What was the specific monetary value and nature of the claims Lumsa asserted against Lactin in SCT 273/2022?
The dispute centered on the Claimant’s assertion that she was entitled to significant financial compensation following the termination of her engagement with the Defendant, a beauty lounge operating within the DIFC. The Claimant sought a total of AED 43,317.85, alleging that the Defendant failed to pay her salary, annual leave, and end-of-service gratuity.
The Claimant, pursuant to her termination, had sought to obtain a sum equal to AED 43,317.85 for 6 months’ unpaid salary, 44 days of annual leave, and payment of her end of service gratuity.
In addition to these specific financial demands, the Claimant sought unquantified damages for alleged reputational harm and victimisation. As noted in the court record, the Claimant eventually narrowed her focus to specific heads of damage:
On 22 September 2022, the Claimant confirmed to the Court that she is claiming monetary relief in the form of the claims set out at paragraph 8 (a) to (d) above, therefore I shall not address claim (e) above.
The dispute originated from the transition between two distinct contractual arrangements: an initial employment contract dated 15 September 2020 and a subsequent agreement signed on 15 March 2021, which shifted the Claimant to a commission-only compensation model. Further details regarding the case can be found at the DIFC Courts Judgment Portal.
Which judge presided over Lumsa v Lactin in the DIFC Small Claims Tribunal?
The matter was heard and determined by H.E. Justice Maha Al Mheiri. Following an unsuccessful consultation process before SCT Judge Maitha AlShehhi on 31 August 2022, the case was referred to Justice Al Mheiri for a formal hearing on 13 September 2022, with the final judgment issued on 3 October 2022.
How did Lumsa and Lactin characterize the nature of their working relationship during the hearing?
The Claimant argued that despite the change in contract, she remained an employee entitled to the full protections of the DIFC Employment Law, including a basic salary, accrued leave, and gratuity. She contended that the termination of her contract on 23 June 2022 entitled her to the outstanding sums claimed.
Conversely, the Defendant, Lactin, maintained that the "Second Contract" signed on 15 March 2021 fundamentally altered the relationship. The Defendant argued that the Claimant was no longer a traditional employee receiving a basic salary, but rather a commission-based worker. To support this, the Defendant produced evidence that they had consulted with the DEWS Plan Administrator, who confirmed that employees on a commission-only basis without a basic salary were exempt from mandatory DEWS contributions. The Defendant asserted that all obligations under the initial contract had been settled, as evidenced by a signed letter dated 31 August 2021.
What was the core legal question regarding the classification of the Second Contract under DIFC Law?
The Court was tasked with determining whether the Claimant’s role under the "Second Contract" constituted "employment" in a manner that triggered the statutory protections of the DIFC Employment Law, specifically regarding the entitlement to a basic wage, annual leave, and end-of-service gratuity. The doctrinal issue was whether a contract providing exclusively for commission-based compensation—without fixed working hours or a basic salary—could be reconciled with the statutory requirements for calculating gratuity and leave pay under the DIFC Employment Law Amendment Law (DIFC Law No. 4 of 2021).
How did Justice Maha Al Mheiri apply the test of "employment nature" to dismiss the claims?
Justice Al Mheiri examined the practical reality of the Claimant’s work under the Second Contract. The Court found that the absence of a basic salary and the lack of fixed working hours were dispositive factors in characterizing the relationship. The judge concluded that the arrangement functioned more as a freelance engagement than a traditional employment relationship.
The Court is satisfied that the Claimant’s role performed under the Second Contract is similar to a freelancer which allowed the Claimant to perform ad-hoc work for the Defendant without having a long
Because the Claimant did not receive a "basic wage," the statutory mechanisms for calculating end-of-service gratuity and annual leave pay—which rely on the calculation of a daily or monthly basic wage—could not be applied. Consequently, the Court found that the Claimant was not entitled to the specific monetary relief requested, as the legislative framework for those payments presupposes a traditional employment structure that did not exist under the Second Contract.
Which specific provisions of the Employment Law Amendment Law (DIFC Law No. 4 of 2021) were central to the Court’s analysis?
The Court relied on the DIFC Employment Law Amendment Law (DIFC Law No. 4 of 2021) to evaluate the claims. Specifically, the Court analyzed the applicability of Articles 27, 28, and 66. These articles govern the entitlement to annual leave, the calculation of end-of-service gratuity, and the requirements for basic wage payments. The Court determined that because the Claimant’s compensation was structured entirely on a commission basis (50% of net turnover), she did not meet the criteria for these statutory benefits, as the law requires a defined basic salary for the calculation of such entitlements.
How did the Court treat the previous Employment Contract and the subsequent commission-based agreement?
The Court treated the two contracts as distinct phases of the relationship. It acknowledged that the initial contract (dated 15 September 2020) was a standard employment agreement, but noted that the parties had already resolved all entitlements arising from that period.
The parties signed a letter dated 31 August 2021, confirming that the Claimant received all her employment entitlements in accordance with the Employment Contract.
The Court then focused on the "Second Contract," which shifted the compensation structure entirely to commission. By distinguishing the two, the Court effectively insulated the Defendant from liability for the period governed by the second agreement, as the Claimant failed to demonstrate that the commission-only structure entitled her to the same statutory benefits as the initial salaried role.
What was the final disposition and the order regarding costs in SCT 273/2022?
The Court dismissed the Claimant’s claim in its entirety. Justice Al Mheiri found that the Claimant failed to establish a legal basis for the requested payments of AED 43,317.85, as the commission-based nature of her work precluded the application of statutory gratuity and leave pay provisions. Regarding the costs of the proceedings, the Court ordered that each party bear their own costs, consistent with the standard practice in the Small Claims Tribunal for such disputes.
What are the wider implications for DIFC practitioners regarding commission-based contracts?
This judgment serves as a critical reminder that the label of "employee" is secondary to the actual terms of the contract and the nature of the remuneration. Practitioners must advise clients that shifting an employee to a commission-only model may effectively strip them of statutory protections like end-of-service gratuity and paid leave if those benefits are tied to a "basic salary" that no longer exists. Employers must ensure that such transitions are clearly documented and that employees are fully aware of the implications for their statutory rights. Conversely, employees should be wary of entering into commission-only agreements that lack the protections afforded by the DIFC Employment Law, as the Court will not "read in" a basic salary where none exists.
Where can I read the full judgment in Lumsa v Lactin [2022] DIFC SCT 273?
The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/small-claims-tribunal/lumsa-v-lactin-2022-sct-273. The text is also available via the CDN: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/small-claims-tribunal/DIFC_SCT-273-2022_20221003.txt.
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| N/A | N/A | No external precedents cited in the judgment text. |
Legislation referenced:
- Employment Law Amendment Law (DIFC Law No. 4 of 2021), Article 27
- Employment Law Amendment Law (DIFC Law No. 4 of 2021), Article 28
- Employment Law Amendment Law (DIFC Law No. 4 of 2021), Article 66