As a business owner in Iraq, your focus is on growth, productivity, and managing your bottom line. In this high-stakes environment, personnel decisions are some of the most critical—and risky—choices you make.

One misstep in dismissing an employee can lead to a costly, time-consuming legal battle that drains your finances and damages your company’s reputation.

Let’s talk frankly about wrongful termination under Iraqi Labor Law No. 37. This isn’t just a theoretical legal concept; it’s a direct threat to your profitability. Understanding this is not about coddling underperformers—it’s about protecting your business.

When Does a Firing Become “Wrongful” in the Eyes of the Law?

You might have what you believe is a perfectly good reason to let someone go. But the law has a strict definition of what constitutes a fair dismissal. Your termination could be deemed “unjust” if:

• It’s Arbitrary: You cannot provide clear, documented evidence of poor performance or serious misconduct.

• It’s Discriminatory: The decision is based on the employee’s gender, religion, ethnicity, or political views. This violates the Iraqi Constitution and is a guaranteed path to a lawsuit.

• It’s Retaliatory: The employee was dismissed for filing a complaint, demanding their legal rights, or joining a union.

• You Skipped the Procedure: The law (Articles 40-42) requires a fair investigation and a chance for the employee to defend themselves before a dismissal for misconduct. Ignoring this process makes the dismissal wrongful, even if the employee was actually at fault.

The Direct Financial Hit: What an “Unjust Dismissal” Will Cost Your Company

If the Labor Court rules against you, the consequences are not a slap on the wrist. They are a significant financial penalty designed to punish the employer.

You will be liable for one of two outcomes, both of which are expensive:

1. The Reinstatement Trap

The court can force you to rehire the employee. But it gets much worse. You are also legally required to:

• Pay full back wages and all benefits for the entire time they were dismissed—from the day you fired them until the day they walk back through your door.

• Imagine firing an employee and losing the case a year later. You now owe them a full year’s salary for not working, plus you have to give them their job back. This is a massive, unplanned financial liability.

2.The Heavy Financial Payout (Indemnity)

Most of the time, the relationship is broken. In this case, the employee can choose to take a large cash settlement instead of returning to work.

This termination indemnity is calculated as follows and is paid on top of their standard end-of-service gratuity:

• For monthly-paid employees: You must pay at least one month’s wages for every year of service, with a minimum total of two months’ wages.

This is not a severance package. It is a penalty for breaking the law. For a senior employee, this can amount to a staggering sum.

How to Shield Your Business: A Proactive Approach

The good news is that this entire risk is manageable. Protect your company by making your dismissal process bulletproof.

1. Document Everything: Performance issues, warnings, complaints, and investigations must be meticulously recorded. Your file is your best defense.

2. Follow the Law to the Letter: Before any dismissal for misconduct, conduct a formal investigation and give the employee a chance to be heard. This isn’t bureaucracy; it’s your legal shield.

3. Seek Counsel Before You Act: The cheapest legal advice you can get is before you sign a termination letter. A quick consultation with a labor lawyer can save you tens of thousands of dollars in penalties down the line.

Smart Business is Compliant Business

Viewing your HR practices through the lens of Iraqi Labor Law isn’t just about compliance—it’s a core part of smart risk management. A single, poorly handled termination can wipe out your company’s profits for the quarter.

Invest in getting it right the first time. A proactive review of your employment contracts and dismissal procedures is one of the highest-return investments you can make for your business’s stability and future.