Introduction

In a landmark ruling on substantive defence in UAE labour disputes, the Federal Supreme Court issued Judgment in Civil Appeal No. 867 of 2025 on 10 December 2025, reinforcing procedural justice within UAE litigation. The decision addresses a recurring issue in employment and commercial disputes: whether a court may issue a judgment without properly examining the essential defence raised by one of the parties.

The Court ultimately overturned the appealed judgment and remanded the case, holding that failure to consider a decisive defence constitutes a fundamental defect in reasoning and violates the right of defence.

This judgment is particularly relevant in disputes involving senior executives, shareholders, partners, and consultants — where the core legal question is not merely “how much is owed,” but whether the relationship was employment at all.

Background of the Dispute

The claimant filed a labour claim seeking approximately AED 1.2 million in employment entitlements, including end-of-service gratuity and accrued leave balance. He alleged that he had worked for the company for approximately eleven years and was terminated without payment of statutory benefits.

The company disputed the claim and raised a fundamental defence:

• The claimant was not an employee during certain periods
• He was a partner/shareholder
• He acted as a consultant/executive
• He spent substantial time outside the UAE

Therefore, gratuity and leave benefits were not payable

The company relied on documentary evidence, including travel records, to demonstrate absence of employment dependency.

Procedural History

• Court of First Instance (8 July 2025): Ordered the company to pay approximately AED 801,340.22.
• Court of Appeal (30 September 2025): Amended the amount to approximately AED 588,217.82 and rejected the company’s appeal.
• Federal Supreme Court (10 December 2025): Accepted the company’s challenge and overturned the judgment.

The Legal Issue

The dispute did not revolve around calculation of labour dues.

It revolved around a much deeper legal question:

Was the claimant actually an employee — or a partner/consultant?

This distinction is critical under UAE law. Labour rights only arise if the legal relationship qualifies as employment (subordination and dependency). A partner or shareholder is governed by corporate law, not labour law.

Supreme Court’s Reasoning

The Court reaffirmed a fundamental procedural principle:

• A court must examine and respond to every decisive defence that could change the outcome of the case.
• Failure to do so results in defective reasoning and invalidates the judgment.
• The Court emphasized that a judgment must show the court understood the facts, evaluated evidence, and addressed each material argument.

In this case, the lower courts ignored a central defence — that the claimant was a partner and therefore not entitled to labour benefits.

Because this defence could completely change the legal classification of the relationship, ignoring it constituted:

• Violation of the right of defence
• Defective reasoning
• Misapplication of law

The Supreme Court therefore annulled the judgment and remitted the case.

Key Legal Principles Established

1. Courts Must Address Core Legal Characterization

Before calculating dues, the court must determine the nature of the legal relationship:

• Employee
• Partner
• Consultant
• Service provider

Ignoring this question invalidates the judgment.

2. Substantive Defence Cannot Be Ignored

If a defence could change the entire outcome, the court must:

• Investigate it
• Evaluate evidence
• Provide clear reasoning
• Otherwise, the judgment is void.

3. Labour Claims Involving Shareholders Require Careful Scrutiny

Senior managers, directors, and partners often hold dual roles. Labour entitlements do not automatically apply merely because a salary exists.

4. Evidence Must Be Analyzed — Not Merely Recorded

Submitting documents is not enough; the court must explain why it accepts or rejects them.

Conclusion

The Federal Supreme Court’s judgment in Case No. 867 of 2025 (10 December 2025) is a landmark procedural reminder:

• Justice is not only about the result — but about how the court reaches the result.
• A judgment that ignores a decisive defence is legally defective, regardless of whether the final outcome might eventually prove correct.
• In labour disputes involving partners, executives, or consultants, courts must first determine the legal nature of the relationship before awarding statutory benefits. Failure to do so will render the judgment vulnerable to annulment.

This decision reinforces due process in UAE litigation and highlights the growing judicial scrutiny applied to employment classification disputes in complex corporate structures.

If you require further clarification or legal assistance concerning the matters discussed in this article, please do not hesitate to contact Khairallah Advocates & Legal Consultants LLC. Our lawyers would be happy to assist you.

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