Under the UAE Labour Law No. 8 of 1980 (as amended) (the “UAE Labour Law”), applicable to all employers in the UAE (save for those based in the Dubai International Financial Centre (“DIFC”)), there are two types of employment contract employers can issue to employees; limited term or unlimited term contracts.
There are various distinctions between the two types of contract including the treatment of statutory end of service gratuity entitlement and termination consequences.
A limited term contract is a fixed-term contract and is normally linked to the duration of the UAE residency visa (i.e. two or three years, depending on the location of the employer). It will automatically terminate at the end of the term unless terminated earlier by either party or renewed by both parties.
Limited term contracts are useful where an employer needs to engage employees for specific projects and the lengths of those projects are known in advance.
An unlimited term contract is open-ended and may be terminated for various reasons under the UAE Labour Law (see the answer to questions 13 and 14 below).
Unlimited term contracts are generally viewed to be more flexible and user-friendly than limited term contracts. For this reason, an unlimited term contract is more commonly used in the UAE than a limited term contract. It can be used for employees who are intended to be permanent and are not undertaking project work (where the length of the project is known in advance).
Under the UAE Labour Law, an employee is entitled to “early termination compensation” of a minimum three months’ remuneration, including salary and allowances, (or the remainder of the term of the contract if the period remaining is less than three months ) if an employer seeks to terminate the contract prior to the end of the limited term.
Wrongful termination, or not following due process as defined by the respective state laws, will result in legal punitive consequences for the employer. In addition, the courts may order the employer to pay fines and award additional compensation to an employee that was terminated.
Under Limited Term contract unless the employment contract provides otherwise if the employee wishes to terminate the contract before the expiry of the term, he will be liable under the UAE Labour Law to pay the employer “early termination compensation” of half of three months’ remuneration, including salary and allowances, or half of the remuneration for the residual period if the contract has fewer than three months to run.
For Limited Contracts where notice is provided for in a limited term contract, this will have to be provided to the other party in addition to any early termination compensation due.
Under the UAE Labour Law, an employee is entitled to “early termination compensation” of a minimum three months’ remuneration, including salary and allowances, (or the remainder of the term of the contract if the period remaining is less than three months ), if an employer seeks to terminate the contract prior to the end of the limited term.
Wrongful termination, or not following due process as defined by the respective state laws, will result in legal punitive consequences for the employer. In addition, the courts may order the employer to pay fines and award additional compensation to an employee that was terminated.
Overtime is considered if the nature of the job demands working beyond normal working hours and it will entitle the employee for a payment equal to normal working hours’ remuneration plus 25 per cent of that pay. It could increase to 50 per cent if overtime is done between 9 pm and 4 am.