Limited and unlimited contracts in the UAE: Knowing their differences

Undoubtedly, getting a job in the UAE is one of the best feelings in the world. After all, it is exciting to work in the best commercial hub nowadays. However, you can avoid legal misunderstandings with your employer by knowing the differences between limited and unlimited contracts in the UAE.

In this article, you will learn the differences between limited and unlimited contracts in the UAE. Here, you can learn the definition of each one and the details of how can employees or employers terminate them. We will allow you to do this by talking about the following topics:

1. What is a limited-term contract?

Beginning a job career at any company is never easy. First and foremost, you need to demonstrate to your employer what you can do for the company with your skills. However, some companies tend to start with a relationship of limited time for specific projects of known lengths.

In other words, such companies most probably will present you with a limited-term contract. In essence, it is a fixed-term contract whose duration is usually linked to the validity period of your residency visa. During its duration, you will be able to work under the terms of the contract.

Furthermore, you will enjoy the benefits established in the contract during such period too. Now, by definition, a limited-term contract will automatically terminate at the end of its defined term. But, you can terminate it earlier, as well as your employer. You can also renew it with your employer.

Companies with a flexible workforce tend to use this type of contract regularly. Hence, you must get proper legal advice to negotiate your limited-term contract terms correctly. You can get such advice from labor lawyers. Thus, it will be nice for you to take an overview of their services.

2. How can you terminate a limited-term contract in the UAE?

Under the UAE Labor Law, a limited-term contract must have a defined term stated in it. Generally, such a contract expires at the end of its term without notice provision. However, the law allows an early termination due to the employee’s dismissal or resignation.

Indeed, an employer can dismiss an employee if one of the 11 exhaustive grounds established in Articles 88 and 120 of the UAE Labor Law are met. On the other hand, Article 121 of the law validates an employee’s resignation before the contract’s expiration date.

Moreover, both parties can renew a limited-term contract if they agree not to terminate it. As an alternative, they can also agree on converting it into an unlimited term contract, whose definition you will see later on.

Consequently, terminating your limited-term contract could require the help of labor lawyers. Their expertise may come in handy in cases such as disputes and discussions related to the contract’s termination. Hence, it will be helpful for you to know what the best labor lawyers in Dubai do.

Let us now show you the details of how you can terminate a limited-term contract in the UAE:

2.1 Early termination requested by the employer

Article 120 of the UAE Labor Law indicates the valid reasons an employer can dismiss an employee. Some of these reasons to do so before completing the term of the contract are the following:

• An employee assumes a false identity or nationality.
• The employee disobeys instructions on the safety of work or the workplace.
• Committing a crime against honor, honesty, or public morals.
• Revealing any confidential information about his employer.
• When the employee fails to attend work without a valid reason for more than 20 days in a single year.

By performing any of these acts, you are legally subject to your contract’s termination at the request of your employer. When this happens, your employer must pay you a minimum of three months’ remuneration, including your salary and allowances.

In this matter, you may find an employer who fails to comply with these requirements. Thus, you may have to file a complaint against him in the labor court. To do so properly, you can follow the example of how to do it in the labour court of Dubai.

2.2 Early termination requested by the employee

On the other hand, you can be in the position of wanting to terminate the limited-term contract with your employer early. Here, unless the contract says otherwise, you would need to pay your employer early termination compensation.

Under the UAE Labor Law, such compensation is half of three months’ remuneration, including salary and allowances. Furthermore, it can also be half of the remuneration for the remaining period when it is less than three months.

However, you can negotiate with your employer to establish parts of the contract related to an early resignation. Here, employment lawyers can provide you with some assistance. Hence, it will be helpful for you to have a guide to find the best of them in the UAE.

2.3 Notice period

A limited-term contract does not require a notice period by law. But, when agreed upon by both parties, it can be added with any early termination compensation due.

2.4 End of service gratuity

The end of services gratuity is calculated differently for dismissal and resignations cases. When it comes to an employee dismissal, it requires that the employee completes at least one year of continuous service. You can calculate the end of service gratuity as follows:

• Basic pay equivalent to 21 calendar days for each year of the first five years of service.
• Basic pay equivalent to 30 calendar days for each additional year.
• 
  

However, an employee can lose this entitlement by being terminated on grounds of gross misconduct under the UAE Labor Law. To know what the law considers gross misconduct, you can take an overview of the new UAE Labor Law.

On the other hand, such an employee can also lose this entitlement by resigning with fewer than 5 years of service. When the opposite occurs, his end-of-service gratuity shall be calculated as it is for an unlimited term contract.

3. What is an unlimited term contract?

In the UAE, the most common case you can see is companies establishing unlimited term contracts with their employees. In essence, they are open-ended contracts, which give them the fame of being more flexible and user-friendly.

As you may expect, permanent employees across the region use this type of contract. Logically, unlimited term contracts do not need renewal, but they can also be terminated by the employee’s dismissal or resignation.

Because it represents a longer working relationship, unlimited term contracts involve a series of aspects that limited-term contracts do not. One of these aspects is the leave salary. Thus, you must know how to calculate it in the UAE to avoid any misunderstandings.

4. How can you terminate an unlimited term contract in the UAE?

Just as its counterpart, you can terminate an unlimited term contract as both the employer and the employee. However, the details regarding its termination are substantially different. It is a less frequent case than with limited-term contracts, but the UAE Labor Law is also prepared for it.

Now, the termination of an unlimited term contract is a topic that must be subject to more detailed analysis. In other words, it can be evidence of greater problems regarding employment. Thus, you must amplify your knowledge by understanding employment issues in the UAE.

Let us now show you the details of how you can terminate an unlimited term contract in the UAE:

4.1 Early termination requested by the employer

Under the UAE Labor Law, an unlimited-term contract is harder to terminate by an employer than a limited-term contract. However, the law provides two main ways an employer can do this legitimately.

The first one is by demonstrating a valid reason. In this case, the law state that a minimum notice of 30 calendar days shall be made. Moreover, you and your employer can overlook it if both parties agree to do so and write it in the contract.

Then, an unlimited term contract can also be terminated for the reasons that appear in Article 120 of the law. Other such reasons, related to gross misconduct, are the following:

• The employee is found during working hours in a state of drunkenness or under the influence of a narcotic drug.
• Assaulting any of his coworkers, his employer, or his manager in charge, during working hours.
• Causing substantial material loss to the employer through a committed fault.

As an employer, you may find it difficult to engage in legal battles with employees that should be dismissed. In this matter, getting legal services for your company can help you tremendously. It is one of the reasons why companies need legal services.

4.2 Early termination requested by the employee

When you no longer want to work for your current employer, or you found a new job, you can terminate your unlimited term contract. If this is your case, you must provide your employer with the contractual notice period that was previously negotiated. Such a period must be of 30 calendars days or longer. Nevertheless, the UAE Labor Law allows you to terminate your contract by resigning without notice. Article 121 of the law states this.

On the other hand, terminating your unlimited term contract also involves your employer canceling your visa. However, a common issue seen in the UAE today is employers delaying such cancellations. It is an action that can bring them serious consequences.

4.3 End of service gratuity

You shall calculate the end of services gratuity of unlimited term contracts equally as to limited-term contracts for employees’ dismissal. Furthermore, it has the same requirements for its applicability, including its loss of entitlement when they can prove gross misconduct.

However, calculation of the end of service gratuity is different when it comes to an employee’s resignation. Follow the next sliding scale to know how to calculate it:

• 2/3 reduction when the period of service is of between one to three years.
• 1/3 reduction when the period of service is of between three to five years.
• No reduction when the period of service is over five years.

Most importantly, an unlimited term contract represents a much longer working relationship. Therefore, make sure to include all the necessary terms and agreements in the contract first, including a possible notice period. This way, you will have more legal protection against discussions with your employer.

5. Where can you find more information about limited and unlimited contracts in the UAE?

Working in the UAE requires you to comply with all the provisions of the UAE Labor Law. Certainly, the most transcendental way you can do this is by negotiating a good contract with your employer. Thus, you must know the fundamental differences between limited and unlimited contracts in the UAE.

Negotiating your contracts with your employer or employees can be challenging without the proper legal knowledge. Indeed, it can bring you legal issues by failing to do it correctly. On Connect Legal, we believe in doing meaningful work for you, by providing the legal services you need to negotiate contracts. Also, we provide corporate lawyers and immigration lawyers in case you need assistance from their specific area.

Do you have some questions about legal services? Then, go and contact us to obtain more information about how we can help your business, by calling us at +971 43 316 688. You can also email us at [email protected], to talk with one of our representatives who will answer all your questions.

On The Talent Point, we have many jobs offers for you to help your search for your dream position. Apply to one today by uploading your resume at thetalentpoint.com. Moreover, we will not store CVs that you send to [email protected].