Mubsid v Mihar [2023] DIFC SCT 352 — Employer liability in HR outsourcing arrangements (14 December 2023)

What was the specific nature of the employment dispute between Mubsid and Mihar, and what was the total monetary value at stake?

The dispute arose from the termination of an employment relationship between the Claimant, Mubsid, and the Defendant, Mihar, an HR outsourcing firm. The Claimant sought recovery of unpaid salary, commission, end-of-service benefits, and DEWS (DIFC Employee Workplace Savings) contributions following the cessation of his role. The case originated from a broader commercial breakdown between the Defendant and its client, Mubit, for whom the Claimant had been performing services.

The financial stakes evolved throughout the proceedings. As noted in the judgment:

The Claimant initially filed a case with the Small Claims Tribunal (“SCT”) to claim the amount of AED 79,700.80 with respect to his July and August salaries, commission, end of service entitlement and DEWS payment.

Following a partial settlement reached during a consultation session, the scope of the claim narrowed. By the time the matter reached the final hearing, the Claimant sought a residual sum of AED 48,231.18. This amount represented the final settlement of his end-of-service benefits and the commission earned for July and August 2023. The dispute centered on whether the Defendant could unilaterally withhold these payments based on the termination of its own service agreement with Mubit.

Which judge presided over Mubsid v Mihar [2023] DIFC SCT 352, and in which division of the DIFC Courts was this matter heard?

This matter was heard before SCT Judge Maitha AlShehhi within the Small Claims Tribunal (SCT) of the DIFC Courts. The hearing took place on 7 December 2023, with the final judgment issued on 14 December 2023.

What were the primary legal arguments advanced by Mubsid and Mihar regarding the liability for unpaid commissions and final settlement?

The Claimant argued that as his direct employer, Mihar was contractually obligated to pay his end-of-service entitlements and earned commissions, regardless of the status of the Defendant's relationship with Mubit. He relied on a "compensation statement" to substantiate his performance and the resulting commission owed. He contended that the Defendant was deliberately withholding funds that were rightfully his, despite having acknowledged the final settlement figures in a document circulated to him on 7 August 2023.

Conversely, the Defendant argued that its role was limited to that of an HR outsourcing firm. It asserted that the Claimant was not an "internal" staff member and that its obligation to pay was strictly tied to the approval of billing by its client, Mubit. The Defendant submitted that because Mubit had terminated the HR Agreement and had not approved the specific billing for the August salary or the disputed commissions, the Defendant was not in a position to pay those amounts. The Defendant further contested the Claimant’s final date of employment, arguing it was 3 August 2023 rather than 10 August 2023, thereby seeking to limit the scope of the final settlement.

What was the core legal question the SCT had to determine regarding the Defendant's obligation to pay the Claimant?

The Court was required to determine whether an employer in an outsourcing arrangement can avoid its statutory and contractual obligations to an employee by citing a lack of payment or approval from its third-party client. Specifically, the SCT had to decide if the Defendant’s failure to bill its client, Mubit, for the Claimant’s work absolved the Defendant of its primary liability to pay the employee’s earned commission and final settlement under the Employment Agreement.

How did Judge Maitha AlShehhi apply the doctrine of employer responsibility to the facts of Mubsid v Mihar?

Judge AlShehhi rejected the Defendant's attempt to shift the burden of payment to the third-party client. The Court held that the contractual relationship between the Claimant and the Defendant was independent of the Defendant's commercial arrangements with Mubit. The judge emphasized that the Defendant, as the employer, bore the administrative and financial responsibility for processing the Claimant's entitlements.

Regarding the disputed commissions, the Court found that the Defendant’s failure to bill Mubit for the Claimant’s work did not invalidate the Claimant’s right to receive those funds. The reasoning was clear:

Likewise, I shall award the Claimant his commission for the months of July and August 2023 in the amount of AED 15,418 on the premise that he would have been paid this amount had the Defendant billed it to Mubit.

The judge effectively ruled that the Defendant could not use its own administrative failure—the failure to invoice the client—as a shield against its contractual obligation to pay its employee. The Court found that the Claimant had sufficiently demonstrated his work through the submitted compensation statement, and the Defendant was liable for the resulting payments.

Which specific statutes and agreements were central to the Court’s determination in this matter?

The Court’s decision was grounded in the contractual framework established by the parties and the overarching DIFC Employment Law. The primary instruments cited were:

1. The HR Agreement dated 21 April 2014: This governed the relationship between the Defendant and Mubit, defining the Defendant as a supplier of payroll and HR services.
2. The Employment Agreement dated 17 August 2021: This established the direct employer-employee relationship between the Defendant and the Claimant, stipulating a salary of AED 30,000.
3. DIFC Law No. 4 of 2021 (Employment Law Amendment Law): This provided the statutory backdrop for the Claimant’s entitlement to end-of-service benefits and final settlement payments.

The Court also relied on the "Partial Consent Order" dated 9 November 2023, which had already resolved a portion of the initial claim, narrowing the scope of the final hearing to the remaining unpaid salary, commission, and leave encashment.

How did the SCT interpret the contractual relationship between the parties in light of the HR Agreement?

The Court utilized the HR Agreement and the Employment Agreement to distinguish between the Defendant’s commercial obligations to Mubit and its legal obligations to the Claimant. The SCT noted:

The Defendant and Mubit (“Mubit”) entered into an agreement dated 21 April 2014 wherein the Defendant acted as a supplier for human resources services such as talent sourcing, recruitment, payroll solutions and ancillary services (the “HR Agreement”).

The Claimant and the Defendant entered into an employment agreement on 17 August 2021 in return for a salary of AED 30,000 to be supplied by the Defendant while the Claimant will be directly reporting to Mubit (the “Employment Agreement”).

By contrasting these two documents, the Court established that while the Claimant reported to Mubit, the Defendant was the sole entity responsible for the employment contract. The Court held that the Defendant’s internal business model—outsourcing HR—did not alter the fundamental legal reality that the Defendant was the employer and, therefore, the party liable for the Claimant's final settlement and commission.

What was the final outcome of the claim, and what orders were made regarding costs?

The claim was allowed in part. The SCT ordered the Defendant to pay the Claimant a total of AED 46,843.25. This amount encompassed the final settlement and the disputed commissions for July and August 2023. The Court’s order was definitive:

For the above cited reasons, I hereby order the Defendant to pay the Claimant the amount of AED 46,843.25.

Additionally, the Court ordered the Defendant to reimburse the Claimant for the DIFC Courts’ filing fee in the amount of AED 936.86. The disposition reflected the Court's rejection of the Defendant's argument that it was not liable for amounts not pre-approved by Mubit.

What are the wider implications of this judgment for HR outsourcing firms operating within the DIFC?

This judgment serves as a significant reminder that the DIFC Courts will strictly enforce the principle of privity of contract in employment relationships. For HR outsourcing firms, the ruling clarifies that they cannot contract out of their primary liability to employees by making payments contingent upon the approval or payment of their own clients.

Practitioners representing outsourcing firms must advise their clients that they bear the risk of non-payment by their customers; they cannot pass this risk onto the employee. Future litigants should anticipate that the SCT will look past the complexities of "tripartite" or "outsourcing" arrangements to identify the entity that signed the employment contract. If an employer fails to maintain proper records or fails to invoice a client for an employee's work, the employer will remain liable for the resulting shortfall in the employee's compensation.

Where can I read the full judgment in Mubsid v Mihar [2023] DIFC SCT 352?

The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/small-claims-tribunal/mubsid-v-mihar-2023-difc-sct-352

CDN link: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/small-claims-tribunal/DIFC_SCT-352-2023_20231214.txt

Cases referred to in this judgment:

Legislation referenced:

• DIFC Law No. 4 of 2021 (Employment Law Amendment Law)