difference between limited and unlimited contracts Legal advice

In the UAE, the labor law serves to defend both employers’ and employees’ employment rights. A contract of employment is what legally connects them. You have to understand what is the difference between limited and unlimited contracts. Whether you happen to be a worker or an employee, understanding the law is vital.

In this article, we will be talking about what is the major difference between limited and unlimited contracts. We will provide a brief explanation of each contract, and then contrast the biggest differences. This topic is particularly important to anyone looking for jobs in the United Arab Emirates. Being aware of the possibilities gives great advantages. Let us take a look:

1. What exactly is a limited-term contract?

2. How can you recognize an unlimited term contract?

3. What are the primary distinctions between these two contracts?

4. Where can you find more assistance for your labor contract?

1. What exactly is a limited-term contract?

difference between limited and unlimited contracts

A limited-term contract of employment, according to labour law, is for a specified time of up to four years. However, employers can cut it to a two-year term.

As the name implies, a limited contract will expire after its defined period. This implies the employee’s service with their company will be over automatically. This is the biggest difference between limited and unlimited contracts.

Additionally, the parties can mutually agree to extend the contract on identical or comparable conditions. Otherwise, the contract would expire at the appropriate period.

1.1 Is it possible to renew a limited contract?

Both parties may mutually agree to renew on comparable or lesser conditions, or they may allow the agreement to expire at the end of the natural period. Alternatively, after the defined period, the parties might mutually agree to extend the contract of employment to an indefinite length.

The renewal difference between a limited and unlimited contract is that the second one does not need a renewal for the worker to stay in the job.

1.2 How does a limited-term contract end?

Because the agreement is for a certain period, no notice requirements are normally set. That is another big difference between limited and unlimited contracts.

According to the Labor Law, an employer has the right to terminate an employee for a breach of Article 120 when the employee is ‘at fault’. However, in these circumstances, it is best to count on a legal consultant. Understanding the law and how it applies to your situation is work best done by a professional.

1.2.1 What if the company decides to cancel the contract prematurely?

The difference between limited and unlimited contracts is that if the employer decides to cancel the deal before the conclusion of the limited period, the worker is eligible for remuneration.

This remuneration is of up to 3 months’ gross pay, or the balance of the limited-term if less than 3 months. Contact a labour lawyer in Dubai when facing a situation like this, so you can guarantee to obtain a fair amount according to your particular situation.

1.2.2 What happens if the employee chooses to cancel the contract early?

Similarly, the difference between a limited and unlimited contract is that if the employee decides to cancel the contract before the restricted time expires, the employer may seek compensation from the worker under Article N. 116 of the labor law.

For an early termination, the worker has to pay the company six weeks’ gross pay. When the employer violates Article N. 121 of the labor law, the employee is not eligible for compensation.

Accordantly, we cannot let pass the opportunity to advise you to seek legal services when dealing with any extraordinary circumstances. Find out what corporate lawyers in the UAE do and how you can benefit from hiring one. A lot of individuals are not aware of the difference between limited and unlimited contracts, and this could lead to unfair termination.

2. How can you recognize an unlimited term contract?

If you know the big difference between limited and unlimited contracts, you will have no problem recognizing any of the two. An unlimited term contract of employment is due to an endless period and provides the flexibility demanded by both employers and employees.

This type of contract is usually for when the employee joins permanently to the company. In terms of the business being comfortable the difference between limited and unlimited contracts is that with this second one, they will only need to write one contract. Then they will not have to worry about it unless it is about termination.

2.1 How do you end a contract with an infinite duration?

When it comes to ending an unlimited contract, the most important difference between a limited and unlimited contract is Article N. 117 of the labor law. This establishes the ability to terminate employment for a ‘legitimate cause’. Including poor performance or a work-related concern. However, sometimes employers make a bad interpretation of what it means.

An arbitrary dismissal occurs when the company decides to end the contract for reasons unrelated to the job. You should check with your Dubai legal consultant if doing so could harm you or your business. In any case, the employer maintains the power to fire an employee without cause for the reasons laid out in Article N. 120 of the labor law.

2.1.1 Workers ending the unlimited contract

Another difference between limited and unlimited contracts is that under an unlimited contract, a worker can quit his or her employment. As long as they respect the relevant contractual notice time to the company. Consequentially, it has to be as required by the contract or by law. If the worker does not respect the notice time, they have to pay damages to the company.

Article 88 or 120 of the labor law specifies the particular activities that constitute severe misconduct. Surprisingly, in this law, we find no difference between limited and unlimited contracts. It extends to both types of contracts when, for example, a worker serves for a third-party company while on sick or yearly leave.

If the worker is using the legal times to end a contract, it is important that the employer also acts according to law. Employers delaying visa cancellations to keep their workers for a longer period is against the law and can lead to serious consequences.

3. What are the primary distinctions between these two contracts?

Difference between limited and unlimited contracts

Several causes, including job advancement, greater pay, life quality, and a tax-free environment, add to the entry of ex-pats into the UAE. It has the biggest proportion of ex-pats in the GCC area, accounting for 91% of the entire population. However, counting on a legal consultant will be beneficial when working in a different country. Make sure you find the best employment lawyer.

The United Arab Emirates is well-known for its stringent regulations. As an ex-pat, you are required to know and follow the laws. Because the majority of foreigners in the United Arab Emirates are job searchers or prospective entrepreneurs, it is critical to understand the basic difference between limited and unlimited contracts.

Limited contracts are becoming less common. Since they do not provide the employee with the opportunity to be free from contractual responsibilities. Consequentially, they cannot choose another employment without fear of being penalized. Which is a huge difference between limited and unlimited contracts.

An unlimited term contract, on the other hand, gives flexibility to both the workers and management. As long as the applicable contractual time is fulfilled or pay in lieu is made. Sticking to the notice period, and taking the regular steps will guarantee a smooth transition. On the other hand, if you come across any difficulty, legal services will be there to assist you.

3.1 Contract termination

Contract termination occurs often in the United Arab Emirates for a variety of reasons. Terminating a contract without understanding the rules may result in certain repercussions, so you want to be informed on this subject. Here is the difference between limited and unlimited contract when it comes to contract termination:

3.1.1 Limited contract

A difference between limited and unlimited contracts is that there are consequences when an employer ends a limited contract before the end date. When it is for reasons not specified in Article N. 120 of the UAE labor law. The worker is eligible then for three months’ income or the remaining time of the contract. The decision between the two depends on whichever is less.

Similarly, there are also consequences if an employee decides to terminate a limited contract early for reasons not specified in Article N. 121 of the UAE labor law. The worker must pay the employer six weeks’ salary or the remaining time of the contract. One more time, the decision between these two options depends on whichever is less.

3.1.2 Unlimited contract

Given a 30-day notice period, the employment relationship can end in an unlimited contract at any time. This is undoubtedly a great difference between limited and unlimited contracts. Additionally, a notice period extending to no more than 3 months is also feasible if both sides agree. However, it must be written in the original contract, to begin with.

3.1.2.1 Contract termination without cause

Under United Arab Emirates Labor Law, there are few grounds for terminating a contract without notice. These stand for serious situations taking place, and will most likely require legal advice, and legal services to take further action if necessary. We can help you understand how to file a complaint about labor issues.

  • • When an employee violates any of the offenses listed in Article N. 120 of the UAE Labor Law. The company may cancel the agreement without the need for notice.
  • • According to Article N. 121 of the UAE Labor Law. The employee may cancel the contract without warning if the company fails to fulfill its reglementary obligations.

3.3 Calculation of end-of-service gratuity

The end-of-service gratuity difference between limited and unlimited contracts is the one of interest for most people. The amount is determined using the employee’s most recent basic wage. The basic pay does not include any allowances or incentives that are often included in a wage package supplied by businesses.

It should be noted that a worker who has not finished a year of continuous employment is not entitled to a gratuity. This guideline applies regardless of whether the employee has a limited or unlimited agreement.

On the other hand, here is the gratuity computation difference between limited and unlimited contracts.

3.3.1 Limited contract

  • • If a worker has been with the company for more than a year but less than five years, he is eligible for full gratuity compensation based on 21 days’ wage for each year of service.
  • • When an employee works for more than five years, he is eligible for a full 30 days’ gratuity compensation for each year worked after the first five years.
  • • The total gratuity compensation should not exceed two years’ wages.

3.3.2 Contract of unlimited duration

In this case, there is a difference in the calculation depending on which party was the one ending the employment contract.

When a worker resigns under an unlimited contract:

  • • If a worker has been with the company for one to three years, he is eligible for one-third (1/3) of his basic income as gratuity compensation.
  • • When a worker has been with the company for three (3) to five years, he is eligible for two-thirds of his basic income as gratuity compensation.
  • • In case a worker has been with the company for more than five years, he is eligible for the entire 21 days’ basic income as gratuity compensation.

When an employer ends an unlimited contract:

  • • If an individual is working for more than one year but less than five years, he is eligible for 21 calendar days of basic pay for every year of the first 5 years.
  • • When an individual is working for more than five years, he is eligible for 30 calendar days’ basic salary for every extra year of service, as long as the total remuneration does not surpass two years’ pay.

4. Where can you find more assistance for your labor contract?

Employers and workers alike are frequently perplexed by the UAE’s two forms of employment contracts. The first is referred to as a limited term, while the second is referred to as an unlimited term. Individuals and businesses are sometimes oblivious of what the key difference between limited and unlimited contracts is until a scenario arises and the contract is called upon.

Counting on the best legal representation is a great way to avoid big troubles. Now that you learned what is the difference between a limited and unlimited contract, we can offer you a lot more legal insight. Count on us to help you with the visa cancellation fees as well.

Want to know more about the difference between a limited and unlimited contract? Call us at +971 43 316 688 for all the information you wish to have.  You may also contact us by email at contact@connectlegal.ae to speak with one of our staff who will answer all of your queries.

We have a large number of job openings on The Talent Point and we will assist you in your hunt for your ideal employment chance. Apply for one now by submitting your CV to thetalentpoint.com. Furthermore, we do not save the CVs sent to contact@thetalentpoint.com.

Danielle Roberts

Danielle Roberts
Danielle Roberts is Head of Operations at Connect Resources. She also advises on and helps manage the legal work of the company having studied Law at John Moore’s University in Liverpool, United Kingdom. Danielle oversees the processes of the company’s various departments and ensures an overall smooth interconnectedness and operation between each in order for the company to function at its highest potential

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