responsible for such liabilities.

In the second principle, the Court of Cassation confirmed that the signature of a director of a company on behalf of that company does not create any personal obligations for him.

In the third principle, the court also confirmed that a job offer letter alone does not start the working relationship between an employee and the company that offered him work, unless the offer has already been put into effect.

The Court of Cassation issued these principles while considering a labour dispute between a salesman (the plaintiff) and a real estate company (the defendant) for which he worked for three years before his dismissal.

In his lawsuit, the salesman demanded that the company pay him Dh985,000, based on a monthly salary of Dh23,000 and commission from an investment firm owned by the owner of the real estate company, which gave him 35 per cent of any deal brought by him to the company.

The Court of First Instance issued a verdict obliging the new owner of the real estate company to pay the plaintiff Dh135 000 as salary, including late and leave allowance arrears, two months' salary for unfair dismissal and end-of-service gratuity.

But the court rejected his request of giving him commission of Dh750,000 on the grounds of absence of mention of commission in the employment contract with the real estate company, as the commission claimed was contracted with an investment company owned by the real estate company’s partner.

The court ruled that the commission agreed to by the owner of the investment company does not extend to the real estate firm.

Both the plaintiff and the defendant appealed the ruling before the Court of Appeal where the Court of Appeal rejected the appeal and upheld the appellant.

The real estate company appealed the ruling before the Court of Cassation, which issued its legal principles mentioned above.

The new owner of the company based his appeal on the grounds that the contract of sale of the company includes a provision that the seller is responsible for any obligations or disputes stemming from the sale.

The new owner also based his appeal on a job offer letter for the plaintiff from another company, prompting the company to end his services.

The Court of Cassation rejected the appeal and upheld the impugned order.

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