30 March 2026 | The Legal Rooms
WHY THIS ISSUE, AND WHY NOW
The GCC has built its reputation on resilience. Through oil price cycles, a global pandemic, and successive waves of geopolitical tension, the region's startup ecosystems have not just survived, they have matured. The UAE and Saudi Arabia, in particular, have emerged with stronger regulatory frameworks, deeper capital markets, and a generation of founders who understand that building in this region means building for complexity.
That resilience is being tested again. Global tariff escalations, supply chain rerouting, regional security dynamics, and shifting investor sentiment are creating a set of legal pressure points that every founder in the GCC needs to understand. Not because the sky is falling: but because the founders who navigate these moments with legal precision are the ones who come out ahead.
This special issue is a practical guide to the key legal questions startups are facing right now: workforce restructuring, lease obligations, supply chain disputes, corporate reorganisation, and investor communications. We cover the essential legal tools available under UAE and KSA law, so you know what's in your toolkit before you need to reach for it.
- WORKFORCE RESTRUCTURING: GETTING IT RIGHT THE FIRST TIME
If your startup needs to adjust its headcount, the legal framework in both the UAE and KSA gives you the tools to do so, but only if you follow the right process. The difference between a clean restructuring and a costly dispute often comes down to documentation, timing, and understanding a handful of critical provisions.
🇦🇪 UAE: The Key Provisions
The UAE Labour Law (Federal Decree-Law No. 33 of 2021) does not define redundancy as a standalone concept, but it does permit termination for legitimate reasons under Article 43, provided written notice of 30 to 90 days is given, depending on the employment contract. Courts have consistently accepted restructuring and cost reduction as valid grounds, the key is demonstrating that the decision was genuine and properly documented.
What founders need to be aware of is the arbitrary dismissal risk under Article 47. In the case of arbitrary dismissal, the court may award compensation of up to three months' salary on top of all statutory entitlements.
⚠️ Important: No Ministerial Safety Net This Time
During COVID-19, MOHRE issued specific ministerial decisions permitting temporary salary reductions and unpaid leave. As of March 2026, no equivalent directive has been issued for the current geopolitical situation. This means that any unpaid leave or salary adjustment must be agreed in writing with the employee. The specifics of how to structure these arrangements, and the risks of getting them wrong, depend on the individual circumstances of each startup.
🇸🇦 KSA: Key Differences Founders Should Know
Saudi Arabia's Labour Law permits redundancy-type terminations under Articles 74 and 75, but with important procedural requirements that differ from the UAE. Notice periods, the treatment of Saudi vs. non-Saudi employees, and a mass termination notification threshold under Ministerial Resolution No. 50945 all create additional considerations that require careful handling.
A significant 2025 development: employment contracts in KSA must now be authenticated through the Qiwa digital platform to carry full legal enforceability. Any settlement agreements or amended terms issued during a restructuring should be processed through Qiwa, the consequences of not doing so are increasingly significant.
- COMMERCIAL LEASES: YOUR OPTIONS ARE WIDER THAN YOU THINK
For startups burning through cash, commercial leases are often the first cost founders want to cut. The good news is that both UAE and KSA law provide legal mechanisms that can help, but choosing the right one, and using it correctly, makes all the difference.
Force Majeure vs. Hardship: Two Different Tools
UAE law provides two distinct doctrines that startups can potentially rely on. Article 273 of the Civil Code covers force majeure, but it requires that performance has become absolutely impossible, not just more expensive. UAE courts have consistently interpreted this threshold strictly.
The more practical tool for most startups is the hardship doctrine under Article 249, which allows courts to adjust obligations where an exceptional, unforeseeable event has made performance excessively burdensome. During COVID-19, UAE courts showed a clear preference for adjusting contracts under this provision rather than terminating them.
A new Civil Transactions Law (Federal Decree-Law No. 25 of 2025) enters into force on 1 June 2026. It preserves both frameworks but reinforces contractual autonomy, meaning the specific force majeure and termination clauses in your lease will carry even greater weight going forward.
💡 The Golden Rule: Renegotiate Before You Litigate
UAE courts and rental disputes tribunals look favourably on parties who attempted good-faith negotiation before resorting to legal proceedings. A documented record of written proposals and negotiation attempts strengthens your position significantly. The strategy for how to approach your landlord, and what concessions to seek, depends on the specific terms of your lease and the nature of your business disruption.
KSA: Similar Principles, Different Procedures
Saudi commercial lease disputes are typically resolved through commercial courts (there is no dedicated rental tribunal equivalent). The force majeure threshold is similarly high, grounded in Sharia-based contract principles. However, Saudi law also recognises the doctrine of unforeseen circumstances, which can provide a basis for rebalancing lease obligations.
The critical first step in both jurisdictions is a thorough review of your lease agreement. Many commercial leases contain bespoke force majeure definitions, early termination options, or break clauses tied to specific triggers that may be more favourable than the statutory defaults. Knowing exactly what your lease says (and doesn't say) is the starting point for any strategy.
- SUPPLY CHAIN DISRUPTIONS: PROTECTING YOUR POSITION
Tariff escalations, shipping rerouting, and sanctions have created a wave of supply chain disruption. Many startups are receiving force majeure notices from suppliers, and some need to consider issuing their own. In both cases, the legal position depends on specific contractual language and the facts of the disruption.
When a Supplier Sends You a Force Majeure Notice
A force majeure notice is a claim, not a fact. Under UAE law, the burden of proof lies with the party invoking it. They must demonstrate that the event was unforeseeable, unavoidable, and rendered performance absolutely impossible. Whether a tariff increase, a shipping delay, or a sanctions designation meets that threshold depends on the specific contract and the specific event.
The most important step is to review the force majeure clause in your supply agreement. Many contracts contain bespoke definitions that are narrower or broader than the statutory default. Whether the triggering event is specifically listed as a qualifying event can determine the strength of the supplier's position, and yours.
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When You Need to Invoke Force Majeure
If your startup's ability to perform a contract has been genuinely affected, timing is critical. UAE courts have rejected otherwise valid force majeure claims where the affected party failed to give prompt written notice. The obligation to notify arises immediately upon becoming aware of the event, not after the disruption has passed.
📌 Looking Ahead: The New Civil Transactions Law
Federal Decree-Law No. 25 of 2025 (effective 1 June 2026) preserves the existing force majeure and hardship framework but strengthens contractual autonomy. For startups negotiating or renegotiating contracts right now, this means that well-drafted force majeure clauses will carry even more weight under the incoming regime. If your contracts were drafted more than two years ago, now is a good time to review them.
- CORPORATE RESTRUCTURING: KNOWING WHEN AND HOW TO ACT
For some startups, the current environment requires a more fundamental reorganisation. Both the UAE and KSA have modern insolvency and restructuring frameworks that are designed to help viable businesses survive financial distress, but the window for using them effectively is narrow.
🇦🇪 UAE: Preventive Composition
The UAE's Financial Restructuring and Bankruptcy Law (Federal Decree-Law No. 51 of 2023) offers a preventive composition procedure that allows a company to continue operating while negotiating a debt restructuring plan with creditors. Critically, it imposes a moratorium on creditor enforcement actions during the process. For startups facing a temporary cash crunch but with a viable underlying business, this can be a powerful tool, but it requires early action and careful preparation.
🇸🇦 KSA: Protective Settlement
Saudi Arabia's Bankruptcy Law (Royal Decree No. M/50 of 2018) provides a similar protective settlement procedure, allowing debtors who anticipate financial difficulty to apply for court-supervised restructuring before insolvency occurs.
A critical point for startups operating across both jurisdictions: the restructuring frameworks are not harmonised. An order in one jurisdiction does not automatically take effect in the other. Cross-border restructuring requires specialist coordination from the outset.
⚠️ The Director's Duty: Don't Wait Too Long
In both the UAE and KSA, directors of companies in financial distress have legal obligations that can give rise to personal liability if not properly managed. The specifics vary by jurisdiction and corporate structure, but the principle is consistent: the earlier you seek advice, the more options you have. Once the window closes, the available tools narrow significantly.
- INVESTOR RELATIONS: COMMUNICATION AS A LEGAL OBLIGATION
Geopolitical disruption does not suspend your obligations under investment agreements. SAFE notes, convertible instruments, and priced equity rounds all contain information rights, reporting obligations, and, in some cases, material adverse change (MAC) provisions that founders need to be actively managing.
MAC clauses may give investors the right to pull out of uncommitted funding, while some agreements contain geopolitical carve-outs that protect founders. The answer is always in the specific drafting of your agreements. Founders who proactively communicate with investors, revised forecasts, cash runway analysis, and risk mitigation steps, consistently fare better than those who stay silent and hope for the best.
- THE FOUNDER'S READINESS CHECKLIST
The founders who navigate periods of uncertainty most effectively are those who assess their legal position early and act within the framework. Here are the key questions every GCC startup founder should be asking right now:
✅ Workforce: Do your employment contracts support the restructuring you're considering? Have you documented the commercial rationale? Are there mass termination thresholds you need to be aware of?
✅ Leases: What does your force majeure clause actually say? Do you have early termination or break options? Have you initiated renegotiation in writing?
✅ Supply Contracts: Have you reviewed the force majeure clauses in your key supply agreements? Are you preserving evidence and issuing notices on time?
✅ Corporate Structure: Is the company approaching any insolvency thresholds? Are directors aware of their personal liability exposure? Is preventive restructuring an option?
✅ Investor Relations: Do your investment agreements contain MAC clauses? Are you meeting your information and reporting obligations? Have you communicated proactively?
✅ Regulatory: Are Emiratisation/Saudisation ratios still met after any headcount changes? Are MOHRE/Qiwa records current? Are you monitoring for new regulatory directions?
Each of these areas involves specific legal and commercial considerations that depend on your startup's unique circumstances: jurisdiction, corporate structure, workforce composition, contract terms, and investor arrangements. The checklist tells you where to look. The answers require analysis of what you find.
BUILDING THROUGH THE STORM
The GCC's legal frameworks in employment, commercial contracts, and corporate restructuring have been significantly modernised over the past five years. Founders operating in the UAE and KSA today have access to more sophisticated legal tools than at any previous point in the region's history. The key is knowing which tools to use, when to use them, and how to deploy them in a way that protects the business while preserving optionality for the future.
The region has navigated disruption before, and the startups that came out strongest were the ones that made deliberate, legally informed decisions early. This time is no different.
Every startup's situation is different. If any of the issues in this issue resonate, we're always happy to talk through your specific circumstances.
This newsletter is intended for informational purposes only and does not constitute legal advice. The information provided should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances.
The Legal Rooms
The Legal Rooms
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